News Analysis: Link of Loans to Settlement Issue Putting Strains on Likud Government

The worsening political crisis between Israel and the United States has so polarized Israel that the government may have no choice but to resign and call for a fresh mandate in early elections.

The far right is actively seeking the downfall of the Likud regime, which, ironically, is the most right-wing in Israel’s history.

So far neither Prime Minister Yitzhak Shamir nor his closest associates have shown any inclination to dissolve the 12th Knesset before its present term expires a year from now.

But the premier is being battered by the right flank of his governing coalition, which threatens to defect if Israel agrees to participate in peace talks with Palestinians.

Shamir is trying hard to mollify them with fire-eating rhetoric vowing the continued mass settlement of Jews in the administered territories.

“All of the territories that can be populated will be built up as far as the horizon,” he declared Tuesday at the dedication of a new settlement called Tsur Yigal. The territories “belong to Israel,” he asserted.

Such talk only further irritates Washington.

The Bush administration, by demanding a four-month delay before Congress considers Israel’s request for U.S. guarantees of $10 billion in loans, is clearly conditioning help to resettle Soviet immigrants on a freeze of Jewish settlement-building in disputed territory.

Israeli newspapers on Tuesday headlined hints from Washington that certain key members of Congress, including Sen. Patrick Leahy (D-Vt.), have proposed deducting whatever sums Israel spends colonizing the territories from future U.S. aid to Israel.

Israel receives an outright grant of $3 billion in economic and military assistance from the United States each year.

TEHIYA MAY LEAVE GOVERNMENT

Nevertheless, Defense Minister Moshe Arens, regarded as the closest to Shamir of all his ministers, has flatly rejected a settlement freeze. That would be tantamount to freezing Israel’s right to the land, which is unacceptable, he said.

Gush Emunim, the militant settlement movement, is prodding right-wing politicians to increase pressure on Shamir “before the government leads the country into the disastrous trap of the peace conference.”

Such sentiments are shared by a significant section of Likud — and not only the circle around outspoken Housing Minister Ariel Sharon.

Geula Cohen and Elyakim Haetzni of Tehiya said Tuesday they hoped to persuade their party to leave the government in light of the deteriorating relations with Washington and the fact that the Palestine Liberation Organization is involved in setting up the peace conference.

If Tehiya leaves, it hopes to take with it the Tsomet and more radical Moledet factions.

Key figures in the opposition Labor Party, meanwhile, are urging their colleagues to oppose the government’s stand on settlements and the peace conference unequivocally, even at risk of being branded “unpatriotic.”

Writing Tuesday in the Labor newspaper Davar, Uzi Baram, the party’s former secretary-general, said the time was past for Labor to try to retain the sympathies of centrist voters by blurring its differences with Likud.

Labor should condemn the settlements as an obstacle to peace and say clearly that it is ready to negotiate over all the territories, except Jerusalem, he wrote.

Israel should agree in principle that the Palestinians “have the same right to determine their fates within negotiated borders as the Croats, the Moldavians and the Uzbeks,” he said.

SHAMIR RHETORIC ‘WORSENING MATTERS’

Similar opinions were expressed Tuesday in the daily Ha’aretz by another Laborite, Knesset member Yossi Beilin. But neither of those relatively young Knesset members can be said to speak for the entire party.

Labor’s two veteran leaders, Shimon Peres and Yitzhak Rabin, have tried to steer a middle course. While criticizing the accelerated pace of settlement-building, they have also faulted the United States for linking the humanitarian loan issue with the political dispute over settlements.

Peres sharpened his rhetoric Monday when he accused Shamir of “worsening matters with Washington every time he opens his mouth.”

But the Prime Minister’s Office took pains to assure the United States that the new settlement just inaugurated was in fact inside Israel’s pre-1967 borders, not in the West Bank. It is part of a planned chain of settlements astride the former border zone, long known as the Green Line.

Publicly, Shamir said the Green Line no longer exists and it is therefore of no importance how a particular site is designated.

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