U.S. Backs Off Tough Israel Stand : Mideast: Baker’s comments on settlements in occupied territories stir an uproar in Jerusalem. No pressure intended, State Dept. says.

WASHINGTON —  The Bush Administration moved hastily Friday to quell a firestorm of criticism in Israel over remarks by Secretary of State James A. Baker III linking U.S. foreign aid to a demand for an end to Jewish settlements in the West Bank and Gaza Strip.

Baker’s comments were splashed across the morning newspapers in Israel, receiving equal play with a government crisis over how to manage the peace process.

Prime Minister Yitzhak Shamir said in a statement that his government “does not accept this American position and intends to hold a thorough discussion with the U.S. Administration.” A conservative member of Parliament, Geula Cohen, went much further, accusing Baker of “Mafia blackmail.”

It was not clear whether Baker simply blundered into a needless controversy or was following a familiar pattern in relations with Israel in which U.S. officials alternately apply and then relax pressure.

Asked Friday if Baker had intended to pressure Shamir, State Department spokeswoman Margaret Tutwiler said, “Absolutely not.”

One senior Administration official said the extent of the reaction in Israel had come as a surprise to Baker and his aides.

Tutwiler provided little clarification. She reiterated the substance of Baker’s comments but insisted at the same time that Administration policy is not as clear-cut as Baker had seemed to indicate.

She also revealed that Baker and Shamir had talked by telephone for about 45 minutes late Thursday. She said the talk was cordial, although she would not provide details.

Talking to a House Appropriations subcommittee Thursday, Baker said the Administration would support Israel’s request for $400 million to house Jewish immigrants from the Soviet Union only if Israel promises to end all settlement activity in the occupied territories.

He said it would not be enough for the Jerusalem government to pledge to use none of the U.S. aid in the West Bank and Gaza Strip, because under those conditions the American funds could be used to free up other money for settlement activity.

His remarks were interpreted both in Israel and the United States as an attempt by the U.S. government to force Shamir to accept a U.S. plan to restart the stalled Middle East peace process.

Shamir, however, frequently digs in his heels when faced with U.S. pressure, so such tactics can be risky.

Shamir is expected to meet soon, perhaps Sunday, with Foreign Minister Moshe Arens, Defense Minister Yitzhak Rabin and Finance Minister Shimon Peres to draft the Israeli response to Baker’s proposal for a meeting of the foreign ministers of Israel, Egypt and the United States to try to revive peace negotiations.

The four-member group, consisting of the two top leaders from the two major parties in Israel’s coalition government, serves as a sort of super-cabinet.

Baker’s linkage of the $400-million housing plan with Washington’s longstanding opposition to Jewish settlements in the West Bank and Gaza Strip was especially sensitive because it seemed to put Israel on notice that Washington might later attach similar conditions to other economic and military aid, currently running at about $3 billion a year.

On Friday, Tutwiler pledged that the United States would not impose new conditions on the regular aid program.

She said that in the regular aid program, Israel “provides the United States with documentation showing how U.S. assistance funds were used.”

That procedure, however, takes no account of the possibility that U.S. funds could be used to free up other money for purposes that Washington would not approve. Tutwiler said no changes were contemplated in that system.

Asked if a similar statement regarding the $400-million housing proposal would be acceptable, Tutwiler said, “We would view that as a step in the right direction.”

At the same time, she said, “It is not unreasonable to ask for assurances” that the money would not support settlements that Washington has long considered an obstacle to peace.

A senior U.S. official said later that the Administration has not yet decided what form the Israeli assurances would have to take. The official said it is possible that the United States would agree to provide the money without an iron-clad guarantee of an end to settlement activity, although that was not certain.

Baker is by nature a very cautious man who prefers to avoid controversy, but he has been caught in some surprising slips. For instance, last December he indicated that the United States would not object to a Soviet invasion of Romania to end the rule of dictator Nicolae Ceausescu. Administration officials scrambled to withdraw the suggestion, which was overtaken by events when Ceausescu was overthrown and executed by the Romanian army.

In his dealings with Israel, however, Baker has on several occasions delivered stinging criticism of the policies of the Shamir government, only to later pull back. The tactic amounts to a one-man good-cop, bad-cop routine.

The latest furor comes at a time when Shamir’s government seems to be hanging by a thread. The Labor Party has threatened to quit the coalition government if Shamir’s Likud Party fails to reach a decision by Wednesday on a new approach to the peace process, including agreement to attend Baker’s proposed meeting of the Israeli-Egyptian-U.S. foreign ministers’ meeting.

Peres, head of the Labor Party, sought to ease the latest crisis by suggesting that both Baker and Shamir have overreacted in talking about settlements.

“Basically, we do not intend to build new settlements on the West Bank,” Peres said. “In order to do so, there’s a need to have a government consensus, and my party doesn’t suggest to do so.”

But he reiterated that his party’s place in the government remains in doubt because of the contentious issue of whether and how to move ahead with the peace process.

“You can say yes, you can say no, but there’s no reason to postpone the decision,” Peres said. “We have to make our national choice.”

Peres said the Labor Party, which favors the peace talks, wants the answer by Wednesday. Likud will meet today to discuss the issue, with the prime minister under heavy pressure from the right to reject the agenda nursed along by the Bush Administration.

The peace plan was introduced by Shamir last April, calling for election of Palestinian representatives from the occupied territories to begin the process of settling the future of the West Bank and Gaza, conquered by Israeli forces in the 1967 Arab-Israel war.

The process has bogged down on preliminary steps, primarily the selection of a group of Palestinians to discuss the elections.

At issue is the composition of the Palestinian delegation and the influence of the Palestine Liberation Organization over the delegates. Rightists reject the current proposal, which would include on the Palestinian side representatives from Israeli-annexed East Jerusalem and Palestinians deported from the territories. The rightist argument holds, for instance, that any Israeli talks with Palestinians from East Jerusalem would raise questions about the legitimacy of the annexation.

In another signal of the extreme sensitivity of the Soviet Jewish immigration issue, the Israel Defense Forces clamped new censorship rules on reporting about the subject.

“The IDF censor announces that all material pertaining to immigration of Soviet Jews must be submitted to the censor prior to publication,” an army statement said.

The censorship is apparently aimed particularly at restricting news of the monthly figures for immigration from the Soviet Union. Yasha Kazakov, deputy head of the Liaison Bureau, which deals with Soviet immigration, estimated earlier this week that as many as 230,000 Soviet Jews could immigrate this year, up from earlier estimates of about 100,000.

Kempster reported from Washington and Williams from Jerusalem.