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To save the Mideast peace process, Bush must connect loan guarantees for Israel to a halt in settlement activity

IF it succeeds in persuading Congress to delay any action on Israel's request for $10 billion in housing loan guarantees, the Bush administration may avoid a political fight with Israel that could derail the Middle East peace conference it hopes to convene next month. The administration still would not be out of the woods, though. Unless it uses the occasion of a delay to state clearly and unequivocally its intention to link the loan guarantees to a freeze on Israeli settlement of the occupied territories, the administration's prized objective - progress toward a negotiated peace - could very well elude it. The Israeli government denies that there is any connection between its settlement policy and the loan guarantees, which it is seeking to help absorb the 1 million Soviet Jews expected to emigrate to the country over the next five years. Israel's foreign minister, David Levy, has assured Washington that "no special incentives" will be used to lure immigrants to the occupied territories. But no special incentives are in fact needed; the existing ones work well enough. Any Israeli who settles in the occupied territories receives generous tax breaks, land discounts, mortgage subsidies, and free municipal services - at a cost of millions of dollars to Israeli and, ultimately, US taxpayers. Given Israel's chronic housing shortage, this constitutes an attractive package indeed. Last year, some 3,000 Soviet Jews settled in the West Bank and Golan Heights, accounting for 20 percent of the increase in settler population there. Meanwhile, Israel's Housing Ministry is planning to build homes for 50,000 additional settlers over the next two years - among them 15,000 Soviet Jews. If the trends continue, the US State Department estimates, the current total of 220,000 Israelis living in the occupied territories (among 1.7 million Palestinians) could double within three years. These trends make clear the importance of signaling to Israel - and the Arab states likely to attend a peace conference - that the administration will not approve the loan guarantees in the absence of a settlement freeze. It is a mistake to believe that the issue can be left for the conference to address. Failure to confront this issue now could lead to the conference's undoing. Any negotiations a conference might initiate will most certainly be protracted. The Arab states - Syria and Jordan in particular - will find it exceedingly difficult to participate for very long in the process or to make any meaningful concessions while Israel continues its settlement policy. Without assurances from the Bush administration that it will seriously confront Israel on this question, these states will be vulnerable to attack from critics claiming that negotiations are merely a cover for settl ement expansion. Moreover, continued settlement threatens over time to make any Israeli withdrawal from the territories impossible; indeed, this is the point of the policy. Yet if there is no hope for a territorial compromise, there will be little chance for peace in the region. As President Bush correctly put it in his address before Congress last March, "A comprehensive peace must be grounded in ... the principle of territory for peace. Anything else would fail the twin tests of fairness and security." Of course, if Bush chooses to confront the settlement issue now, rather than leaving the question open, he could still face opposition from Israel's supporters in Congress. Last year, when Israel floated a trial balloon and requested $400 million in housing loan guarantees, the administration sought to condition approval on a settlement freeze. Once it became clear that Congress would not go along, the administration backed down. YET by nearly all accounts, much of Congress, too, is feeling deep frustration over Israel's settlement activity and might be willing to support the president if he were to take a strong stand. In a message to the American Jewish Committee earlier this year, Dante Fascell, chairman of the House Foreign Affairs Committee, warned that Congress would find it "politically difficult" to approve the loan guarantees over Bush's objections. If Bush does choose to challenge Israel on this issue, he will effectively throw the ball back into Israel's court, where public support for the settlements policy is remarkably weak. A survey conducted in June revealed that 72 percent of the Israeli public would like to stop the settlement drive. Times are tough for all Israelis and are only going to get worse as more immigrants flood the country. If forced to choose between a settlement freeze and greater economic hardship - the inevitable consequence of a loan-guarantee refusal - most Israelis would favor a freeze. So why not let Israeli Prime Minister Yitzhak Shamir take the heat instead of Bush?

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