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As Punishment for Settlements, U.S. to Chop $290 Million from Guarantees

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The Bush administration is trying to make clear to Israeli Prime Minister Ariel Sharon that settlement building comes with a price tag — $289.5 million, to be exact.

After months of speculation, the administration announced Tuesday that it will deduct that amount from the $3 billion in promised loan guarantees to Israel this year because of settlement building.

Still, some Jewish and Israeli officials depicted the move as a victory because the deduction is substantially less than the $500 to $600 million that some had expected.

The long-awaited announcement came after Dov Weisglass, a top Sharon adviser, met in Washington with Bush’s national security adviser, Condoleezza Rice. A statement from the Israeli Embassy suggested that the amount was Israel’s idea.

“Israel understands that the U.S. should not finance directly, or indirectly, activities with which it does not agree and, therefore, suggested that the U.S. deduct the agreed sum of $289.5 million dollars from the $3 billion in loan guarantees currently available,” the statement said.

Israel already issued a note in August for $1.6 billion in loans, with U.S. guarantees. The $289.5 million will come out of the next installment of guarantees, for $1.4 billion, which will run through December.

The United States had pledged $9 billion over three years to help Israel’s strapped economy, hit hard by three years of Palestinian terrorism. U.S. loan guarantees allow Israel to take out loans at a reduced interest rate.

The deductions do not affect direct aid to Israel.

Some analysts had projected a cut of up to $600 million, based on an investigation by Israel’s daily Ha’aretz earlier this year that found that Israel spent $556 million on settlements in 2002.

Other analyses were lower, estimating about $200 million in spending on settlement expansion in the West Bank. Americans for Peace Now called that figure “low-ball.”

“It’s an important gesture, but it doesn’t appear that the amount matches the reality on the ground,” said Lewis Roth, the group’s assistant executive director.

The deduction does not address U.S. concerns about the route of Israel’s security barrier, as it deals only with activity “to date,” while the most controversial parts of the planned fence have yet to be built.

The amount helped assuage recent concerns that the United States was going to use the loan guarantees to punish the Sharon government for allegedly not offering enough gestures to bolster Palestinian moderates.

“This was anticipated,” said Malcolm Hoenlein, executive vice chairman of the Conference of Presidents of Major American Jewish Organizations. “The fact that it applies to the construction of settlements is consistent with past practices.”

Sharon has responded to U.S. calls for moderation in recent weeks with gestures towards the Palestinians, including an increase in the number of work permits in Israel and vague promises of unilateral acts to prepare the ground for peace.

In the light of such gestures, Morton Klein, national president of the Zionist Organization of America, said the administration’s decision Tuesday was “appalling.”

“A time when Palestinian terrorism has destroyed the Israeli economy is not a time to send a message that will penalize a democratic ally,” Klein said. “The message should be to penalize terrorism.”

If the Bush administration decides that the planned security fence harms Palestinians, it could deduct spending on the barrier from further installments of the guarantees.

Israel’s friends in Congress pledged to oppose any such deductions, however.

“Demanding meaningful changes from the Palestinians would be more productive than criticizing the Israelis for protecting themselves,” wrote eight members of the House of Representatives in a letter sent to Bush on Tuesday.

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