Egypt, Under Fire, Defends Support of Kadafi : Mideast: Dispute with U.S. comes as nation has lost its status as only Arab state at peace with Israel. At stake is billions in aid.

Egypt, caught in a storm over its support for the neighboring regime of Col. Moammar Kadafi in Libya, is moving swiftly to shore up its relations with the United States at a time when its role as America’s most important Arab ally is threatened for the first time since the historic Camp David accords.

Top presidential adviser Osama Baz, returning from a trip to Washington to help narrow the rift, said Wednesday that there is no crisis, but he insisted that Egypt has the right to maintain independent policies on key Arab issues, including support for Kadafi and opposition to a regional chemical weapons ban when Israel possesses nuclear arms.

“Naturally, our views on these issues do not coincide exactly, for the simple reason that the U.S. is not a Middle Eastern country. It is far away. It does not know as much as we know about the region--what offers stability and tranquillity and what motivates people of the region to behave in a certain manner,” Baz said in an interview.

He said that while Egypt is “not encouraging Libya to defy U.N. resolutions, but . . . trying to facilitate compliance,” the United States must “bear in mind it is not an easy thing for a government to extradite its own citizens to be tried in another country.”

The disputes come at a crucial juncture for the United States and Egypt, which at a time of widening Middle East peace can no longer claim to be the only Arab state at peace with Israel as justification for its $2.1 billion a year in U.S. aid.

Egypt has been stung by allegations that it has overzealously defended the Kadafi regime, coupled with reports of massive Libyan investments in the Egyptian hotel and tourism sector and complaints by the United States that Egypt has violated international sanctions by allowing the shipment of embargoed aircraft spare parts to Tripoli, the Libyan capital.

The outcome of the U.S. elections, with Republicans threatening to cut foreign aid and hinting at a new foreign policy agenda in the Middle East, was even more alarming.

Sen. Jesse Helms (R-N.C.), likely chairman of the Senate Foreign Relations Committee, raised an alert in Cairo when he recently called Egypt “a hesitant and insecure ally” and said Israel is “the only true friend of the United States” in the region.

The government and opposition press in Egypt have both gone on the attack, accusing the United States of attempting to bend Egypt to its will and labeling as “blackmail” any attempt by the United States to use its aid to Egypt as leverage.

“We wish the Republican Party would understand that Egypt welcomes America’s friendship without any strings attached,” said well-known pro-government columnist Mustafa Amin. “But some American politicians understand friendship as meaning we should walk behind them.”

The latest flare-up over Libya reflects a longstanding difference of opinion between Cairo and Washington over how to deal with the regime of Kadafi, who has turned in recent years to Egyptian President Hosni Mubarak for help in mediating the standoff over the bombing of Pan Am Flight 103 over Lockerbie, Scotland, in December, 1988.

While the United States has pursued a strategy of sanctions and isolation to force Kadafi to turn over two suspects for trial in the bombing of the airliner and a separate attack on a French airliner in Africa, Egypt has long argued that compromise and conciliation are the best ways to change the behavior of the renegade Libyan regime.

Recent press reports from Washington suggest that the United States compares Mubarak unfavorably with assassinated Egyptian President Anwar Sadat, who branded Kadafi a “mad dog.” The United States has officially protested what it says were two shipments of embargoed spare aircraft parts to Libya across the Egyptian border.

“This difference in view between Egypt and the U.S. on Libya is a matter of degree only and a matter of approach rather than a matter of principle, because like the U.S., we would like to see Libya sever all its relations with organizations that conducted any terrorist activities. We would like stability to reign over the region. But the question is not one of punishment or reprisal,” said Baz, director of the president’s bureau of political affairs and widely considered the second most powerful man in Egypt.

Baz said that Egypt--while arguing that it is a double standard to impose sanctions on nations like Libya and Iraq when the world does not move forcefully to stop Serbian aggression against Muslims in Bosnia-Herzegovina--nonetheless has worked aggressively to mediate the Lockerbie standoff with Libya.

Baz said that while U.S. officials have denied they have any aim of removing Kadafi, “we would like to make the point that we don’t believe the U.S. or any foreign power should indulge in policies or actions that aim at toppling regimes in the region. . . .

“U.S. officials should not expect us to pursue a policy which is based on name-calling with any government, because that’s not our style.”

The U.S. Administration has emphasized that it continues to regard Egypt as a key ally for which economic aid continues to be critical, not only because of Egypt’s role in the peace process but because stability in Egypt, threatened with a wave of Islamic extremism, is vital to the stability of the entire region.

“It was not by accident that Egypt was President Clinton’s first stop on his just-concluded tour of the region,” Assistant Secretary of State Robert Pelletreau said last month, pointing to Egypt’s crucial role in mediating peace talks between Israel and other Arab countries.

Pelletreau also emphasized the need for sustainable economic growth and new jobs in Egypt, warning that without it, “internal stability will be hard to maintain.”

The Libya sanctions dispute arose over official U.S. allegations that Egypt allowed the shipment of spare parts to Libya in violation of U.N. sanctions.

Baz said the Egyptian government has conducted an inquiry and found that one of the companies cited by the United States, identified as ADA, “does not exist.”

He said the other company, which he identified as Samman Co., did ship several containers to Libya but that they were shipped through another country and there was no indication that they contained spare aircraft parts.

“We gave them strict instructions to make sure of the contents from now on,” Baz said. “And we are inspecting now, so how can Egypt be accused of violating the sanctions, especially since neither the government nor any public-sector company has been accused? . . . We have no interest in violating the sanctions.”