WASHINGTON -- President Bush rejected an appeal to break the administration's impasse with the Senate on loan guarantees for Israel yesterday and threatened to veto an attempt by the Senate to have its own way.
The White House position appeared to kill the prospects this year for Israel to obtain $10 billion in loan guarantees for the relocation of Jewish emigres from the former Soviet Union without promising a freeze in settlement activity in the occupied West Bank and Gaza.
Failure to reach agreement also means that foreign aid legislation is probably dead for this year and, with it, the administration's hopes for major new aid for the former Soviet republics. Another administration priority, for major infusions of money for United Nations peacekeeping forces, may be proposed in separate legislation but would not require new money.
"I'm frankly very, very discouraged," Sen. Patrick J. Leahy, a Vermont Democrat who is chairman of the Senate foreign aid subcommittee, said after a late-afternoon meeting with the president and Secretary of State James A. Baker III. Asked if the issue was dead, he replied: "It's dead today."
Mr. Leahy had sought the meeting over the weekend after Mr. Baker and leading senators rejected each other's compromise proposals.
Mr. Leahy said the president's counterproposal was unacceptable to Congress.
"What bothers me is that there's still disagreement when there's obviously so much agreement," Mr. Leahy said.
The White House spokesman, Marlin Fitzwater, told wire services later that the president would veto a Senate proposal put forward by Mr. Leahy and Sen. Robert Kasten, a Wisconsin Republican.
This marks the first time the United States has turned down a major aid program for Israel over a policy dispute.
The administration insisted that the loan guarantees be linked with a halt to new housing construction in the Israeli-occupied territories.
"We have close, historic relations with Israel and they will always be that way. But we have a difference now, it appears, in terms of these settlements," Mr. Bush said before the meeting.
Israel rejected a freeze on settlement construction, but Mr. Baker and Senators Leahy and Kasten worked separately and together for weeks to craft legislation that would enforce a freeze even if Israel failed publicly to shift its policy.
Israeli Prime Minister Yitzhak Shamir made it clear that Israel would not budge yesterday.
"It will not change one bit," he told reporters who asked if he would continue his settlement policy.
Defense Minister Moshe Arens, speaking to Israeli radio stations from Washington, where he is holding talks with administration officials, said: "In my opinion there's no point to another request."
The Leahy-Kasten plan would grant $850 million, no strings attached, within 30 days, with a second, equal installment 90 days after that. Israel could qualify for more if it halted all construction, including completion of existing units.
The president would be able to block the second and subsequent installments of the five-year, $10 billion program if he determined that Israel had violated the terms by starting "inappropriate" new construction.
But he would have to wait 60 days after making such a determination, during which time Congress could vote to overturn his decision, setting up a veto fight.
The administration wanted the money "backloaded:" $300 million front, with the whole program stretched over six years.
It also demanded much tighter presidential authority to block the remaining funds quickly if settlement building resumed, without giving Congress a vote.
"We ask for the president to decide the amount and the timing of increments," a senior administration official said. Israel's continued settlement building despite restrictions on a previous loan-guarantee program showed that "if you want a meaningful program, you've got to tie it to behavior," the official said.
A congressional source was equally critical of the administration package, calling it "insulting" in its lack of compromise.
Word of the impasse brought quick and angry reaction from the Anti-Defamation League of B'nai B'rith, a Jewish group that lobbied in behalf of the loan guarantees.
"This is a humanitarian issue that should never have been dragged into the political arena," said Melvin Salberg, ADL national chairman, and Abraham H. Foxman, ADL national director. They said the administration was being "rigid and unreasonable" and chided it for "intruding itself in a most coercive manner into an issue that should be discussed in the context of direct negotiations between Israel and the Arabs."
Administration officials said that since the loan guarantees were a new program introduced after the start of the Arab-Israeli peace process, they must be subject to standards not applied to existing aid programs.