CIA blamed as deal to end Bethlehem siege falters

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The CIA was suspected of a diplomatic blunder yesterday that disrupted a deal which would have ended the 36-day siege of Bethlehem's Church of the Nativity.

An agreement stalled at the final hurdle after Italy refused to accept 13 Palestinians, regarded by Israel as terrorists. The Italian government com-plained it had received no formal request to take in the men.

An official blamed the Americans and Britain for the oversight, and complained of being treated in "an arrogant and intolerable" manner.Recent talks to end the siege have been led by the CIA's station chief in Israel. Britain has not been directly involved, apart from organising a RAF flight to transport the men, which was banned from Italian airspace.

Last night Washington was pressuring the Italian government to change its stance to enable the deal to go through, releasing more than 130 people who took refuge in the church.

Israeli soldiers were preparing for the departure of those inside, who include several dozen armed men, by erecting metal detectors in Manger Square afterofficials on both sides had confirmed that an agreement had been reached.

Under it, 13 men – 10 from Fatah and three from Hamas – would be sent to Italy. A further 26 men were to be taken to the Gaza Strip. The rest, who range from nuns and friars to the governor of Bethlehem, were to be allowed to go free.

The White House had hoped to end to the siege before yesterday's meeting between President George Bush and Ariel Sharon, the Prime Minister of Israel.

American hopes had been raised after the release of the Palestinian leader Yasser Arafat from house arrest last Thursday. Heartened by this success, the CIA's station chief in Tel Aviv, Jeff O'Connell, was placed in charge of the siege negotiations with orders to resolve it as quickly as possible. Israel's security service Shin Bet also joined the talks.

But it appears the new team sidelined the previous negotiators who had been working for days.

Allegations were flying yesterday over exactly why the Italian government was not formally told that it was going to take in the 13 Palestinians. The issue was raised in informal and indirect contacts between the Vatican and the Italian government.

"They seem simply to have forgotten to tell the Italians," said one source.

In an angry response, the Italian government issued a statement saying that the possibility of receiving the Palestinians in Italy had never been officially raised, and "at the current state of affairs, it cannot be considered".

Matters were complicated by a demand on Monday night from Yasser Arafat that the 13 Palestinian men spent several days in transit in Egypt, a move intended to soften criticism of their exile. But yesterday Egypt was refusing to allow them to enter unless their final destination in a third country was agreed.