Speaking of possibilities to 'transform the peace negotiations', Mr Baker suggested the US demand for a total freeze on Jewish building in the occupied territories as a prerequisite for the release of dollars 10bn in loan guarantees may be negotiable.
The United States has been encouraged by the Israeli decision, endorsed by the cabinet yesterday, to impose a temporary freeze on new building contracts. The announcement provoked a furore among settlers, and yesterday Israeli police were investigating death threats against Mr Baker from the far-right Kach movement.
'I share what I believe is your optimism in regard to the opportunities for moving forward in a positive way,' Mr Baker told his host after the meeting.
Mr Baker, who has not visited Israel since October, is holding two days of talks with Mr Rabin - the first direct contact between the US and Mr Rabin since his election last month. Washington backed a Rabin victory, and the new Prime Minister has already committed himself to Palestinian autonomy within six to nine months. He goes to Cairo tomorrow for a meeting with the Egyptian President, Hosni Mubarak - the first such summit for six years.
Despite the hopes for Middle East peace, the settlements remain the sticking point. The Baker-Rabin meetings will focus on establishing how much building will be halted permanently. Mr Baker said last night: 'I arrive in Israel under circumstances which do not reflect an expansion of settlements but a limitation of them.'
Referring to the loan guarantees, which the US wants to be used for aid for new immigrants, not on settlements, he said: 'I look forward to continuing discussions, particularly with reference to how we can move forward on the question of US assistance with the absorption of immigrants.'
Mr Baker will also meet Hanan Ashrawi, spokeswoman for the Palestinian peace talks delegation, who said: 'We think all settlements have to stop and are illegal.'
If the US does unblock some or all of the loan guarantees without a total freeze on settlement-building, Mr Baker is expected, in return, to ask Mr Rabin for concessions to the Palestinians. They could include releasing political prisoners and a relaxation of military rules in the occupied territories.
No building let-up, page 13
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