Barak must decide quickly on Phalcon deal

TEL AVIV -- Prime Minister Ehud Barak faces the toughest decision in his administration and officials say he has to think fast.

The question: Should Barak submit to massive U.S. pressure to cancel the sale of the Phalcon airborne early-warning system to China.

The deal is worth a lot of money. China is interested in four Phalcons with each costing $250 million. Cancelling the deal will be a huge blow to the system's manufacturer, Elta Electronics Industries Ltd., a subsidiary of Israel Aircraft Industries.

But there is more at stake, Israeli officials said. They include Israel's low-profile but wide-ranging defense and political cooperation with Beijing, for years a key supplier of strategic weapons to the Middle East.

Barak's advisers have warned the prime minister that if U.S. pressure succeeds in cancelling the Phalcon deal, Washington could return to threaten U.S. aid to force Israel into additional concessions to the Palestinians and Syrians in peace negotiations.

"The consequences of cancelling the deal are enormous," a Barak adviser said. "It will reduce our sovereignty in the eyes of the United States as well as the rest of the world."

But that's not the only advice Barak is getting. Other advisers warn that Congress means business when it threatens to slash aid to Israel if the Phalcon is delivered to Beijing. Some members of Congress are warning they would not support any of the proposed $2.8 billion in military and civilian aid to Israel. They said this would include aid to ensure Israel's security in any peace treaty with the Arabs.

The result is that some aides are urging the prime minister to defuse congressional anger by immediately announcing the cancellation of the Phalcon deal. They said any delay would ensure long-term damage to the U.S.-Israeli relationship.

"We are going to have to reach a quick decision either this way or that way," Minister Haim Ramon, who often speaks for Barak, said. "We have to decide in favor of our ties with the United States and take this decision quickly, even though this is a difficult and complex problem."

In a 24-hour period over the weekend, Barak has spoken to U.S. Defense Secretary William Cohen as well as Chinese President Jiang Zemin regarding the Phalcon sale. The prime minister is said to be seeking a pledge from the administration and Congress for compensation to cancel the deal.

How did relations between two of the closest allies deteriorate within a matter of months to a point where the Pentagon wants almost nothing to do with Israel? Israeli officials acknowledge that the U.S. Air Force has refused to schedule even exercises with its Israeli counterpart in fear that training methods would be transferred to Beijing.

The answer is complex. Israeli officials cite bad luck. In 1996, they said, the Clinton administration did not raise objections to the Phalcon sale. At the time, relations between Washington and Beijing were excellent and China was not regarded as a military threat to the United States.

Over the last 18 months that has changed. China has rapidly built up its forces facing Taiwan and has threatened the island nation to unite with the mainland. Much of the new technology Beijing has deployed against Taiwan is believed to have been stolen from the United States.

The rest was inevitable. Congressional aides warned as early as 1998 that the Israeli military relationship with China would become a major issue in Washington.

"It was a time bomb," a senior congressional aide said. "Some of us warned Israeli officials that they would have to defuse the situation because Congress would not accept granting aid to Israel while it helps China. Maybe the administration didn't care. But we cared."

But Israel didn't listen. In 1998, then-Prime Minister Binyamin Netanyahu had close relations to the Republican-dominated Congress and believed he could convince the leadership that the Phalcon would not change the strategic balance in the Taiwan straits. The following year, Prime Minister Ehud Barak ignored Congress to focus on the Clinton administration.

Israeli officials said Barak largely ignored the Phalcon crisis until it was too late. In January, Barak's advisers, including Alon Pinkas from the Foreign Ministry and Eli Levite from the National Security Council, warned the prime minister that the problem would not disappear and urged him to quickly solve the issue.

But Barak accepted the advice from the Defense Ministry. Officials such as deputy Defense Minister Ephraim Sneh and Yekutiel Mor said the uproar would die down.

By April, the Phalcon deal was a major issue on the agenda of Cohen's visit to Israel. Israeli and Western defense sources said U.S. defense secretary was willing to accept an Israeli sale of one Phalcon system to China. But the sources said Barak would not pledge to concede on the option to sell another three systems to Beijing.

"Cohen was upset and told the White House that Barak was not serious," an Israeli source said.

Six weeks later, Barak was willing to accept Cohen's offer. But by that time, the Republican-dominated Congress rejected any deal. The GOP has made Clinton's China policy a key issue in the presidential elections in November and was not about to let go.

As important was a genuine concern in Congress that the Phalcon sale would send Beijing a signal that Washington was not serious over the Chinese buildup against Taiwan or over sales to the Middle East.

"The Chinese have promised that they would do better, promised that they would adhere to international regimes and norms of conduct, and they have consistently violated them," Sen. Fred Thompson, chairman of the Senate Governmental Affairs Committee, said. "They have materially assisted Pakistan's missile program; they have materially assisted North Korea's missile program; they have materially assisted Libya's missile program. They have now been responsible apparently for two missile plants in Pakistan."

Thompson and Sen. Robert Torricelli, a New Jersey Democrat, have sponsored a bill that would establish an annual review mechanism of China's proliferation of weapons of mass destruction. This could include limiting Beijing's access to U.S. capital markets. The bill, opposed by the adminstration, is expected to be voted on later this month.

But there is an additional element to the dispute. Israeli and U.S. defense sources agree that Washington is dismayed by Israeli defense research and development projects that could eventually compete with systems produced by U.S. contractors.

The best example is the production of the Green Pine radar for the Arrow anti-missile defense system. The Green Pine is meant to detect the launch of intermediate-range missiles from as far away as Iran and Iraq.

When Elta was chosen to develop the radar nearly a decade ago, U.S. officials were frantic. They warned their Israeli counterparts that the project would be too expensive.

At the same time, Raytheon, the leading U.S. manufacturer of radar systems, flooded the Israel Embassy in Washington with slides and material that touted its systems.

Israel said no thank you and completed the Green Pine. Now, the Clinton administration opposes the sale of the Green Pine radar to India. The argument is that India should not obtain such advanced technology.

Israeli officials are furious but not surprised. They said the Phalcon uproar in Congress has opened a Pandora's box that allowed U.S. officials to raise long-standing objections to Israeli arms sales.

"Let's face it," a senior Israeli defense official said. "We need the United States badly. We are a weak ally of Washington. But our priority must be to separate the Phalcon deal from the other demands of the United States, particularly as regards India. Our attitude should be not to say "No" to the United States. Instead, we should say "Yes, but ...'"