Israelis Back Destruction of Iraq Military : Mideast: Baghdad’s proposal is dismissed. But Arens sees an ‘indication that Saddam Hussein is beginning to understand that he is in bad shape.’

While agreeing with the U.S. view that Iraq’s conditional offer to withdraw from Kuwait is a ruse, Israeli officials further warned that a pullout that leaves Iraq’s army intact would endanger Israel, and it would be better if Iraqi President Saddam Hussein’s military force were destroyed and he were ousted from power.

Most Israeli reaction to the Iraqi plan was dismissive. “I wouldn’t even call them proposals,” said Avi Pazner, a spokesman for Prime Minister Yitzhak Shamir. “The conditions which Saddam Hussein has put on withdrawal make the situation as difficult as before.”

Pazner pointedly rejected the effort by Iraq to link its withdrawal from Kuwait to an Israeli pullout from the occupied West Bank and Gaza Strip. Iraq also demanded that weapons acquired by Israel, presumably including Patriot anti-missile batteries, be taken out of the country.

“I must say that as soon as linkage came up, it was clear this whole thing was not serious,” Pazner said.

Defense Minister Moshe Arens considered the Iraqi statement the beginning of the war’s end. “I think this is the first indication that Saddam Hussein is beginning to understand that he is in bad shape,” Arens told a television interviewer.

Shamir said that, if Hussein remained in power, peace in the Middle East could not be assured. “It is not a question of if he will be alive or not,” he said on radio. “The question is he couldn’t be a leader of a country in the area.”

Some officials and observers contended that Hussein appears to be edging toward a compromise that might be unfavorable to Israel.

“Hussein clearly wants to begin some negotiation and has to make some offer to do it,” said Dore Gold, a defense analyst at the Jaffee Center for Strategic Studies in Tel Aviv.

The possibility of a negotiated withdrawal poses a danger for Israel because Iraq’s army is still intact, Gold asserted. “Whatever is left over of his military force is a problem for Israel.”

Yossi Ahimeir, a spokesman for Shamir, contended: “Israel understands, and we think the coalition understands, that Saddam Hussein needs to disappear. His power must be broken. It is more of a worry for us, because, while the United States will eventually leave the region, we must stay.”

The concern that Hussein might survive battered but unbowed reflects Israel’s insistence that the liberation of Kuwait would be only a partial victory. Rather, Iraq must be crushed as a military power, and officials here have expressed satisfaction that the United States, in its bombing raids, targeted important military facilities, chemical weapons plants, nuclear research complexes and missile-launching sites. All threaten Israel immediately or in the future, the officials argue.

Although such targets have been repeatedly hit by allied bombing, some observers maintain that to ensure they are not rebuilt, a peace-oriented government must be installed in Baghdad. “Countries in the region have shown an ability to recover quickly and rearm in a short time,” said researcher Gold.

Meantime, in Washington, the White House, in a highly unusual public rebuke, denounced criticism of the Administration by Israel’s Ambassador Zalman Shoval as “outrageous and outside the bounds of acceptable behavior.”

Shoval, in an interview Thursday with Reuters news service, said the Administration is giving Israel “the runaround” in a long-running dispute about $400 million in U.S. aid that Israel has been seeking to build housing for Jewish refugees from the Soviet Union. The Administration has sought assurances that the money would not be used to build settlements on the occupied West Bank.

After Shoval made his statement, Secretary of State James A. Baker III summoned him to a State Department meeting, the usual way of expressing official dismay with a diplomat.

That, apparently, did not suffice. Friday, Bush cabled Shamir, protesting Shoval’s remarks. Later, White House Press Secretary Marlin Fitzwater issued a statement rebuking the ambassador.

The statement was unusual because of its strong tone; because of its source, the White House, not the State Department; because of its timing at a point when U.S.-Israeli relations are at an all-time high, and because the Administration used the high-profile tool of a White House statement to respond to Shoval’s complaint, which received relatively little attention.

Effectively, the White House appeared to be going out of its way to create a public quarrel with the Israeli envoy. Administration officials declined to explain why.

Times staff writer David Lauter in Kennebunkport, Me., contributed to this report.