AMBASSADOR SHOVAL: (Applause.) Thank you, Mr. Chairman, my friend Rabbi Heyer (sp), my friend Congressman Larry Smith. We've been appearing several times now in the last few weeks together. We're getting to be the Smith and Shoval act. (Laughter.) We're not doing too badly, are we, Larry? I always enjoy listening to him because what Larry Smith has to say comes from the heart.

Ladies and gentlemen, friends, I will have to make rather brief remarks because in about 45 minutes from now, I am accompanying the chief rabbi of Israel to the White House for a meeting with President Bush, and we don't want to keep these gentlemen waiting. So, I don't know if we'll have enough time for questions and answers, but we'll see.

Let me very, very briefly comment on the last round of peace talks, which we just concluded last week here in Washington. And I don't want to tire you with what you have already read in the press about the Syrians and the Lebanese and even the Jordanians. With the latter, we, I think, have established a rather more helpful atmosphere than perhaps with the rest. But, with regard to the Palestinians, the Palestinians and the joint Jordanian- Palestinian delegation, I am afraid that not only haven't we made any progress at all during the last round, but we might -- we might even have gone back a little bit from where we had already been in previous rounds.

And the question is why this has happened. Why have the Palestinians, in the recent round, taken a more adamant stance, a more hard-lining stance, more rhetoric speeches, all sorts of things which have nothing to do really with discussing peace? And I'm afraid that one of the reasons, one of the reasons -- there are other reasons. There is the reason that the Palestinians among themselves have different agendas, different views, they're under different pressures, and so on and so forth. But I have no doubt in my mind that the Palestinians, seeing the controversy between Israel and the United States about the loan guarantees and the settlements, may have had a perception -- and I say a perception, because I still hope that realities are different, but they certainly had a perception that in this atmosphere, in this cooling atmosphere between Israel and the United States, they don't have to be more flexible, they don't have to be more compromising, more forthcoming. On the contrary, they believe this may give them an opportunity to press their demands and perhaps being backed, at least atmospherically, by the United States.

I say this is a perception and I hope they are wrong. But, as Henry Kissinger has said, perceptions sometimes turn into realities. And as Larry Smith has already mentioned, the Arabs have always hoped for tens of years, for decades, that the day would come that America would deliver Israel. I don't think that this is happening, I don't think this will ever happen, but that has always been the hope and the prayer of the Arabs.

Now they see that on the very, very central issue, the settlements -- and as we all understand, the matter of the settlements isn't really the matter of the settlements, it's the future of the territories, it's the future of the borders, it's the future of Israel's security. On a very central issue, which will have to be negotiated between us and the Arabs and the Palestinians, once the time comes -- and according to this peace process this should happen three years down the road, once we discuss the permanent status -- instead of having to negotiate with us, instead of talking about the quid pro quo in the negotiating process, they may get one of their major, major prizes in this whole process, not as a result of negotiating with us but as a result of American pressure on Israel. And pressure in what connection, in what context? In the context of immigration to Israel, a matter which the Palestinians and the Arabs, of course, have always opposed. Again, nothing to do with settlements, nothing to do with the territories.

Any additional Jew coming to Israel is something which many Arabs, perhaps not all, but many Arabs still object to because this would strengthen Israel, enhance Israel's capability of deterrence, as well as others, and this is something they object to. And here they get almost on a silver platter something which they want to achieve and, as I said before, as a result of a controversy between Israel and the United States. And I have absolutely no doubt that this has immediately led to a hardening in the Arab negotiating stance in this last round. And therefore, unless there is a change in attitudes and unless America and Israel will succeed in resolving this issue, I do not see great chance for progress in the peace process, although Israel will go ahead forcefully, determinedly. I don't see much chance that the Palestinians, at least in the next few months, will be more forthcoming and that we will have a better chance of arriving at some sort of common denominator in order to get this thing really moving.

