JERUSALEM -- Israel's leaders reacted yesterday with a mixture of dismay and pugnacity over the confrontation with Washington that they fear has made their request for $10 billion in U.S. loan guarantees a hostage of a planned Middle East peace conference.
Prime Minister Yitzhak Shamir suggested in a television interview that a U.S. refusal to provide the aid was likely to affect the peace process, including the question of Israeli participation.
But he insisted that Israel was not making the loan guarantees a condition for taking part in peace talks.
Other senior officials also said there was no question now of the country backing away from a Middle East conference that the United States hopes to convene in October.
"There is no such condition," Mr. Shamir said in an interview broadcast Friday night on Israeli television's Arabic service. But, referring to President Bush's appeal a few hours earlier for a 120-day congressional delay on the loan guarantees, he added:
"Objectively, this does not help. First, it makes the Arab positions more extreme. It hardens their positions, and the results can be predicted."
Some officials here questioned whether Mr. Bush, by seeking to put off action on the loan guarantees and also by linking them to an Israeli pledge to freeze Jewish settlements in the occupied territories, had disqualified himself as a fair mediator in the Arab-Israeli conflict.
Settlement activity, they argued, is something to be negotiated at a peace conference and should not be tied to what they characterize as humanitarian aid intended to help resettle up to 1 million immigrant Soviet Jews expected by the end of 1994.
One senior official, who spoke on condition of anonymity, called the linkage "a dangerous precedent" that could leave Israel vulnerable to future political pressure.
"We'll resist it," the official said. "It's a very heavy-handed approach."
As a sign of hard-liner sentiment, Geula Cohen, a leader of a small right-wing party in the ruling coalition, said the U.S. position on the guarantees had created "an atmosphere for pressure and threats" that made it impossible for Israel to join any peace talks.
For the most part, however, senior officials expressed their misgivings quietly, saying nothing in public that might further fray relations.
"There is no need for a confrontation," said Yossi Achimier, a top aide to Mr. Shamir. "We hope we will be able to work together on this and other issues."
Nonetheless, Israel showed its pugnacity on the loan guarantees issue by pressing forward with a formal request for the aid despite Mr. Bush's call for a postponement.
Major Jewish groups and other pro-Israel forces in Washington are poised for an all-out battle, and American rabbis plan to plead Israel's case in New York tomorrow and Tuesday.