Baker Proposes Mideast Bank to Fund Postwar Repairs : Diplomacy: The secretary makes clear, however, that aid to Iraq is unlikely if Saddam Hussein remains in power.

In its vision of a postwar economic order for the Middle East, the Bush Administration hopes to raise massive sums of money from Saudi Arabia and other rich states to repair war damage and narrow the gap between rich and poor.

Filling in some of the details of the plan, Secretary of State James A. Baker III on Thursday proposed a new Middle East Bank to collect funds from the region’s richest countries to rebuild Iraq, restore other war-ravaged areas and support development in the area’s needy nations.

Testifying before the Senate Foreign Relations Committee, Baker unveiled the bank proposal in elaborating on his suggestion, made a day earlier to the House Foreign Affairs Committee, that the United States and its wartime allies might provide postwar assistance to Iraq.

In his Senate appearance, Baker specified that aid to Iraq is unlikely as long as President Saddam Hussein remains in power. That condition, omitted from his House testimony, was clearly intended to provide a new economic incentive to the Iraqi army and public to overthrow Hussein.

“There is no suggestion on our part that the rebuilding and reconstruction of Iraq could proceed if the current leadership of Iraq remained in power to the same degree and effect and extent that it would otherwise,” Baker said.

At the same time, he underlined his earlier assertion that most of the money would have to come from the Gulf states.

“I’m not suggesting that we pick up the tab,” Baker said. “But I am suggesting . . . that we really mean it when we say our quarrel is not with the Iraqi people, and we mean it when we say that we want to . . . secure peace and stability in the region in the aftermath of this conflict.”

In effect, the Bush Administration is proposing a U.S.-led reconstruction effort like the Marshall Plan that rebuilt Europe after World War II--but with one major difference. In 1945, the United States, then the world’s richest nation, paid the bill. This time, Baker envisions a program that Washington could direct but that others would finance.

“Most of the economic . . . support is going to have to come from the region,” he said. “But I do think that there has to be American leadership.”

Baker may be justified in believing he can pull it off. The secretary of state has directed an unprecedented diplomatic fund-raising campaign that has obtained pledges of more than $51 billion to cover about four-fifths of the cost of U.S. military operations against Iraq. Although Japan and Germany have made substantial pledges, most of that money is coming from Saudi Arabia, the United Arab Emirates and the exiled government of Kuwait.

If the Gulf’s affluent three agree to support peace the way they have promised to support war, the proposed Middle East Bank would be richly endowed. But it is by no means certain that they will continue their generosity once the present danger ends.

Also, the United States may be unable to control postwar reconstruction the way it has been able to control battlefield strategy. Instead, control of the reconstruction effort may very well pass to those who finance it. If the proposed Middle East Bank were to operate like all of the other international and regional banks, voting power would be divided among members on the basis of their financial contributions.

That system of voting has permitted the United States to dominate the World Bank and International Monetary Fund because of the substantial U.S. contributions.

If the United States wants to play the leadership role in the Middle East Bank, as Baker says it does, it probably would have to spend more money than Baker says it is willing to do.

Asked by several senators if Israel could participate in the proposed bank, Baker said it should be open to “any country” in the region. However, it seems unlikely that a bank that receives most of its money from Saudi Arabia, Kuwait and the United Arab Emirates would be generous in its dealings with Israel.

Baker reiterated the Administration’s frequently stated hope that all of the festering conflicts of the Middle East, including the Israeli-Palestinian dispute, can be solved once the Gulf War ends. But he made it clear that his patience with Palestinian leaders, many of them openly sympathetic to Iraq, is growing short.

“It is important that Palestinians . . . clearly and unequivocally demonstrate that they are committed to peace if they want to play a role in the search for peace,” Baker said. He did not give any details of the sort of action that might satisfy the condition.

In the past, Washington has always said that participation by some group of representative Palestinians is essential to the peace process, although it was unwilling to offer the Palestine Liberation Organization a place at the table. Now, Baker said, it is even less likely that the PLO will be allowed to play a role.

“The PLO, in supporting Saddam Hussein, made the wrong choice,” Baker said. “By doing that, the PLO signaled that it prefers confrontation to peace.”

At the same time, Baker said, the United States intends to keep open its lines of communication with Jordan despite American anger at a pro-Iraq speech that King Hussein made Wednesday. He said the king is preferable to the Jordanian regime that probably would arise if he were deposed.

“When we look around to see the alternatives to the king, it is not all that bright a picture,” Baker said.