Shamir Seems Resigned to Settlement Strictures : Israel: Officials say he is retreating from hard-line position in an effort to gain U.S. loan guarantees.

In a retreat from his effort to separate a request for new U.S. aid from his settlements policy, Prime Minister Yitzhak Shamir is resigned to having conditions imposed by the United States on loan guarantees, top Israeli officials said Sunday.

After months of rejecting any link between the guarantees, needed to borrow money to finance jobs for Soviet immigrants, and Israel’s accelerated program of building settlements in the occupied West Bank and Gaza Strip, Shamir’s government is preparing for detailed negotiations on exactly what conditions the Bush Administration will accept.

Shamir said Sunday that Israel will stick to its policy of settling Israelis in the occupied land, but he added that “we will now engage in a common effort to find a formula that will not contradict U.S. policy and this principle of ours.”

In his remarks, made during a speech to Jewish journalists, Shamir offered no hints of how such a compromise might be reached. The Bush Administration opposes new construction of Israeli settlements on the grounds that the settlements undermine the chances to exchange territory for peace with the Palestinians and Israel’s Arab neighbors.

This issue of loan guarantees marks the first time that Washington has tried to attach strings to aid for Israel. Successive U.S. administrations have complained about the policy of colonizing the West Bank and Gaza Strip, but none have touched the annual Israeli aid package, which amounts to more than $3 billion a year.

Israel is seeking Administration backing for loans totaling $2 billion a year over five years, a request that would cost the U.S. government anywhere from $20 million to $400 million annually in funds to guarantee repayment.

Last week in Washington, Secretary of State James A. Baker III told Israel’s ambassador, Zalman Shoval, that the United States would like to see an end to settlement construction as a condition for the loan guarantees, according to an account given by Yossi Ben-Aharon, one of Shamir’s top aides.

Shoval pointed out to Baker that settlement of the occupied territory is a question of “national interest,” Ben-Aharon reported.

In Israel’s view, both statements were opening shots in what will be an intense process of negotiation. “Baker served notice, and we responded,” Ben-Aharon said. “This is just the beginning of a dialogue.”

Ben-Aharon did not give any hints about how and when the issue might be resolved. Shamir’s government is in crisis, and new elections are expected as early as June. Shoval and Baker are expected to meet when Baker returns from a visit to Moscow that begins today.

In comments to reporters after his Sunday speech, Shamir struck a tough stance, claiming the West Bank and Gaza as part of Israel.

“Israel is not talking and not speaking about any settlement freeze. Please forget about it,” he advised. “It is our position that we have to develop all the parts of our country without exceptions. We hope all these parts of the country will be settled in the not faraway future by many, many Jewish people.”

According to accounts circulating here, the Bush Administration would back the loans in return for a moratorium on building in the West Bank and Gaza. Under this formula, construction already started could continue.

On the face of it, the offer is favorable to Israel since at least 9,000 units are under construction, and even many completed buildings are not filled. Health Minister Ehud Olmert, an ally of Shamir, viewed the proposal as progress.

“What Baker announced is an improvement on the Administration’s earlier position--because of his agreement that we can complete whatever building we have begun,” he said.

Olmert said the building could go on for at least three more years.

Whether such an “improvement” would override the ideological question here is still at issue. At least as far back as 1937, intellectual forebears of Shamir’s Likud Party rejected proposals to partition land west of the Jordan River between Jews and Arabs. Anything that suggests control of any of the land passing into Palestinian hands raises objections from Likud members and other nationalist parties.

In Middle East peace talks that began last October, Shamir has tried to maintain Israel’s hold on the land by offering the Palestinians limited self-rule. He rejects independence for the 1.7 million Palestinians living in the West Bank and Gaza Strip.

The settlements are viewed as ensuring that the Palestinians do not gain control.

“(In whatever manner) the loan guarantee dispute is resolved, it cannot challenge Israel’s right to maintain its civilian presence alongside of a Palestinian presence,” wrote the Jerusalem Post.