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US Decision to Withhold $290 Million Elicits Muted Israeli Reaction - 2003-11-26

Israeli reaction is muted after a decision by the Bush administration to withhold nearly $290 million from an overall $9 billion loan guarantee package over the next three years. The American decision comes after repeated expressions of concern over Israel's continued settlement activity and its construction of the controversial security barrier, part of which goes through Palestinian land.

While Israel would undoubtedly have preferred to avoid any loan penalties, the decision by Washington does not come as a surprise. The Bush administration had indicated it might reduce the amount of loan guarantees, and in recent months Israeli officials met with U.S. National Security Advisor Condoleeza Rice in Washington to discuss the size of the penalty.

A statement released by the Israeli Embassy in Washington says that Israel accepts that the United States does not agree with some Israeli policies and should not help directly fund such policies.

And Zalman Shoval, a senior foreign policy advisor to the Israeli prime minister, says Israel fully understands the American decision.

"Israel has no justification to ask the Americans to pay for something, or to guarantee something, which they don't support," he said. "So, there was no argument about that. The argument, if at all, was about what do these expenses across the Green Line include and this is where the issue of the security fence came up. And, at the end of the day the Israeli government had to make a decision between losing some money or, God forbid, losing lives."

Israel says the security barrier is vital to keep out Palestinian suicide bombers. The structure - a combination of walls, fences and barbed wire - runs partly along the so-called Green Line, which marks the boundary between Israel and the West Bank area it captured in the 1967 Middle East war. But, the barrier also reaches far into Palestinian land in some areas to encompass Jewish settlements. Palestinians say the structure has nothing to do with security, but is an Israeli land grab.

Palestinian minister, Saeb Erekat says he fears the U.S. loan penalty will not be enough to deter Israel from continuing to build the barrier.

President Bush has staunchly supported Israeli Prime Minister Ariel Sharon's actions against Palestinian militants. But, he has also criticized some Israeli policies, including the barrier.

During a speech in London last week, Mr. Bush said Israel must freeze settlement activity, dismantle unauthorized settlement outposts, end the daily humiliation of the Palestinian people and not prejudice final negotiations with the placement of walls and fences.

The loan penalty imposed by Washington is not viewed as a threat to the close Israeli-U.S. relationship, but it does come amid growing pressure on Mr. Sharon for his tough policies toward the Palestinians and his inability to halt more than three years of violence.

The road map peace plan endorsed by the United States and the international community has long been stalled and shows no immediate signs of movement.

Mr. Sharon is also facing pressure from several alternative peace proposals, some of which have received public praise from the U.S. Administration.

Washington is planning to send Assistant Secretary of State William Burns to the region later this week to meet with Israeli, Palestinian and Egyptian officials in what is seen as a sign of renewed U.S. efforts to revitalize the stalled peace process.