No Freeze on Settlements, Israeli Asserts : Mideast: Shamir aide calls this ‘unthinkable.’ He also notes that conditions for talks are unresolved.

A top aide of Israel’s prime minister Thursday bluntly rejected U.S. suggestions for a freeze on settlement construction in the occupied West Bank and Gaza Strip and hinted that Israel could yet pull out of proposed Middle East peace talks.

“This is an impossible demand on Israel,” said Yosef Ben-Aharon, the aide who customarily expresses controversial opinions on behalf of his boss, Prime Minister Yitzhak Shamir. “It is unthinkable that Israel will prevent Jews from settling in those territories.”

Ben-Aharon was responding to reports that the Bush Administration will oppose an Israeli request for Washington to underwrite $10 billion in international loans so long as settlement construction goes on. The issue exploded after Secretary of State James A. Baker III ended a visit to Jerusalem and talks with Shamir, Foreign Minister David Levy and Defense Minister Moshe Arens.

Ben-Aharon, in broadcast remarks, noted that conditions attached to Israel’s attendance at the peace talks, which Moscow and Washington hope to co-sponsor soon, are still unresolved. The question of who will represent the Palestinians is still not decided, he pointed out. Israel opposes any role for the Palestine Liberation Organization.

The question of settlements should be left for negotiation, Ben-Aharon concluded. Shamir, in brief remarks on the issue, said he hopes that the United States will be “objective” in its dealings over the Middle East.

During his talks with Baker, Shamir pledged that Israel would not use U.S. aid or loans to fund projects in the West Bank or the Gaza Strip, Israeli officials said. On Thursday, Foreign Minister Levy maintained that Baker told him that Washington has rejected a call from Arab states to insist on a settlements freeze.

“What I heard from Baker was the complete opposite, that the Arabs demanded that he demand a cessation of the settlements and he told us, ‘I won’t demand it. It is a subject for negotiations,’ ” Levy said on radio.

The Bush Administration has taken the position that U.S. aid, including more than $3 billion annually in military and economic help, indirectly subsidizes the settlement program.

Ben-Aharon sought to rebut that. “Using that kind of reasoning,” he declared, “means, in effect, that no money can be brought into Israel from abroad for any purpose whatsoever because it might be used on, or free money for, the settlements.”

The Shamir government rejects conditions on the loan guarantees, which it says Washington has a “moral responsibility” to provide. Colonization of the West Bank and Gaza is a key pillar in Shamir’s ruling party platform, and the prime minister has vowed never to give up any of the occupied land. But Bush views an Israeli withdrawal from the West Bank and Gaza as a key part of a future peace settlement with Arab states and the Palestinians.

In Damascus, Baker said he has not discussed, “either publicly or privately, a settlement freeze in connection with the question of absorption aid to Israel.” But, he continued, “with respect to the future . . . we have a right to know and a right to ask how that aid and those guarantees will be used and, of course, we would expect to ask.”

Israeli authorities questioned one of the Palestinians who met with Baker in Jerusalem to discuss the peace plan. Zakaria Agha, a physician from Gaza, was called into the “major crimes” department of the Petah Tikva police station for investigation into whether he recently had contact with the PLO. It is against Israeli law to meet PLO officials. The physician denied that he had met anyone outside the country, news reports said.