Bush Ready to Use Aid to Halt Israeli Settlements : Mideast: He is reportedly willing to overlook construction begun in past two years.

ELI, Israeli Occupied West Bank — At the head of a new ribbon of asphalt that weaves through the rocky hills of the West Bank, an earthmover methodically digs at a mound obstructing the future roadway.

Big cement trucks roll up and down a spur that leads to the nearby settlement of Eli, which until a year ago was populated by 40 families. Now it has mushroomed, with capacity for 400 families, although maybe only 20 more have moved in.

Overhead, an American spy satellite in orbit silently watches, beaming pictures to Earth that eventually end up at the State Department.

Keeping tabs on Israel’s settlement program has become a preoccupation for the Bush Administration as it considers pressing Israel to limit construction in the occupied territories of the West Bank and Gaza Strip.

At stake is American support for $2 billion in loans this year and $8 billion more over the next four years that Israel wants to fund jobs for new Soviet immigrants. By getting Washington to underwrite the loans--to be willing to pay in case of default--Israel would find it easier to persuade bankers to supply the money. The terms for repaying the loans would be more favorable as well.

With the aid lever in hand, President Bush, in his on-again, off-again campaign to stop the settlements, is planning to set conditions. He wants a moratorium on new building in the West Bank and Gaza, according to reports circulating here.

That would mean that Bush is willing to overlook construction begun during the last two years, when Washington frequently voiced complaints about the settlement program. Land clearing and other preparation already under way is proceeding quickly, and if the projects in progress are completed they will go a long way toward making the territories an annex of Israel.

For instance, the unfinished road that passes by Eli is designed to link the settlement with a string of other developing communities as part of the Israeli government’s accelerated effort to expand settlements throughout the territories. Just how much of this construction will continue, and how much will stop and how quickly, are issues at the center of a battle between Israel and the United States over the proposed limits.

In any event, this is the first time that the United States has tried directly to brake the settlement drive by using foreign aid as a weapon. In the past, Washington has limited itself to restricting the use of American aid directly in construction.

This time around, rather than restrict the use of aid, the Bush Administration appears to be asking that Israel restrict its policy. Last week, Secretary of State James A. Baker III outlined the aid-settlement link to Zalman Shoval, the Israeli ambassador in Washington. The Shamir government has reluctantly accepted the probability that strings will be attached, but it will fight to limit them.

Among the many ambiguities is the question of Jerusalem. There has been no mention of the city’s eastern Palestinian districts, which Israel annexed after the 1967 Middle East War. In the past, Bush has opposed building in East Jerusalem on the grounds that East Jerusalem’s status is yet to be finalized. Israel considers the case closed; building in Jerusalem is as legitimate as construction anywhere in Israel, it maintains, and the government is rapidly building up Israeli neighborhoods.

Bush’s goal, presumably, is to shut the door on further construction while Middle East peace talks continue. Still, if construction in progress is completed, the landscape and demography of the West Bank will be significantly altered, say Western diplomats who closely monitor the projects. They estimate that 9,000 housing units are under construction, half of about 18,000 begun during the past year and a half of Prime Minister Yitzhak Shamir’s expansion-minded government.

Completion and occupation of the 9,000 alone would make way for another 36,000 Israelis to move to the West Bank and Gaza, increasing the population to about 135,000. Opponents of the peace talks say that by raising the Israeli population to higher and higher levels, it will impossible for any Israeli government to propose withdrawal from the West Bank and Gaza. About 1.7 million Palestinians live in the disputed lands.

The Israelis may argue that the number of housing starts is much larger than 9,000, if land cleared for construction is included. When Israeli contractors prepare to build a new community, they level the ground in a swath rather than lot by lot. Boundaries of larger settlements have been abruptly expanded in preparation for massive new building.

Also, between 3,000 and 5,000 mobile homes have been placed in the West Bank and Gaza, and Israel will probably argue that these are stand-ins for permanent structures.

Limits may be difficult to enforce because of issues of trust. Confidence between Bush and Shamir is at a low level. Bush believes that Shamir promised two years ago to curb the settlement program, but there has been a progressive acceleration of building. Last year, establishing a handful of new settlements on the eve of visits by Baker to Israel was taken as an insult.

U.S. consular officials frequently tour the West Bank and Gaza looking for new construction. The satellite photos, which are studied by demographers in Washington, are a kind of early warning system for new construction and can be matched up with ground observation.

In general, the Israeli government has produced data that appears to understate the amount of building. Recently, in an effort to hide five new settlements, the Israelis claimed that they were merely neighborhoods attached to old settlements, even if they were separated by miles and gullies.

According to Finance Ministry documents, Israel began 5,435 housing units in the West Bank and Gaza last year; overall, more than 12,000 units were in some stage of construction.

The government, rather than respond directly to accusations of underreporting, virtually charges its critics with treason. Housing Minister Ariel Sharon attacked a settlement investigation carried out by the liberal Peace Now movement as “informing of the worst kind” and “sick.”

Opponents of the settlement program assert that the government plays a double political game.

“For internal Israeli public consumption, the government--hard-pressed by the settlers and right-wing parties--prefers to give the impression that every effort is being made to enhance the settlement process,” a recent Peace Now report argued. “For external consumption, the government provides and maintains a dense smoke screen around the settlement process.”

While keeping details hidden, the government makes no secret of its goals. Sharon has hired teams of city planners to map out large settlements in zones in the West Bank and Gaza where Israeli colonies are now isolated and anemic. Recently, opposition Parliament members released Housing Ministry documents that outlined plans for 80,000 new homes in the next few years.

Once it was thought that settlements should be established in the east, near Jordan, as a defensive line against invasion. The pattern has been reversed; Sharon is shoring up settlements nearest Israeli cities to the west so as to make an organic connection between the occupied land and Israel proper.

“The action is in bedroom communities with good roads to Israeli cities,” noted a Western diplomat.

Sharon is also reinforcing areas of the West Bank where there are few or skimpy settlements to isolate Palestinian pockets of population and to make sure they are not connected geographically.