Now, Israel, as you know, has proposed a number of points in an expanded agenda of how the interim self-government arrangements in the territories -- in Judea, Samaria and Gaza, in the West Bank, whatever the name -- should look like in the first five years of this arrangement. And believe me, we have been forthcoming, we have been generous, we have been enlightened about that. And these articles included in our proposals really relate to most things, to most fields, to most domains which any normal citizen in any normal country would face in his relationship with his government. It includes all civilian affairs, municipal affairs, judicial affairs, economic affairs, taxation, import and exports, the courts, agriculture, education, health. I may have forgotten something -- a local police force.

It does not include, and it was never intended to include -- not according to Camp David, and not according to the terms of reference of this peace process, Israel's security. Israel will always, whatever the solution, whatever the formula will be, look after its own security. The Palestinians may want, and we agree with that, to run their own lives. But they will not be permitted to run our lives. And as we understand, and everybody used to understand, the future of the territories is connected, inseparably connected, with Israel's security. Now, the Palestinians have become a lot more sophisticated, a lot more adept, at least in public relations. And they employ very often what I call the sandwich formula. They pack a lie or an untruth between two truths, and not everybody who is not involved on a daily basis with the problems of the Middle East and the Palestinian question and so on and so forth can really discern where the truth is and where the untruth is.

For instance, we often hear that phrase "Arab Jerusalem." How many people -- in this room I'm sure they do -- but how many people in the general public realize that already 150 years ago the Jews in old Jerusalem were the majority. How many people know that? And that they were expelled from Jerusalem, from old Jerusalem, in 1948? That there never was such a thing as "Arab Jerusalem." There were Arabs in Jerusalem, but there never was an Arab Jerusalem. People don't realize that.

And the Palestinians speak about the basic right of self-determination, and of their right to reestablish their sovereignty. How many people know that there never was a Palestinian sovereignty? As Ben Gurion used to say, there were many peoples, many nations, many invaders in our land -- the Babylonians, and the Egyptians, and the Turks, and the Seljuks, and the British, and the Arabs. But never in history did any of these peoples have their state there, except for the Jews. Whenever there was a national state in Palestine, it was a Jewish state. Those peoples never had their state there. And we never had a state anywhere else, except in that land.

But again, this is one of these things which has gone astray in the propaganda battle -- and which unfortunately we are not always (as good ?) as people make us out to be.

Larry Smith talked about I think the number one issue for Israel, for the Jewish people, and that is the matter of immigration, aliyah, to Israel, basically from the Soviet Union, the former Soviet Union. Not only. Let's remember Operation Solomon, let's remember the small diaspora from Albania, all of which has come to Israel this last year, from Yugoslavia, from Bulgaria, from other countries. But basically, it's the Soviet Union, the former Soviet Union. Three hundred seventy-five or so immigrants to Israel since the end of 1989. And although the figures have gone down a little bit in January and February, mostly as a result of Israel's economic problems, which are not unrelated to the halt, to the stop on the loan guarantees, because let's not forget, friends, that these loan guarantees were supposed to go forth not in September but last March, and that they were then postponed till September, and that they have now been postponed, who knows till when.

And this is one of the reasons why Israel could not do what it wanted to do in the economic field, and we have unemployment, and Jews write their brethren and family members in Russia, "Wait, wait a little bit because there's unemployment in Israel." And unfortunately, Jews have very often waited too long in the past because of economic reasons, because of material reasons. Hopefully, we will not suffer any tragedies, but the risks are there. Anti- Semitism in the Soviet Union is on the increase and not on the decrease.

And taking into consideration the situation in the Soviet Union, we wish them well. These dangers which are lurking everywhere and anywhere in all of these republics may create a situation where we will all be sorry, I'm sure including those who are debating with us and arguing with us about the loan guarantees, hopefully that they will never arrive.

Larry has talked about the nature of the loan guarantees. I don't want to repeat all the aspects of that. There has been a lot of misunderstanding, misinformation. It has nothing to do with settlements. At least it shouldn't. It has nothing to do with the peace process. At least it shouldn't. It has nothing to do with foreign aid. We are asking for guarantees which will not cost one cent to the American taxpayer.

