washington | The United States will reduce loan guarantees to Israel for expanding construction of homes for Jews on the West Bank, the State Department announced Tuesday.
Under law, the guarantees may only support activities in areas Israel held before the 1967 Mideast war, deputy spokesman Adam Ereli said.
The construction is “inconsistent’ with the objectives and understandings reached between the United States and Israel, he said.
The amount of loan guarantees to be withheld is being negotiated with Israel and will be based on what Israel is spending on settlement activity, Ereli said.
Secretary of State Colin Powell will make that decision, White House press secretary Scott McClellan said Tuesday.
Still under consideration is Israel’s construction of a security barrier between it and Palestinian-held areas. The administration has not opposed the fence entirely, but objects to any interference with Palestinians.
McClellan, hinting that the administration may punish Israel for the barrier, as well, said, “We have made our own concerns known. I don’t rule anything out at this point.’
Ereli said the United States would issue guarantees for $1.6 billion in Israeli bonds. Overall, Israel was promised $9 billion over three years.
The threatened reduction is likely to come out of future installments.
At least twice before in the past decade the United States has penalized Israel for expanding settlements contrary to U.S. law. The U.S. aim is to stop Israel from taking over territory that might become part of a Palestinian state.
The law authorizes the Bush administration to reduce dollar for dollar what is spent on settlement expansion, which is also prohibited under the U.S.-backed — and now-stalled — “road map’ for peacemaking between Israel and the Palestinians.
No direct assistance to Israel, which already receives nearly $3 billion in military and economic aid, is involved. What the Bush administration agreed to do was to stand behind Israel by guaranteeing $9 billion in loans it would seek commercially.
The U.S. guarantee is designed to help Israel obtain favorable rates.
The Israeli economy, already hurt by terror attacks that strained the treasury and discouraged tourism, suffered further setbacks when the United States went to war against Iraq.
Jerusalem staff writer Steve Weizman contributed to this report