Israeli `Economic Miracle' Forecast If US Lends Hand

WITH President Bush holding firm on stringent preconditions, Israel's year-long quest to secure $10 billion in United States loan guarantees appears to be at an end.

But in an interview this week, Israeli Ambassador to the US Zalman Shoval said his government would keep the request on the table.

Behind the decision is a hope that renewed congressional pressure or a new US administration, or both, could breathe life into a request Mr. Shoval says is needed to absorb a wave of new immigrants and to transform Israel into an "economic miracle."

Shoval added: "We will not officially rescind our request, but we will not push it." The ambassador said that the recent influx of highly educated Jews from the former Soviet Union has given Israel one of the highest per capita concentrations of skilled scientists and technicians in the world.

But without outside help in raising the $50 billion to $60 billion needed to absorb up to a million immigrants by 1996, the chance to create the housing, jobs, and economic infrastructure needed for an economic transformation could be lost.

"Israel has the potential within a few years to become one of the new economic miracles, like Hong Kong, like Singapore, like Taiwan," says Shoval. "We have the will to work, we have the knowledge. What we don't have is the capital.

"The problem is that the rest of the world is looking to Washington for the right signal" on the issue of loan guarantees, Shoval added. "They are saying: If Israel is not good enough politically or economically for America, its closest ally, why should we go ahead and jump into the cold water?"

With an eye to keeping Arabs engaged in Middle East peace talks, the Bush administration has demanded that Israel halt construction of new settlements in the occupied West Bank and Gaza Strip in return for the loan guarantees.

Israel's adamant refusal, combined with recent US allegations that Israel improperly resold American weapons technology abroad, has contributed to some of the most serious tensions between the old allies in years.

Shoval acknowledges that Israelis have developed "a feeling that we are being abandoned or that somebody is trying to put a lot of ice on the relationship."

At the same time, he adds, potential political instability and Iranian-style fundamentalism in the former Soviet Muslim republics argues for strengthening a strategic alliance originally forged to contain Soviet aggression.

"The character and nature of the potential adversary has changed," says Shoval. "The area as a whole is probably as volatile as it ever was in the past. A very close strategic relationship between the United States and Israel is probably as important now as it ever was in the past - maybe more important."

He says the impression that the US is loosening its ties with Israel has already emboldened Palestinians to stiffen their negotiating position in Middle East peace talks. A further deterioration could have more serious implications in the Arab world at large.

"If the Arabs should assume wrongly that America is no longer there backing Israel, the balance between the will for peace and the will for renewed aggression sometime in the future may be shifting in a negative direction," Shoval says. He insists that the US is mistaken if it believes that Israeli policy would change if Israeli Prime Minister Yitzhak Shamir were defeated in June's national elections by former Defense Minister Yitzhak Rabin.

"The difference between the Likud and Labor parties ... is not as big as sometimes made out to be," says Shoval.

"No doubt there is a difference in style, a difference in emphasis, a difference in degree. There's not a difference in principle," he says.

Many US and Israeli analysts say Mr. Rabin, who favors territorial compromise and limits on Jewish settlements, would be far easier for Washington to work with.