An Israeli security guard observes the newly-built concrete wall surrounding Jewish settlements in the occupied West Bank

WASHINGTON, November 26 (IslamOnline.net & News Agencies) – Getting the Israeli green light, the United States decided to deduct $289.5 million from a loan guarantee package to Israel for its sprawling settlement activity in occupied Palestinian territories.

The Israeli embassy said in a statement that the amount cut had been "suggested" by Israel, which does not affect Washington's direct aid for the Jewish state, the BBC News Online reported.

"Israel understands that the U.S. should not finance directly, or indirectly, activities with which it does not agree. Israel accepts that the United States does not view some of the Israeli activities to date in parts of Judea, Samaria and Gaza as being consistent with U.S. policy," the Israeli embassy said in a statement.  

Israel "therefore suggested that the U.S. deduct the agreed sum of $289.5 million from the 3 billion dollars in loan guarantees currently available."

An Israeli diplomat told Agence France-Presse (AFP) the decision was taken Tuesday, November 25, following a meeting in Washington between U.S. national security adviser Condoleezza Rice, and Dov Weisglass, Israeli Prime Minister Ariel Sharon's chief of staff.

White House national security spokesman Sean McCormack said the United States welcomed what he also characterized as Israel's "suggestion" that the loan guarantees be reduced because of the disagreements.

"This suggestion acknowledges U.S. policy concerns and U.S. law regarding activities in the West Bank and Gaza and is a reflection of close and continuing consultations between our two governments," he told AFP.

Both Israel and the U.S. have stressed that despite the reduction, their ties remain strong.

"Bush has domestic political reasons to be cautious in how much pressure he puts on the Israelis," commented the BBC's David Bamford in Washington. 

"His father, George HW Bush, suspended Israel's loan guarantees for similar reasons when he was president in 1991. But it created a political storm in the U.S. that many believe contributed to his failure to win a second term as president in the following year's election." 

In addition to the banking guarantees, Israel in 2003 got one billion dollars from Washington following the war in Iraq, money that came on top of the annual U.S. assistance of almost 3 billion dollars a year, which includes 2.1 billion in military aid.

The $289.5 million figure is the amount Washington has estimated will fund building in the occupied territories -- including building parts of Israel's separation wall, which cuts off vast swathes of Palestinian farmland and runs deep inside the occupied West Bank.

A U.N. report underlined last September that the separation wall marked illegal annexation of Palestinian territory and must be condemned by the world community.

Under the terms of the internationally-backed 'roadmap' for Middle East, Israel is obliged to dismantle all outposts and place a complete freeze on settlement activity.

Insignificant

Furthermore, an Israeli minister sought to play down Wednesday, November 26, the significance of the U.S. decision.

"These measures form part of our tacit understanding and should not worry us," Absorption Minister Tsippe Livni told public radio.

"The important thing for us is that the security fence (the separation wall) will include a maximum number of our nationals," Livni said.

During a speech in London last week, U.S. President George W. Bush publicly criticized Israeli Prime Minister Ariel Sharon's hardline policies in the West Bank and Gaza Strip, after behind the scenes pressure failed to bring results.

Bush said Israel must "freeze settlement construction, dismantle unauthorized outposts, end the daily humiliation of the Palestinian people and not prejudice final negotiations with the placement of walls and fences," in reference to the wall.

The first phase of the barrier was completed in July 2003 in the northern West Bank. The defiant Israeli government of Ariel Sharon approved last month a new 100-million-dollar section of the controversial barrier.