Relations between the US and Israel have been tense over settlements Israeli officials have shrugged off a suggestion that the US could withhold loan guarantees to pressure Israel over the Middle East peace process. The finance minister said Israel did not need the guarantees, while the prime minister accused the Palestinians of holding up peace negotiations. US envoy George Mitchell said this week the US could withhold loan guarantees to extract concessions from Israel. The guarantees allow Israel to raise money cheaply overseas. 'Doing fine' Finance Minister Yuval Steinitz reacted by saying the Israeli economy was doing well. Under American law, the United States can withhold support on loan guarantees to Israel

George Mitchell

US Middle East envoy "We don't need to use these guarantees," he was quoted by Israeli media as saying. "We are doing just fine. But several months ago we agreed with the American treasury on guarantees for 2010 and 2011, and there were no conditions." In response to Mr Mitchell's comments, Prime Minister Benjamin Netanyahu's office said: "Everyone knows that the Palestinian Authority is refusing to renew the peace talks, while Israel has taken important and significant steps to kickstart the process." Palestinian officials say Israel must completely halt settlement building in the West Bank and East Jerusalem, which it occupied during the 1967 Israeli-Arab war, before negotiations can resume. Since he came to office in 2009, President Barack Obama has focused closely on trying to get Israeli-Palestinian peace talks moving, but with little success. Mr Mitchell, who is due to return to the Middle East this month in his latest attempt to restart negotiations, was asked on Wednesday in an interview with America's PBS how the US could bring pressure to bear on Israel. "Under American law, the United States can withhold support on loan guarantees to Israel," he said. Precedents He noted that support for the guarantees had been reduced in 2003, but added that no sanctions were being considered and that he preferred persuasion. Former US President George W Bush's administration whittled down backing for the guarantees after Israel built part of its West Bank barrier. In 1991, $10bn of loan guarantees were withheld under former President George H W Bush to pressure Israel over the peace process. The Israeli comments on the loan guarantees came after US Secretary of State Hillary Clinton signalled a shift in the US approach by saying that agreeing the borders of a future Palestinian state would deal with Palestinian concerns about settlement building. Both sides should resume peace talks as soon as possible and without preconditions, she said. But chief Palestinian negotiator Saeb Erekat played down the chances of peace talks, citing settlements. The Israeli government has refused Palestinian demands for a complete halt to settlement building. It has limited building work for 10 months in the West Bank, but not in East Jerusalem.



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