The White House pressed Israel on Thursday to make additional changes to its planned barrier fence through the West Bank and appeared to be leaning toward making small deductions from a US$9 billion package of loan guarantees in response to its construction in Palestinian areas.
Administration officials insisted that no final decisions have been made on deductions for construction of the fence, which US President George W. Bush called "a problem" because it would make it hard to develop a contiguous Palestinian state.
But sources close to the deliberations said deductions for the fence were likely, though they would be small in size and come from loan installments in future years.
With next year's presidential election looming and the US-backed "road map" for peace on hold, there is little incentive for the Bush administration to clamp down on Israel any time soon.
"They have made some adjustments [to the fence] that I think have helped a lot ... and we'll see what other adjustments they might be able to make," US national security adviser Condoleezza Rice told reporters ahead of talks with Israeli Finance Minister Benjamin Netanyahu.
Rice said the fence "continues to be a problem" because of US concerns it "somehow prejudges" future peace talks and could "infringe ... on the lives of ordinary Palestinians."
"But the issue of how this relates -- one way or another -- to loan guarantees ... at this particular point is premature," she added.
Several of Bush's senior advisers favor making deductions for construction of the fence. But that could anger Israel's staunch supporters in Congress, including some of Bush's closest Republican allies.
"We haven't made any determination on deducting for the fence or not," a State Department official said.
Netanyahu said his meetings at the White House with Rice and Vice President Dick Cheney focused on economic reform and trade, and he compared Israel's fence to the border between the US and Mexico.
Under US law, the State Department must deduct from the guarantees, on a dollar-for-dollar basis, sums that are spent "for activities which the president determines are inconsistent with the objectives and understandings reached between the US and the government of Israel."
The administration had all along planned to make deductions for settlement activities in Palestinian areas, but Israel and its supporters in Congress argued that the fence should not be counted.
Israel says it is building the fence to prevent Palestinian militants from entering Israeli territory and launching attacks.
Palestinians describe it as a new "Berlin Wall" that grabs territory and reflects an attempt to create a political border.
Israel began using the loan guarantees in September with a sale of bonds that will mainly go toward restructuring the country's debt with the lower rates.