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US prepares to unfreeze dollars 10bn Israel loan deal

THE BUSH administration is hurrying to mend fences with Israel's new government. Although gaps and misunderstandings still exist on the awkward question of Jewish settlements, officials in Washington expect some kind of deal to be worked out in the next few weeks on the dollars 10bn ( pounds 5.3bn) in loan guarantees frozen by the US government last year.

The US Secretary of State, James Baker, arrives in Israel on Sunday for talks with the newly installed Labour government of Yitzhak Rabin. He will also visit Arab capitals to get the peace process going again.

President George Bush has invited Mr Rabin to visit him at his holiday home in Kennebunkport in Maine next month. This is a privilege offered only to world leaders with whom Mr Bush proposes to have a chatty, first-name relationship - a status denied to Mr Rabin's hardline predecessor, Yitzhak Shamir.

Having helped to achieve the result it wanted in the Israeli general election last month, the Bush administration is now driven partly by electoral considerations of its own. Progress in the US- sponsored Middle East peace talks would be a modestly useful feather in the President's cap as he seeks to contrast his international expertise with the inexperience of Bill Clinton and Ross Perot.

More significantly, it would dampen the anger in the US Jewish community, which had no particular love for the defeated Shamir government, but loathed the sight of a US government using the aid weapon against Israel for the first time. Although most Jews vote Democrat in any case, the strong anti-Bush mood in the Jewish community could be a significant mobilising - and fund- raising - force in key states like New York and California.

The loan guarantees, to underwrite the resettlement of Russian and Jewish immigrants, are an important factor in the Rabin government's attempts to shore up the Israeli economy. Washington has changed the precise wording of its conditions for releasing the loans on several occasions. But a sizeable gap still appears to exist between the US and the new Israeli government. The Bush administration wants Israel to freeze all new settlements on land occupied by Israel in the 1967 and 1973 wars. Mr Rabin says he will stop 'politically' motivated encroachments on Arab land but he supports 'enhanced' settlements necessary for 'security' reasons, around Jerusalem, in the Golan Heights and in the Jordan Valley.

Prospects for reopening the peace talks - due in Rome at a date still to be agreed - are also uncertain. Palestinian leaders have expressed disappointment at Mr Rabin's failure, in his opening statements as prime minister, to commit Israel to surrender occupied land as part of a peace deal.

In Tunis, Bassam Abu Sharif, a senior adviser to the PLO chairman, Yasser Arafat, complained that Mr Rabin failed to endorse UN Security Council Resolutions 242 and 338, which enshrine the land-for-peace principle. Mr Rabin did tell the Knesset on Monday night, however, that he would follow the 'principles' of the 1978 Camp David Accords, which were based on Resolution 242.