By the way, an interesting fact and a well-established fact is that these loan guarantees given to Israel would also be a not inconsiderable boost to the American economy. Why? Because it has been established by economists that $10 billion worth of loan guarantees will create increased American exports to Israel over the next five years by between 13 to 15 billion dollars, which probably means or can be translated into 40,000 additional jobs in this country. And after all, we're going to buy raw materials and machinery and infrastructure-related goods in this country, and it's only natural that this will create an increase in American exports.

And just to give you one example, when we had last year's $400 million housing guarantees, $140 million out of that were spent in this country, and many, many thousands of jobs were created in this country. So, if we want to be objective and factual, it has nothing to do with foreign aid. It is something which will help Israel in the great humanitarian task it has taken upon itself, and it will help Israel's economy over the years, among other things, to do without American aid, which, although it only constitutes civilian aid, 3.5 percent of Israel's budget is still considerable. And we want to stand on our own feet, and we shall be able to do that because if you take the mix of the human resources which we have in Israel and have more now as a result of immigration, with investments, Israel could become by the end of the century one of the new great economic miracles in the world. Just give us the chance, and I believe we'll accomplish that.

Now, it is true that this controversy about the loan guarantees unfortunately has cast a shadow over the relations between the two countries, which I believe is potentially worrying, of course to Israel, of course to the friends of Israel, of course to the Jewish people, and not just the Jewish people. But I believe that it is also potentially worrying to the best interests of the United States, let alone Israel.

Long-lasting, permanent, stable relationships can only exist between democratic societies and democratic countries. Yes, there may be coalitions, temporary coalitions -- we have nothing against that -- with this or that Arab country. But in a country under a regime where policies can change overnight by the flip of a coin or by the change of this or that dictator, this is not the sort of relationship which exists between democracies where public opinion supports these relationships. So, I believe, and so do many Americans, including Americans in the defense establishment in this country, that when it comes to the crunch, America doesn't really have a substitute for Israel in its own interests, in the pursuance of its own interests in the Middle East.

Now, what am I talking about? There used to be a perception, a theory, that, with the Cold War over, the strategic relationship between the two countries is no longer important. And you still read these theories sometimes in the press. Yes, the Cold War is over, and the Soviet Union no longer represents a danger. There is no longer a Soviet Union.

But has the Middle East become a permanently stable area? Don't we have to take into consideration that between 30 or 40 or perhaps 50 million Moslems in the former Soviet Union are now part of the Middle East, most of them still looking for the direction they will take? Will they become secular and democratic? Hopefully, they may. But aren't they being courted by a fundamentalist, anti-Western Iran, with no little success?

Who knows what direction they will take? Who knows what dangers may still be before us? Not before us, Israel, only. But before us, the free world in the Middle East. Who knows what Syria and Iran are jointly planning in the military fields and the strategic fields and the political fields in the Middle East? Who knows if even Iran and Iraq, both of them basically anti- Western and anti-democratic, could not get together one day? These things change very quickly in the Middle East. And there's only one permanent factor of democracy and stability and pro-West in the area, and that's Israel. And this is something which should be remembered beyond the temporary squabbles and controversies which we have at the present time.

And one closing note. There have been statements, and there are still statements from time to time that in modern war, geography, topography, strategic depth are no longer of importance. Well, ask the Kuwaitis, because at the end of the day, the war over Kuwait was determined on the ground, one could always say by conventional warfare. But Kuwait was given a chance to come back another day after six months.

Israel -- had Israel been Kuwait, Israel would never have had the chance to come back after six months. There would be no Israelis left. So Israel must look after its own defense. And the borders of Israel, the territories -- Samaria and Judea -- are part of Israel's security needs. Whatever the politics involved, whatever the ideologies involved, on this there exists a basic common denominator between most Israeli defense experts -- left, right, or center, hawkish or dovish -- that Israel, within the pre-'67 green line, cannot be defended. And when we are being told that with Scuds and missiles, territory is no longer of importance, we say, "Friends, Israel's army is an army of civilians, of reservists. It takes us a number of days to mobilize them if aggression occurs. And it is at that time when Scuds can create havoc in Israel's civilian areas. It will make mobilization perhaps more difficult. It is precisely for that reason why we need the territorial barrier which will enable our small standing army to stall an aggressor, to halt an aggressor far away from Israel's population centers, near the coast, temporarily at least, before we are able to mobilize our army.

