Bush, Rabin Both Seek Improved Ties, Images : Diplomacy: Israel moves to legalize citizens’ contacts with PLO members, reflecting a new mood in Jerusalem.

With each man needing a political pat on the back from the other, President Bush and Israeli Prime Minister Yitzhak Rabin meet today at Bush’s seaside home to restore warmth to U.S.-Israel relations after a long chill during the tenure of Rabin’s predecessor, Yitzhak Shamir.

One senior Administration official acknowledged Sunday that Rabin “is very, very tough” as a negotiator but added that he is free of Shamir’s ideological rigidity, which “made it very difficult for us to communicate.”

With Rabin already in the United States, his new government gave a demonstration Sunday of its flexibility. According to wire service reports from Jerusalem, the Justice Ministry is preparing draft legislation to legalize contacts between Israeli citizens and members of the Palestine Liberation Organization.

“We have a deep obligation to change this stupid law,” Deputy Prime Minister Yossi Beilin said. “Everyone thinks this law is idiotic that you cannot meet with someone connected with the Palestine National Council (the PLO’s ‘parliament in exile’) even if he is a professor in a Washington university.”

The move is expected to improve the atmosphere when Israel and a delegation of West Bank and Gaza Palestinians resume U.S.-brokered peace talks in Washington later this month.

Both U.S. and Israeli officials said the two countries are very close to an agreement that will provide as much as $10 billion in U.S. loan guarantees to help Israel provide houses and jobs for an influx of Jewish immigrants from the former Soviet Union, an aid package Washington was unwilling to extend to Shamir.

“There are no obvious obstacles (to the loan guarantee package), but there are some issues” that Bush and Rabin must discuss between themselves, a senior Administration official told reporters Sunday.

Using almost the same language, an Israeli Embassy official said: “There are a few issues that are still open and up to discussion by the gentlemen.”

Nevertheless, U.S. officials said that Rabin’s decision to curtail construction of Jewish settlements in the occupied West Bank and Gaza Strip--a step Shamir resolutely refused to take--has virtually assured Israel of the five-year package of guarantees that will permit Jerusalem to borrow money from private lenders at interest rates well below those that Israel could obtain on its own.

The senior U.S. official, who declined to be identified by name, said that Bush and Rabin will also discuss the Arab-Israeli peace talks that are scheduled to resume in Washington on Aug. 24, developments in Iraq and world events like the crisis in what used to be Yugoslavia.

But for both men, the most important objective of the meeting is to demonstrate to their own populations the improvement in U.S.-Israel relations. For Bush, that could be crucial in this election year, when the Jewish vote is expected to be important in key states like California and New York. The American Jewish community has been critical of Bush because of his strained relationship with Shamir.

But Rabin too must demonstrate to Israeli voters his ability to make good on his pre-election pledge to rejuvenate Israel’s most important international relationship.

The U.S. official said no final decisions have been made on the size and duration of the loan guarantee agreement, although he left the clear impression that the two countries are still talking about the $10-billion package over five years that Shamir’s government requested.

Bush offered the loan guarantees to Shamir, but only in exchange for a total halt to all settlement activity in the occupied territories. The President said he was prepared to offer a smaller package if Shamir would stop new construction while completing projects already under way. Shamir flatly refused to make such a concession.

In truth, Rabin has not met Bush’s earlier demands. Shortly after taking office, he ordered a curtailment in settlement activity but not a halt. During the campaign for the June elections, Rabin said he planned to terminate “political settlements” but would continue to build “security settlements,” those that play a role in Israel’s defenses against invasion.

The U.S. official rejected the distinction, saying that Washington regards all settlements as “an obstacle to peace.” Nevertheless, he left little doubt that the United States is ready to accept even a halfway settlement freeze from the new Israeli regime.

Meanwhile, militant Israeli settlers demonstrated Sunday to protest Rabin’s settlement policy and his meeting with Bush. They announced that 15 families would move into seven houses purchased earlier in the Muslim quarter of Jerusalem’s walled Old City. A spokesman said the protests were timed to coincide with Rabin’s trip.

U.S. officials declined to speculate on the impact of the Israeli government’s decision to propose repeal of the law that made it a crime for Israeli citizens or residents of Israeli-controlled territory--including West Bank and Gaza Palestinians--to have any contact with officials of the PLO.

The law has sometimes been invoked to jail people engaging in symbolic meetings with PLO leader Yasser Arafat and other officials. Israeli peace crusader Abie Nathan served time last year for violating the statute.

In Amman, Jordan, Suleiman Najjab, a member of the PLO executive committee, welcomed the Israeli move but called on Jerusalem to recognize the PLO as the Palestinian representative and to invite the organization to the negotiating table, Reuters news agency reported.