Israel 'Unhappy' About Inclusion of Fence In Loan Guarantee Cuts

By Julie Stahl | July 7, 2008 | 8:14 PM EDT

Jerusalem ( - Israel is unhappy about a U.S. decision to trim loan guarantees because of policy disagreements with Israel, a senior advisor to Israeli Prime Minister Ariel Sharon said on Wednesday.

The U.S. plans to deduct $290 million from the $9 billion in guarantees pledged to Israel over the next three years. The deduction is a penalty for settlement activity and fence construction in the West Bank.

The guarantees, which don't cost the U.S. anything as long as Israel doesn't default on loans, will allow Israel to get better terms on the international loans it needs to invest in infrastructure projects.

Sharon's bureau chief, Dov Weisglass, met with National Security Advisor Condoleezza Rice on Tuesday to decide on the sum to be deducted from the loan guarantees.

National Security Council spokesman Sean McCormack said the decision "acknowledges U.S. policy concerns and U.S. law regarding activities in the West Bank and Gaza and is a reflection of close and continuing consultations between our two governments."

The U.S. has backed Israel's right to build a fence but opposes the route it takes. The U.S.-backed road map peace plan calls for a freeze in Israeli settlement construction.

Senior Israeli foreign policy advisor Zalman Shoval, who twice served as Israel's ambassador to Washington, was involved in working out the formula by which the deductions were made, dollar for dollar, from $10 billion in loan guarantees.

What disappointed Israel was the fact that expenses for the security barrier were included in the calculation for the deductions.

"Israel [said] this is a security measure," Shoval said. Under the arrangement in 1992, security expenses are exempt from the deduction formula.

"If [the choice] for the Israeli government was whether to give up some of the money or the lives of innocent people," Shoval said, then the government made the choice to give up the money.

"Of course we're not happy it was included in the amount," he said. "If there were no Palestinian terrorists, there would be no fence. We don't agree it prejudges the border."

Palestinians have argued that the barrier, which juts into the West Bank in places to surround Jewish settlements, was merely a pretext to grab land that they want to see included in a future Palestinian state.

"Unfortunately the U.S. did not take our view," Shoval added.

Shoval would not enter the debate over how much of the deduction was for the cost of the fence. But he said he was concerned that the debate might be misinterpreted by the Palestinians.

"Some may misconstrue [that] the U.S. is now soft on terrorists, which it is not," he said.