Secretary of State Madeleine Albright spoke with Callahan on Monday and appears to have come close to a deal to stop the proposed cut, according to an official.

Albright also publicly reiterated the administration position.

"I want to make clear that although the United States has real concerns about the proposed Israeli sale of Phalcon aircraft to China and we are discussing the matter with the Israeli government, we do not believe that linking this issue to our assistance to Israel is the appropriate way to proceed, and we will oppose any effort on Capitol Hill to do so," she said at a State Department briefing Monday.

Albright's statement came as Callahan's committee was preparing to debate the foreign operations bill on Wednesday. The measure includes $1.92 billion in military and $960 million in economic aid to Israel.

The official said Callahan had agreed not to push for the decrease in Israel's aid if Democrats on the subcommittee agreed not to push for early disbursal of the entire aid package to Israel.

Early disbursal, an almost automatic practice in past years, allows Israel to receive its aid at the beginning of the fiscal year, giving it a financial advantage.

It is not clear why Callahan, who has expressed concern about the China deal based on national security interests, would be satisfied by removing Israel's early disbursal.

Callahan had said he would not block the aid if Defense Secretary William Cohen could assure Congress that the Phalcon sale to China would not endanger American security. Cohen spoke with Callahan last week and asked him not to link the military aid to the Phalcon sale, according to officials.

Callahan's office could not confirm the deal, and last-minute maneuvering appeared likely to continue up until the subcommittee meeting.

AIPAC, which is working hard to stop the Callahan proposal, calls the issue a high priority. The American Israel Public Affairs Committee has been lobbying Callahan as well as others members of Congress and the administration.

"We are opposed to linking Israel's aid under any circumstances because once it starts it never stops," said AIPAC spokesman Kenneth Bricker.

Sources say Callahan's move to block aid is unlikely to survive the legislative process.

The Senate has already passed its form of the bill, which includes the full aid package to Israel with no conditional language and no cuts.

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