Settlements Loan Delay Likely : Israel: Both Jerusalem and Washington now seem willing to take their time on $10-billion guarantees.

Israel’s request for $10 billion in loan guarantees to resettle immigrants from the former Soviet Union appeared headed for long delays after a meeting on Friday between Secretary of State James A. Baker III and Israeli Ambassador Zalman Shoval.

Both sides say they want to avoid a confrontation over the emotional issue of Jewish settlements in the Israeli-occupied West Bank and Gaza Strip, an issue that Washington is linking to the loan guarantees. But neither government seems ready to compromise.

Talking to reporters after the hourlong meeting, Shoval described it as constructive but said nothing has been decided. “The secretary and I are going to meet again shortly,” Shoval said.

He gave no date but said the meeting will be after Baker returns from Moscow, where he is to attend Middle East regional peace talks next week.

Although President Bush had planned to announce a decision on the loan guarantees by month’s end, the urgency now has dissipated. Israeli Prime Minister Yitzhak Shamir’s government has made it clear that it would prefer to talk about the issue for weeks or even months instead of risking an early rejection. And Washington appears ready to go along with a delay.

A senior Israeli official said in Jerusalem that Shamir is ready for extended negotiations that would, in effect, put the issue off until after the next Israeli elections, expected by summer.

Although the issues have been starkly drawn for months, U.S. officials now say the matter needs much more thought. A senior U.S. official described Baker as “in a listening mode” in his meeting with Shoval. “We obviously have been internally developing our thinking, but at this point I would characterize it as preliminary,” State Department spokeswoman Margaret Tutwiler said.

Last summer, Shamir’s government requested a five-year, $10-billion program of U.S. guarantees to make it possible for Israel to borrow money from commercial lenders at reasonable interest rates. The Israelis then pressed for an early answer, but President Bush insisted on a 120-day delay to avoid interfering with the delicate diplomacy that led to the Middle East peace conference in Madrid last October.

In the interim, Shamir’s government lost its majority in Parliament and now faces early elections. For domestic political purposes, Shamir needs to maintain friendly relations with his country’s most important ally, the United States, while not appearing to give in to American diktat; the easiest way to balance the two is to avoid forcing a decision.

If Shamir could obtain the guarantees before the election, it would give his campaign a major boost, Israeli observers say. “For the first time, an American administration is in a situation whereby it can influence the outcome of elections in Israel, if not determine the result. . . . If Bush decides to grant the loan guarantees, he will be greatly strengthening Shamir,” wrote Yoel Marcus in the influential Haaretz newspaper.

The repercussions of rejection are harder to predict. Would the voters punish Shamir or would they circle the wagons and stand by him? Marcus suggested, “A U.S. decision not to grant the loan might strengthen the right here.”

Shamir has been pushing hard the notion that he can have his foreign aid and his West Bank and Gaza settlements, too. In a speech to his Likud Party, he said: “Immigrant absorption and settlement are both important for us, and we are anxious to press forward with both tasks. They are not mutually exclusive.”

But Bush and Baker have been just as adamant that Washington considers Jewish settlements in the occupied territories to be obstacles to peace, especially now when Israel and its Arab adversaries are engaged in off-and-on peace talks. Bush has made no secret of his annoyance at Israel for a drastic increase in settlement activity.

Israel’s American supporters argue that it is unfair to link aid for resettling Russian immigrants with West Bank and Gaza settlements because few of the Russians have chosen to live in the territories. But Administration officials note that most of the Israeli government’s budget for new housing is spent in the territories.

The debate is complicated because Israel’s fiscal books are a closely held secret. The Israeli Treasury Department recently told the U.S. State Department that about 6,400 houses were built in the occupied territories last year. But that is far below the 13,000 houses cited by the Israeli government in estimates widely viewed as conservative.

Kempster reported from Washington and Williams from Jerusalem.