U.S. Arms Inspectors to Visit Israel : Military sales: A team will investigate reported diversion of American weapons technology.

The Bush Administration will send a team of inspectors to Israel to investigate U.S. intelligence reports that the Israeli government has sold Patriot missiles and other U.S.-developed weapons to China and other countries in violation of American law, the State Department said Monday.

The announcement of the inquiry came after Defense Secretary Dick Cheney confronted Israeli Defense Minister Moshe Arens with the intelligence reports. Arens renewed Israel’s denial of illegal arms sales after the Pentagon meeting.

In another source of friction between Washington and Jerusalem, Capitol Hill sources said it is becoming increasingly unlikely that the United States will give Israel the $10 billion in loan guarantees it has requested to provide houses and jobs for immigrants from the former Soviet Union.

A spokesman said that Sen. Patrick J. Leahy (D-Vt.), chairman of the Senate Appropriations subcommittee on foreign aid, failed over the weekend to obtain Administration approval of a compromise loan plan. Although the spokesman said that Leahy has grown increasingly pessimistic, he plans to confer with President Bush at the White House today to “play out the last act” of his attempt to devise terms that would satisfy both the Administration and the Israeli government.

Meanwhile, in Israel, the state-run radio network said that Prime Minister Yitzhak Shamir’s government might turn to France or other European countries for sophisticated weaponry to reduce its reliance on U.S. suppliers.

The report was a clear signal of the growing tensions in the U.S.-Israel military relationship. Israel, however, is not in a strong position to diversify its sources of arms because it gets U.S. weapons free of charge. Israel receives about $1.8 billion a year in military aid from the United States, by far the largest figure for any nation.

State Department spokeswoman Margaret Tutwiler said the Administration accepted an Israeli offer to allow American inspectors to investigate “technology transfer questions, including on the Patriot missile.” She added: “We welcome this Israeli gesture, which is in keeping with the strong ties between our two countries.”

Both Tutwiler and White House Press Secretary Marlin Fitzwater insisted that the Administration wants good relations with Israel. Although they refused to confirm the intelligence reports of illegal Israeli arms sales, they also declined to exonerate Israel.

Tutwiler said the investigation is incomplete. Under U.S. law, countries receiving American weapons are prohibited from reselling them. They also are prohibited from exporting locally produced weapons developed with U.S. technology or U.S. financing without specific American permission.

The controversy puts severe strains on the usually close U.S.-Israel relationship. But officials of both countries noted that the friendship has survived previous disagreements. In a speech at a meeting sponsored by the United Jewish Appeal, Arens recalled that, in 1982, the Reagan Administration suspended the supply of F-16 warplanes to Israel and threatened other sanctions after the Israeli bombing of Iraq’s Osirak nuclear facility. “I’m not concerned about the state of U.S.-Israeli relations,” Arens said. “They are based on very sound foundations.”

But Arens said that Israel is not prepared to curtail construction of settlements in the occupied West Bank and Gaza Strip, even if it means losing the $10 billion in loan guarantees. The Administration says it will provide the guarantees only if Israel suspends settlement activity.

“We are being asked to abandon a key element in Israel’s security doctrine as a price for this humanitarian assistance,” Arens said. “And this, my friends, we cannot do. We are a small people, but we are a proud people and we will not beg or crawl for help.”

Leahy has proposed a compromise under which the guarantees would be reduced, dollar for dollar, by the amount Israel spends on settlements. He had scheduled subcommittee action today on a foreign aid bill incorporating his compromise. But he canceled the meeting after failing to obtain Administration backing.

Even Israel’s staunchest supporters on Capitol Hill concede that they lack the votes to override a veto.

In Jerusalem, a senior Israeli official conceded that his government is walking a very narrow line between its aggressive arms export business and U.S. restrictions on technology transfer. The official said that Israel produces weapons that might seem similar to American-made arms but that the parts come from elsewhere, especially Western Europe.

He blamed the controversy on an effort of U.S. arms manufacturers to guard their markets.

Kempster reported from Washington and Williams from Jerusalem.