WASHINGTON -- A $10 billion loan guarantee for Israel to resettle Soviet emigrants appeared severely endangered yesterday, further deteriorating the relationship between Washington and Jerusalem.
The loan dispute probably will come to a head today when President Bush meets with Sen. Patrick J. Leahy, chairman of the foreign aid subcommittee, to discuss the impasse between the White House and Congress over conditions for granting the loan guarantees to Israel.
If the president sticks to his position, it could mean the end of the discussion.
Mr. Bush wants the loan guarantees accompanied by a condition that Israel would cease all new construction in the occupied West Bank and Gaza Strip, which the administration sees as an obstacle to the Arab-Israeli peace process. A proposal by Mr. Leahy, a Vermont Democrat, and Sen. Bob Kasten, a Wisconsin Republican, would grant a portion of the loans without a freeze and subject a future administration cutoff to congressional review.
Some congressional officials predict that Mr. Bush, seeing political advantage in rejecting Israel's request for the loan guarantees, will not be moved. But administration officials insisted that no decision had been made and that talks could continue.
U.S. rejection would mark the first time that the United States has denied substantial foreign aid to Israel over a policy dispute.
Meanwhile, Israeli Defense Minister Moshe Arens, in a speech to the United Jewish Appeal in Washington, sounded a note of bitter resignation as he again rejected the U.S. demand for a settlement halt in the occupied territories: "We are being asked to renounce the right of Jews to live in Judea and Samaria. We are being asked to abandon a key element in Israel's security doctrine as a price for this humanitarian assistance. 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."
If the United States refuses to supply the guarantees, or chooses "to append intolerable conditions to this assistance, then without rancor and with continuing friendship for this great country, the United States, we shall have to do it ourselves," he said.
Secretary of State James A. Baker III set the condition of a freeze on new construction in the occupied territories as a way of enforcing U.S. policy on Israeli settlement expansion.
The move struck a resonant chord with U.S. voters at a time when foreign aid in general and the loan guarantees in particular drew strong opposition.
But the dispute has since become entwined with additional strains that have brought relations to a crisis point amid heated election campaigns in both countries and a flurry of explosive leaks:
* U.S. officials are investigating an intelligence report that Israel might have shared technology on America's prized Patriot anti-missile system with China.
* The Wall Street Journal reported last week on an investigation by the State Department's inspector general showing a pattern of evidence that Israel had shared sensitive U.S. technology with China and South Africa in violation of U.S.-Israeli agreements.
The disclosures triggered a new wave of invective that threatened to push relations into an uncontrolled downward spiral.
Senior Israeli officials, denying the charges, countered over the weekend by charging that the Patriot and technology-transfer stories had been deliberately leaked to weaken Prime Minister Yitzhak Shamir's chances in the June elections.
Some of Israel's supporters in this country have assigned the same motive to Mr. Baker's tough stand on the loan guarantees, a charge one senior official rejected as "absurd."
Attempting to dampen the technology-transfer furor, the State Department announced yesterday that Israel had agreed to receive a U.S. fact-finding team to "ensure that there are not any misunderstandings on technology transfer questions, including on the Patriot missile."
Mr. Arens, who met with Secretary of Defense Dick Cheney yesterday and will see Mr. Baker today, told the UJA that there was "not a grain of truth" to the Patriot-technology charge and said that he would welcome a U.S. probe of the allegations.