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MIDDLE EASTDefense Minister Moshe Arens was reported as saying Israel has reached an understanding with Washington that the Palestinian team at any peace talks will be drawn only from residents of the occupied territories who are committed to live in peace with Israel. Israel Radio said yesterday the US had agreed with Israel to exclude Palestinians from East Jerusalem in the first stage of negotiations on the future of Arab lands captured by Israel since 1967.... The French-led medical aid charity Medecins Sans Fr ontieres said its workers are being refused visas by Iraq and those already in the country are not allowed to travel freely. Last week's clashes between Kurds and the Iraqi Army near Sulaimaniya make a strengthened humanitarian and medical presence indispensable, the charity said.... Kuwait says the UN is arranging for Iraq to return 3,216 gold bars in the next two weeks looted during its occupation. The Kuwaiti Central Bank says it will cost about $8 billion to carry out a National Council plan to compensa te each Kuwaiti family for its suffering during the Iraqi occupation. About half of the 700,000 Kuwaitis who lived in the emirate before the invasion are still abroad. EUROPE President Mikhail Gorbachev said yesterday he and representatives of nine Soviet republics had agreed on a treaty establishing the structure for a new federation. Armenian President Levon Ter-Petrosyan attended the negotiations for the first time. Armenia and five other republics have boycotted the talks.... The Soviet Union plans to sell a stake in its huge Volga Automotive Plant Association to a foreign investor, probably the Italian carmaker Fiat, the New York Times reported.... The governor of the Ba nk of England said the Bank of Credit and Commerce International was so immersed in fraud that rescue or recovery, in Britain at least, was out of the question.... New fighting between Serbs and Croats and disputes among Yugoslavia's leaders over the failure of peace talks Monday have pushed the country deeper into crisis.

JUSTICE A proposed US law, introduced by Sen. Mitch McConnell (R) of Kentucky, would permit victims of sexual assault to seek civil damages against producers and distributors of obscenity and child pornography if the victim proves that the material in question was a substantial cause of the offense. But it was denounced by book, magazine, and video distributors as a violation of the First Amendment of the US Constitution.... In the Palm Beach rape case against William Kennedy Smith, statements by three women hav e been released by the prosecution claiming Smith assaulted them sexually in recent years. None of the women had gone to the police, and the information is not related to the Florida case. A controversial Florida rule allows evidence of prior acts to be offered if it is not used solely to prove bad character.

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