Even as Israeli Prime Minister Yitzhak Shamir's government prepares to battle with President Bush over a new foreign aid request, Shamir's ruling parliamentary coalition approved a new budget Thursday ensuring that two of every three public housing units funded this year will be built in the West Bank and Gaza Strip.
Those are the very places where the Bush Administration opposes such construction.
The Defense Ministry also announced plans to expel a dozen Palestinians accused of association with the Palestine Liberation Organization and a nationalist Muslim group.
That announcement drew a rebuke from a PLO official who was quoted by news agencies as saying that the Palestinian delegation would be pulled out of Middle East peace talks scheduled next week in Washington as a protest. But Palestinian spokeswoman Hanan Ashrawi flatly denied that report, saying, "We have not pulled out of the talks."
If the expulsion plan is carried out, the number would be the largest group of Palestinians banished from the occupied territories since January, 1989. The Bush Administration has attacked previous expulsions as a breach of international law.
The decision to expel the Palestinians resulted from protests growing among settler groups after Wednesday's fatal ambush of a Gaza settler. The victim was the fourth settler fatally shot since October, presumably by Palestinian extremists.
Israeli and Palestinian observers say the ambushes are part of a campaign to disrupt the Mideast peace talks, which began in October.
Settler groups have threatened to take the law into their own hands and have won government approval to set up "civil guard" units to protect their colonies.
Before Thursday's budget vote, and under pressure from Housing Minister Ariel Sharon and other far-right members of Shamir's Cabinet, the Finance Ministry promised to provide money to build 5,000 housing units in the occupied areas this year. That's two-thirds of the total 7,500 housing starts planned for 1992.
Sharon has built about 20,000 houses in the West Bank and Gaza since taking over the Housing Ministry in April, 1990. He has also accelerated construction of a network of roads and public works with the aim of annexing the disputed land in fact, if not deed.
Opponents of the construction work estimate its cost at $350 million. In the new budget, $80 million more is included for settlement-related projects, including the start of 80 miles of new roads.
Bush and Secretary of State James A. Baker III have continually criticized Israel's settlements policy, claiming that it precludes land compromises that could lead to Middle East peace.
Approval of Israel's request for American loan guarantees is said to rest on somehow shielding the loan money from direct or indirect use for settlements. Thus, this latest indication of Shamir's defiance may not play well in the White House.
Shamir wants the Administration to underwrite $2 billion in loans to make it easier for Israel to borrow money from international banks. So confident is the Shamir government of American support that he included the $2 billion in Israel's budget plans for the coming year.
Financial experts here and abroad have predicted that without Washington's backing, banks would shy away from lending Israel such sums. Set-asides to guarantee the loans could cost U.S. taxpayers as much as $400 million. If Israel defaulted, Washington would have to pay the bill.
Excess deficit spending in the new Israeli budget is likely to raise concern about the government's fiscal judgment. Unwillingness to make cuts, coupled with last-minute concessions to interest groups, raised the expected deficit to more than 6% of the country's income, a recipe for higher inflation, according to the Central Bank. Prices are already increasing at 20% per year. Without the $2 billion in loans, the deficit would grow to more than 10% of Israel's gross national income, making the loan guarantees a kind of bailout.
The budget was adopted two days late because of heavy infighting in Shamir's coalition. Religious parties demanded funds for their schools and social aid institutions, while settlers demanded significant numbers of new housing units.
Despite the risks of upsetting the economy and the Americans by overspending, Shamir was swayed by the lesser of political ills: if the budget had not passed, he would have been forced to call new elections, which probably would have derailed the campaign for the loan guarantees.
Shamir is going to Bush with his request for the loan guarantees at month's end; if he gets them, he could call elections any time afterward. If he gets the money, he can lead his Likud Party into the elections on a platform of repaired relations with Washington and his own role in peace talks.
"Likud believes that with the loan guarantees in the bag, it can easily win . . . elections by claiming to the Israeli public that only Likud can, at the same time, bring peace, security, territory and economic prosperity," a columnist wrote in Hadashot, a politically middle-of-the-road newspaper.
By approving 5,000 housing units in the occupied lands, Shamir also will be able to say the pace of construction is declining. "That's the political dimension," said Dedi Zucker, an opposition critic of the settlement program.
Approval for 12,500 more houses is left over from last year's budget, Parliament members say, which is curious since Sharon overspent his budget by more than $1 billion. Given the secrecy of public spending in Israel--accountability is sketchy, at best--it is hard to predict just how much will finally be spent, particularly in the West Bank and Gaza.
While deliberations in Parliament dragged on, settlers in the Gaza Strip set up a colony on the Gaza site where a settler was shot and killed while driving his car. The victim lived in a Gaza settlement; nationalist groups have vowed to establish new colonies any time an Israeli is attacked. In three separate ambushes since October, four settlers have been killed on the roads. Israeli and Palestinian observers view the spate of shootings as extremist reactions to the peace talks.
There were reports that Defense Ministry Moshe Arens had ordered the settlement dismantled, but it wasn't clear that the settlers had complied.