Unsettling Showdown Over Settlements : Baker pushes policy with Israelis farther than ever before

The Bush Administration and the government of Israel are preparing to test each other’s influence on Congress in a battle that’s likely to leave a legacy of rancor no matter who the winner is.

The immediate issue is when Israel’s request for U.S. guarantees of $10 billion in loans for immigrant housing should be voted on. President Bush wants congressional action deferred until at least January, to avoid complicating the planned opening in October of a U.S.-sponsored Middle East peace conference. Israel seeks a prompt vote. Reports now suggest that Secretary of State James A. Baker III might offer Israel a “bridge loan� to permit it to build new housing even while the $10-billion package is stalled.

SETTLEMENTS: But the real contest has a significance that goes well beyond this question of timing. That’s whether Prime Minister Yitzhak Shamir’s government can be induced to become more cooperative in meeting the Administration’s request to modify some of its policies, especially in pushing for Israeli settlement expansion on the West Bank.

Shamir’s response, as always, is that he will never agree to suspend settlement activity, least of all now, when it would be seen by Israel’s Arab antagonists as a sign of weakness.

To underscore his determination, Shamir on Monday bluntly noted that “increasing immigration . . . goes hand in hand with a campaign of settlement,� an apparent contradiction of earlier assurances that the two issues are separate and that Soviet immigrants would not be steered specifically to the West Bank. The implication that U.S.-backed loans could help pay for West Bank settlements runs head-on into two decades of U.S. opposition to settlement expansion.

There’s strong sentiment in Washington for the loan guarantees, which would allow Israel to borrow money over five years on more favorable terms. So long as the loans are repaid on time--and Israel’s record here is good--there would be no cost to American taxpayers.

The number of Soviet Jews emigrating to Israel could reach 1 million in the next few years, perhaps more if conditions in the former Soviet Union continue to deteriorate. The United States, by long pressing Moscow to allow freer emigration, has assumed something of a moral responsibility to help those who are now able to leave.

The issue is whether a brief delay in granting the loans would be harmful. It’s pretty clear it wouldn’t be, and could in fact be a positive step at the hoped-for onset of a peace conference.

BARRIERS: It’s important to be clear about the nature of the dispute. This is not a U.S.-Israel confrontation but rather a test between the Shamir government, with its insistence that there can be no barriers to settlement activity because the West Bank is inherently a part of Israel, and the Bush Administration, which wants to give direct Arab-Israel negotiations a chance to get started in as unclouded a political atmosphere as possible.

Opinion polls consistently show that most Israelis--unlike their government--are ready to consider territorial concessions as part of a comprehensive peace agreement. Such an agreement could--indeed must--contain security provisions for Israel short of a claimed need to hold on to every last inch of the West Bank. But the prospects for any agreement sink if the Shamir government insists that its territorial claims are non-negotiable and seeks to nail down that position by the steady spread of West Bank settlements.

The loan guarantees will be approved sooner or later--as they should be. But in pressing Congress for quick approval, the Shamir government implicitly invites support for its unyielding stance on the settlement question. It would be a great mistake if Congress lets itself be seen as granting such an endorsement.