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'U.S. may pay Israel if it nixes Phalcon deal'

By Aluf Benn, Monday, Ha'aretz Diplomatic Correspondent

Ha'aretz, July 3, 2000

The United States will consider compensating Israel financially if it scraps its sale of the Phalcon airborne radar system to the Chinese military, an American source said yesterday.

"Scrapping the deal soon would convince Congress that Israel is operating out of friendship for the United States and an understanding of its interests, and could find expression in an increase in the upcoming aid legislation," the source said.

The Phalcon system was sold to China for $250 million, and the Chinese government has deposited one third of that sum with the Israel Aircrafts Industry. The contract includes a clause providing that if the entire deal is scrapped, the advance must be returned. The IAF, which is assembling the spy plane for China, has refused to say whether it would demand compensation from the government in the event that the deal is canceled.

Speculation in Washington is mounting that Prime Minister Ehud Barak will cancel the deal under pressure from Congress and its threats to cut military aid to Israel. According to an American source, Barak is seeking extensive U.S. aid to strengthen the IDF, in return for possible peace agreements with the Palestinians or Syrians. However, according to the source, given the current mood in Congress, there is no chance for extra aid.

"Barak had better hurry up and not drag out the Phalcon deal until the very day the aid request is submitted to Congress," the source added.

The Clinton administration is demanding that Israel scrap the deal with China, but currently prefers that the pressure on Barak come from Congress.

On Saturday, Barak spoke with Defense Secretary William Cohen and tried to soften his objection to the deal. "We understand your interests," the prime minister said, seeking to ease the pressure. "There is still time until the plane is to be supplied, and an understanding can be reached," Barak added, but Cohen refrained from making any promises.

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