So let me say whatever formula of peace will hopefully be arrived at in the present peace process, Israel will never go back to the '67 borders, and that should be clear, because it would be potential suicide. This has always been the view, also, of the United States in the past. Former President Reagan said, "We shall never ask Israel to go back to the '67 borders because of the threats which faced her and still face her." And we hope that that basic attitude of the United States has not changed. And I'm not speaking about political formula how exactly this will be taken care of, but the basic ingredients are still there.

So let me say, friends, this is a difficult period, it is also a very hopeful period because the fact of Jewish immigration is probably the greatest challenge, the greatest promise, the greatest miracle in the modern history of the Jewish people since the establishment of the state of Israel. And we face many problems, and we are a small people. But by Jewish unity, we shall be able to overcome these difficulties as we have in the past.

Thank you very much. (Applause.)

MODERATOR: Ladies and gentlemen, the Ambassador has indicated, you know he is on a tight schedule, but he has consented to 10 minutes of questions. Are there any questions?

Yes, Rabbi Cooper.

Q: Ambassador, many people in the room are hopeful that the Bush administration -- Ambassador, many people in the room are hopeful that the Bush administration will intervene with the North Korean shipment of Scuds that's currently (in the Indian Ocean ?) What's the status, and if they do reach their destination in Syria, what effect to the peace talks?

AMB. SHOVAL: Well, obviously I don't know what the American government is going to do about this Korean weapons ship to Syria and Iran, and if I knew I probably wouldn't say it here, but I don't know. But I am thankful for the question because this underlines I think the point which I tried to make in my address. The Syrians for whatever services they took upon themselves during Desert War (sic), and I don't remember what they were, they received two billion dollars worth -- from Saudi Arabia, perhaps from others, what did they do with that money? They buy Scud missiles and missile launchers, more sophisticated than the Iraqis had. They developed their chemical warfare capability which is more advanced than Iraq's ever was. They buy modernized Soviet tanks from Czechoslovakia. They are trying to buy fighter planes in the former Soviet Union itself.

There is a question of course that comes to mind about the suppliers of all these weapons, but I will leave this aside for a second. Why on earth are the Syrians spending their last dime when they have serious economic problems at home, on buying all these sophisticated arms, if not against Israel? So what about the peace process?

Settlements are the biggest obstacle to peace in the Middle East? Isn't this strange? The dangers are still there, and we just saw a few days ago, I think in the New York Times, that there is a worry in this country, a justified worry about the possibility of defensive coordination between Syria and Iran, and that's what I talked about before.

So I hope everyone in this country and in Israel will not lose sight of the real dangers not just to the peace process but to the peace and stability in the Middle East. Yes, sir.

Q: (Name inaudible) -- I have two questions. One -- (off mike) -- US government believe that almost all -- most of the settlement -- (off mike) -- done by Israel today is on settlements that add to Israel's security, and the second question which is totally unrelated is on loan guarantees. And dealing with congressional time constraints in dealing with the Foreign Aid Bill this year, would Israel be amenable to having some kind of conditional loan guarantee legislation approved so that a future Israeli government could decide at some later point this year to (accept ?) any US -- (off mike)?

AMB. SHOVAL: Okay, first question. I did not say nor am I saying that all settlements in the territories are security related. I didn't say that. Many are, perhaps most, not all, and of course it also depends how you define security.

The late Moshe Dayan, who with the sorely mourned Menachem Begin were the architects and engineers one could say of our peace with Egypt, and he was no right wing extremist -- always pointed out that unless Israel preserves its civilian presence in the territories, in the long-run we would not be able to preserve the military presence there either, we would be temporary occupiers. And Israel's civilian infrastructure in the territories are part and parcel of our strategic needs.

