Israel Uncle Sam Closes His Wallet

Israel and the U.S. have long been on a collision course over loan guarantees to help resettle Jews from the former Soviet Union. Last week the crunch finally came, sinking any chance of obtaining the guarantees anytime soon and pushing the two countries' ties into what one U.S. diplomat calls "the roughest patch I've seen."

Without American backing, Israel says, it cannot raise the funds it needs at rates it can afford to settle the 1 million Jews expected to arrive from the former Soviet Union in the next five years -- a task comparable to the U.S. absorbing all of France. Washington has linked guarantees to a halt to new Israeli settlements in the occupied territories. That link has been staunchly resisted by Prime Minister Yitzhak Shamir, who refuses to repudiate the right of Jews to inhabit all of the biblical land of Israel and rejects the U.S. argument that the settlements are a provocation to the Palestinians and thus an obstacle to peace.

The region's relentless cycle of violence continued last week when the Israeli embassy in Buenos Aires, Argentina, was destroyed by a 220-lb. car bomb. The ferocious blast killed at least 28 people and injured 235. Lebanon's Islamic Jihad terrorist group took responsibility, then later denied it. In the first message, the group said it was avenging Israel's Feb. 16 assassination of the Shi'ite fundamentalist leader Sheik Abbas Musawi, his family and bodyguards. Israel, feeling all the more victimized as a result of ! the bombing, was quick to swear vengeance of its own. "Those who carried out the murder and those who sent them can expect painful punishment," said Israeli Foreign Minister David Levy.

In Washington, Bush's final offer to Jerusalem on loan guarantees was for $10 billion over five years, with $300 million up front, provided Israel halts all new settlements in the occupied territories. But construction under way before 1992 -- 5,500 houses -- could be completed, so long as they were on a list approved in advance. Israeli violations would result in the cutting off of further guarantees.

Congressional negotiators were more indulgent, offering about $800 million in guarantees up front, but with a provision allowing the President to hold back whatever remained of the $2 billion due each year if Israel builds anything he finds "inappropriate." But Israel could get the entire $2 billion at the beginning of each year regardless of previous violations. That, said the State Department, was tantamount to issuing the guarantees first and asking questions later. The Administration balked, and Congress refused to budge. "At the end of the day, the Hill would not agree to a proposal Israel disliked," a senior State Department official complained. "Their bill never made a connection between Israeli settlement construction and our ability to restrict further loan guarantees."