U.S. eyes Israeli aid penalties

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The State Department yesterday deferred a decision on how much to withhold from a $9 billion package of loan guarantees to Israel to penalize it for continuing to settle Jews in Palestinian areas of the West Bank.

The $9 billion package -- an add-on to the $3 billion in outright aid the United States gives Israel each year -- was part of an emergency request from Israel this year to cushion it from the economic effect of its three-year battle with Palestinians and the effects of the Iraq war.

Yesterday marked a deadline for the Bush administration to notify Congress on how much of the $9 billion Israel should forfeit because of its failure to honor pledges to halt Jewish settlements, as well as efforts to extend its de facto border into the West Bank with a security fence.

"We'll report to Congress today or very soon," State Department spokesman Richard Boucher told reporters.

"But don't expect us to start laying out specific amounts at this point because we've really not made those decisions and our consultations with the Israelis on these matters continue."

Mr. Boucher insisted that deductions will be made to ensure that the United States is not helping to subsidize settlements.

Asked whether the deferral would send the wrong message to the Middle East, a senior State Department official said:

"We are sending the right message by making clear we intend to make deductions. ... It's a complicated subject and we have to decide how it applies."

The package allows Israel to borrow $9 billion over the next three years at below-market interest rates.