Palestinians to be at heart of Mubarak talks in US

Egyptian President Hosni Mubarak arrives here today hoping to energize the Reagan administration on the Middle East peace process. Although the Palestinian question will be at the heart of discussions, he will also discuss Egypt's potential role in the Iran-Iraq war and bilateral issues.

``We realize the administration is focused on East-West relations for its last year in office and treating much of the rest as damage control,'' a senior Egyptian official says, ``but it doesn't want to wake up and find an explosion'' in the Arab-Israeli dispute. Events in the West Bank and the Gaza Strip, the official says, should make clear to everyone that ``the current paralysis can't continue without more harm to all involved,'' including Israel.

Mr. Mubarak arrives with his image as a possible peace facilitator reinforced by virtue of Egypt's ties to Israel and most of the key Arab states and Palestinian groups. Since last November's Arab summit, Egypt has been largely reintegrated into the Arab world with restored diplomatic relations and new discussions for improved security arrangements with Saudi Arabia, Kuwait, and other Gulf Arab states. Mubarak just completed a successful tour of the Gulf, Iraq, and Jordan during which he explored ways Egypt could support Gulf regimes against the threat from Iran as well as an Arab response to current Palestinian unrest.

United States officials say Egypt's reintegration legitimizes its Camp David diplomacy and continued relations with Israel. At the same time, in the wake of Palestinian protests, it puts a lot of pressure on the Egyptians to speak out, they say.

``The Egyptians are frustrated with us,'' one US specialist says, ``because they think we still have most of the leverage to get things moving, but aren't willing to use it.''

Mubarak ``can't say, `Thank God the Israelis are only beating the Palestinians now, not killing them,''' says Nicholas Veliotes, former ambassador to Egypt and President Reagan's first assistant secretary of state for the Near East and South Asia. The Palestinian protests strike at the heart of Egypt's peace treaty with Israel and strengthen Mubarak's enemies, he says. The unrest makes it imperative for Mubarak to challenge the ``benign neglect'' of US policy toward the Palestinians in recent years, he contends.

The new radicalization of Palestinian youth has shown US policy, which focuses on improving the daily life of Palestinians while the peace process is stalled, to be a ``fiction,'' according to senior Egyptian officials. They say Israel's ``iron fist'' policy only reinforces the sense that ``death is better than this way of life.'' Although the near-term effect in Israel is to strengthen the hawks, they add, over the medium term it has to make Israelis think twice about their policies. Here, they say, is the opening for the US and Egypt.

Washington experts view Mubarak's visit as potentially very important in getting the peace process going again, if both sides play it right. Egypt's new status in the Arab world, Washington's reinforced credibility in the Gulf, and the new nature of Palestinian protests are making everyone reflect. A number of Mideast specialists say the US could start turning around the perception of US neglect and begin organizing for the next big effort.

``No one is expecting a magic formula now, but restarting the process is possible,'' Ambassador Veliotes says.

Senior Egyptian officials add that if Washington doesn't try at this time, it means two years lost, because the new US administration will take even more time to organize. ``And the longer we don't do anything, the worse it becomes for everyone: Instability is contagious in this area of the world,'' an Egyptian official says.

The big question is whether Mubarak can persuade his American interlocutors to try. Secretary of State George Shultz traveled to the region last fall but made little progress on the question of convening an international peace conference. The Israeli government remains sharply split on the issue with Prime Minister Yitzhak Shamir and his coalition opposed and Foreign Minister Shimon Peres and his Labor Party in favor of the idea. Mr. Shultz was willing to try to persuade the Israelis, but not to coerce them or be seen to interfere in Israeli politics. Last week a senior Israeli diplomat, close to Mr. Peres, traveled to Washington, seeking a new US effort.

US officials who specialize in the Middle East are showing a new willingness to explore the opportunities opened by recent disturbances, but to what extent is unclear.

``Events out there should show both sides that the current situation is not sustainable. ... Both sides have to see and treat the other as human beings, but this is hard to do, as both the Palestinians and the Israelis remain sharply divided,'' a ranking official says. The tendency for both Israel and the Arabs is to look to the US to rescue them, he says, adding, ``We can urge and prod, but we can't do it for them.''

The other big international question on Mubarak's agenda is the Gulf war. Washington is delighted that Egypt is exploring military cooperation with the Gulf states. This bolsters their security and may provide Egypt with needed financial support, US officials say.

According to Egyptian officials, the first concrete steps will be relatively small scale, such as helping Kuwait with air defense. They discount reports of secret agreements to provide thousands of troops now to defend Saudi Arabia or Kuwait, but stress that the message of Arab unity should make clear to Iran that the costs of expanding the war will now be a lot higher.

US aid to Egypt

Egypt is America's second-largest aid recipient after Israel, receiving $2.3 billion this year. Washington is also Egypt's largest creditor. Cairo owes about $44 billion, some $10 billion of that to the United States. Almost half of the US debt is in high-interest military sales loans.

Hosni Mubarak will ask President Reagan and Treasury Secretary James Baker III to help ease Egypt's debt burden, especially the high-interest military debt, Egyptian officials say. In December, Congress passed a provision that could allow some refinancing, US officials say, but they are unsure if Egypt will be able to benefit.

Egypt would like to receive more of its economic aid in cash, as Israel does, to increase the government's flexibility, Egyptian officials say.

Egypt would also like to see an improvement in the bilateral trade balance, which Egyptian officials say is 20 to 1 in favor of the US.

And Cairo seeks more US investment and would like to see the US military purchase more goods as is now being done with Israel. Mr. Mubarak will discuss a specific proposal to allow co-production of M-1 tanks in Egypt.

The US is encouraging Egypt's economic reform agreement with the International Monetary Fund in May. So far, US officials say, Cairo is moving very cautiously to carry out the reforms.