There are other factors involved. I would say that Israel's claim to being allowed to have a presence in the West Bank, in Judea and Samaria and Gaza is morally right, historically right, legally right, and certainly security- related right. And I would like to point out that -- everybody's playing Israeli politics these days, of course, including the Palestinians -- that on that point there is no difference of opinion between Israel's major political parties.

When my friend Mr. Rabin says, "We, the Labor party, are only for security settlements and not political settlements," and he then enumerates what he's for or what the Labor party's for, he says settlements in the Jordan Valley, settlements in Bushesyam (ph), settlements around Jerusalem, and settlements in the Golan. But I have not heard -- maybe you have -- that those who oppose settlements tell us, "Please, go ahead in the Jordan Valley and Jerusalem and Bushesyam (ph) and the Golan, but don't put settlements somewhere else." We are usually being told no settlements period. But this is a difference of degree, of details, not on principle. And I believe that whatever government there will be in Israel after June 23rd will pursue in principle, perhaps not with emphasis on this or that, the same policy because this has been Israel's policy since '67, whichever government there was. And most settlements, after all, were started by Labor governments. So I think that people who try to oppose or play Israeli politics don't really understand Israelis' attitudes about that.

Q: Could there be, (you know?), ground between what you're saying and what your government's saying, having some settlement spending that is security related --

AMB. SHOVAL: I am now coming to the matter -- to the second part of your question. There is, I suppose -- I believe a set of negotiations going on between Congress and between the administration. We are not privy to that negotiating process. We have heard about it, but we don't know all the details.

And once there is compromise, if there is -- and I'm not terribly sanguine about that, but let's hope there will be something -- Israel will have to look at this, if it can live with that sort of compromise or not, if that compromise takes care of the basic and central aim of this whole thing, to help us in absorbing immigrants from the Soviet Union. And on that score, I'm keeping my options open at the present time. So is the Israeli government. One question more. If there's none, that's also okay. The lady in the red dress -- I think it's red.

Q: I had heard that Shamir was ready to drop this $10 billion loan guarantee from the United States if that was an issue that they could possibly get him to drop. Is that true? Is Israel -- (inaudible) --

AMB. SHOVAL: Well, I don't think this exactly reflects the Israeli government or Mr. Shamir's point of view. As I've said before, we will have to look at anything which is coming out of here in that field. Israel is faced with a difficult choice, and it is a Hobson's choice, as Larry Smith said.

On the one hand, these loan guarantees are vitally important. We are not saying anything else. This happens to be true. In order to absorb a million immigrants over the next four to five years -- and 400,000 are already there! We are not talking about theoretical or hypothetical questions. Israel will need between 50 [billion dollars] to $60 billion -- economically schools, homes, hospitals, and so on and so forth.

Part of that amount comes out of the pockets of the Israeli taxpayer and Jewish philanthropy around the world. And everyone in this room and in Israel is doing what he has to do about that and hopefully the growth of the Israeli economy itself.

The other half, the other 25 [billion dollars] to $30 billion will have to come from international sources. And the $10 billion worth of guarantees are part of that. So you say -- you can say it's only 10 billion [dollars] out of 60 billion [dollars], but it's a very important 10 billion [dollars] because realities are such that the rest of the non-Jewish world, the rest of the financial world and other governments look to Washington in that respect. If Washington doesn't go ahead with the loan guarantees, others might not either. And therefore it's a very vital ingredient.

On the other hand, as I explained before, settlements are just an expression of the future of the territories and of Israel's borders. And Israel is concerned with its future security. And we must be concerned with Israel's future security. After all, this is what this whole peace process is about, to negotiate with the Arabs about lands in which we believe we have a claim and in which they believe they have the only claim. We don't accept that. We talk about Jewish-Arab coexistence. They talk about getting the Jews out altogether. We don't accept that.

And the present controversy between Israel and the United States on the settlements may indicate to the Palestinians perhaps falsely that the American government shares their view about the future of the territories. I say perhaps falsely, hopefully falsely. But this is not helpful to the peace process.

Therefore we would welcome if there were any formula about the loan guarantees, which would enable us to live with it without giving up matters of principle and very much of substance as well.

Thank you very much. (Applause.)