Baker Urges Arab-Israel Flexibility : Mideast: The secretary calls for moves to build confidence on both sides.

WASHINGTON —  Secretary of State James A. Baker III, acknowledging the deep reservoir of mutual distrust facing his new Arab-Israeli peace initiative, said Sunday that both sides must move simultaneously to adopt “confidence-building measures” because neither side can be expected to make the first concession.

“Nobody should have to go first,” Baker said. “They ought to be willing to move together and they ought to abandon these old rigid formulas and rigid stereotypes that have prevented peace for these many years.”

Baker returned early Sunday from a 10-day trip to the Middle East and the Soviet Union. He plans to move quickly, perhaps this week, to urge Israel, neighboring Arab governments and the Palestinian residents of the occupied West Bank and Gaza Strip to begin taking actions designed to improve the climate for eventual peace talks.

Baker told reporters during his trip that he sees a “window of opportunity” for the long-stalled Arab-Israeli peace process in the wake of the allied victory over Iraq in the Persian Gulf War. So far, he has declined to provide any details of his proposals.

Interviewed on the ABC-TV program “This Week with David Brinkley,” Baker said that it would be a mistake to spell out the steps he expects the parties to take because the atmosphere is so tense that as soon as a proposal is made public, it almost always draws an immediate rejection.

“If there was ever a time or place to try and work something out quietly . . . it is in this crisis,” he said.

Officials traveling with Baker last week said that confidence-building measures could include an agreement by Arab states to discuss trade and other measures with Israel and action by Israel to ease the impact of the occupation on Palestinian residents of the West Bank and Gaza Strip. The suggestions were only examples and other, similar steps would be equally acceptable, the officials said.

Baker made clear Sunday that Israel must stop building Jewish settlements in the occupied territories if it hopes to make any progress toward a peace agreement. Prime Minister Yitzhak Shamir’s conservative government has agreed that it will not require Soviet Jewish immigrants to live in the West Bank or Gaza, but it has refused to even consider ending the construction of settlements or barring Soviet immigrants from living in them if they wish.

The United States recently agreed to $400 million in loan guarantees to help Israel build housing for the influx of hundreds of thousands of Soviet immigrants. While Shamir’s government agreed not to use any of the U.S. funds for West Bank and Gaza settlements, it insisted that it has a right to spend other money on construction in the occupied territories.

Baker said that the settlement of Soviet Jews or other Israelis in the West Bank and Gaza strip amounts to “de facto annexation” of the territories.

“That is changing the facts and circumstances on the ground in the absence of negotiations,” Baker said.

The U.S. government long has considered Jewish settlements in the occupied territories to be “an obstacle to peace.” But officials had not previously suggested that continued settlement activity would amount to Israeli annexation of the territories--a step the Israeli government has never tried to take officially.

Israel seized the Sinai Peninsula, the West Bank, Gaza Strip, East Jerusalem and the Golan Heights during the 1967 Middle East War. It has since returned the Sinai to Egypt, and the Israeli Parliament formally annexed east Jerusalem and the Golan Heights.

But the West Bank and Gaza Strip--home to 1.7 million Palestinians and about 100,000 Jews--remain under occupation and martial law.

Regarding the aftermath of the Persian Gulf War, Baker said that the Arab leaders he met with on his recent trip do not believe that Iraqi President Saddam Hussein will be in power much longer. When asked if he is certain that Hussein cannot survive, Baker said: “I don’t think anybody can say that.”

Baker said there is no question that the United States wants to see Hussein forced from power. But he said the Bush Administration also does not “want to see a power vacuum develop.”