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MIDDLE EASTThirty government-backed Israeli settlers moved into an Arab Jerusalem neighborhood yesterday. Palestinians said it could threaten Middle East peace efforts (see story, Page 7).... Arab ministers and central-bank officials will meet in Cairo in February to boost economic integration among Arab League members. UNITED STATES In testimony before Congress Wednesday, US Ambassador to Moscow Robert Strauss told lawmakers that Russian President Boris Yeltsin is now the dominant Soviet leader with whom the US will unquestionably deal. He also joked, "I don't know what I'm ambassador to."... The UN team responsible for dismantling Iraq's nuclear weapons program has uncovered a "large, secure, and highly successful procurement network" used to covertly obtain equipment from at least 13 foreign companies. German companies were at the core of the Iraqi network, but a US firm - DuPont - was also involved.... Salman Rushdie, under a death threat from Iran since he wrote "The Satanic Verses," showed up in New York City unannounced Wednesday to speak at a forum on freedom of speech.... Economists and business executives warned Congress against enacting a tax cut to stimulate the economy, saying the measures would drive up the deficit and do little to spark consumer spending. John Kenneth Galbraith told the House Budget Committee that lawmak ers have engaged in a "feeding frenzy" to reduce taxes, calling the initiatives "foolish."

EUROPE More than half of all Soviet airports are without fuel and many flights have been canceled, touching off a new wave of chaos in the troubled air transport system, Tass news agency said yesterday.... Fugitive former East German leader Erich Honecker has taken refuge in Chile's embassy in Moscow after the Russian republic asked him to go home to Germany.... Undeterred by freezing temperatures, the Yugoslav Army and Croatian forces fought new battles in the Croatian towns of Valpovo and Zemenuk Donji yester day.... The US proposed in Brussels yesterday that NATO defense ministers should hold regular meetings with their counterparts from the former Soviet Union and other members of the former Warsaw Pact.

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ASIA AND THE PACIFIC Cyclone Val headed out to sea yesterday as tens of thousands of South Pacific islanders emerged from shelters to find their homes and livelihoods destroyed. The island nation of Western Samoa could face a bill of up to $55 million.... Presidential contender Jovito Salonga was ousted as Philippine Senate chief yesterday in a political revolt that could foreshadow a bitter fight for the nation's presidency in the 1992 election. He was replaced by Sen. Neptali Gonzales of the Democratic Filipino Struggle pa rty in a session called in Mr. Salonga's absence.

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