Washington, January 5, 1968.
You are so fully immersed in this problem that I need not go into detail, but I do want to found up for you in capsule form where we stand on each major point you will be discussing. I am attaching a one-page checklist of these points, an interpretation of Eshkol's political position and Secretary Rusk's comprehensive memos.2A briefing book prepared in the Department of State including memoranda dealing with all of the issues anticipated in the discussions between President Johnson and Prime Minister Eshkol was sent to the White House on January 5 under a covering memorandum from Rusk, which incorporated suggested talking points. The interpretation of Eshkol's political position was in a January 5 memorandum from Saunders and John Foster to Rostow. All of these documents, including the checklist, are ibid. There is also a full set of the briefing materials in National Archives and Records Administration, RG 59, S/S Files: Lot 70 D 418, PM Eshkol Visit, Briefing Books I and II.
1. The main issue—peace. The real issue between us is that the Israelis think the Arabs will come around if they just sit tight and we think the Israelis may have to go more than half way to get the Arabs to negotiate. We can't dictate Israeli tactics, and we may not even know of some secret contacts. But we must be assured that the Israelis aren't going to sit themselves tight right into a “fortress Israel” that we would not want to be tied to. In this context, Eshkol may ask you what kind of support he can count on from the US if he gambles territorial security for an uncertain peace deal with the Arabs.
One point we haven't discussed with you recently is our willingness to facilitate Arab-Israeli contacts anywhere it makes sense. We don't want to get in the middle, but we think it would be worth offering to help if we can be useful.
2. Israeli moves toward peace. When we say the Israelis shouldn't just sit tight we have in mind specifically their: proposing a refugee settlement that would include compensation and some repatriation; offering Hussein some accommodation in Jerusalem; letting refugees from the June war back onto the West Bank; evacuating Tiran Island which is Saudi territory; and avoiding further actions that convince the Arabs they're just consolidating their conquests.
3. Nuclear weapons and missiles. We have been at the Israelis ever since your last talk with Eshkol in 1964 to get assurance that they won't go nuclear or acquire surface-to-surface missiles. The most they'll say is that they won't be the first to introduce nuclear weapons into the Mid-East and that they're developing missiles with French help just “in case they have to counter Arab missiles.” We'd like to stop the Mid-East arms race short of either weapon, but so far we haven't made much headway.
With prospects for an NPT improving, we may have a new handle on this problem. I think we ought to make it clear that we expect Israel to sign and that we think Israel's long-term security will be well served by signing. Eshkol may say he can't give up his nuclear option unless he can be assured that the Arabs won't achieve conventional superiority. I think we might well pose that problem to the Russians if Eshkol makes it a condition for signature. It might also be worth finding out whether he'd give up getting missiles if the Soviets would not give them to the Arabs.
4. Soviet penetration. Eshkol may claim that Israeli action in June stopped the momentum of Soviet-UAR gains. We're not so sure. The USSR lost a few yards in June, and we set them back in the UN. But they seem to have picked themselves up quickly to exploit new openings in the area. I think we want to shake Eshkol's reliance on Israeli force and intransigence to stop the USSR. We think a peace settlement is the only thing that can give any of us a real chance to build a Mid-East where constructive nationalism and regionalism can block the Soviet thrust. Meanwhile, we want Eshkol's acceptance of our resuming aid to Jordan.
5. Vietnam. You will be the best judge of what would help you most. We've had one report via Dick Helms that Eshkol may be thinking of an open endorsement of our Vietnam effort and even some active help. We ought to look at that pretty carefully because it would further fix the image of Israel as our stooge—an image we need to blur if we're ever to persuade the Arabs that Israel won't just do what we tell it. It may be that the best help Eshkol could give us would be some strong words to the Conference of Presidents of major Jewish organizations in New York and a modest endorsement in his departure statement.
6. Balance of payments. Israeli reserves are about $720 million. Of this, $45 million is in gold and about $600 million in dollar holdings. Last year, they put about $200 million in long-term dollar securities. They expect reserves to decline this year by maybe $100 million, largely because of lower remittances from the US. They hesitate to put more of their reserves into long-term dollar holdings because of their war chest psychology and consequent concern for liquidity. Nevertheless, once you've thanked him for past help, Secretary Fowler thinks it would be reasonable to suggest that he put another $100 million into long-term holdings plus an amount equal to any increase in their reserves. We can assure them we'd make these liquid if they really needed cash.
7. Aircraft. To keep the Skyhawk production line going, we have to decide soon, and I think we should give a secret go-ahead on the 27 additional Skyhawks. The 48 already being delivered will replace Israel's war losses, and the extra 27 would bring inventory to about 225 (pre-war 200) even if France delivers nothing. The real issue is the 50 Phantoms because that's what the Israelis really want and it is so clearly superior to anything the Arabs have that it would introduce a significantly advanced weapon into the area. (You might be interested in reading the comparison of these two planes and Soviet aircraft in the briefing book at the red tab under Background Tab A.)
I suggest saying we will amend the present Skyhawk agreement to add 27. We will deliver as quickly as the production line permits. (At present view, the most compressed plan would deliver the first plane in May 1969 and complete delivery in March 1970.) We would like to make this a cash sale (about $32 million) but could consider credit if they press. We must hold off the Phantom decision for another few months until we have a clearer picture of Soviet and French policy and of Jarring's progress. But you can assure Eshkol that we would not delay one day if we thought it would jeopardize Israel.
The crucial point is how we satisfy Eshkol that delay in our decision will not delay their acquisition because of lead-time if we decide to go ahead. One possibility is to offer to divert from our own production if the Arab strength increases unexpectedly. Another proposal which Eshkol may put to you is for us to let the Israelis (a) begin engineering discussions with the manufacturer to decide on the configuration they might want and (b) even finance some long lead-time items with no commitment from us on our ultimate decision. We had actually been considering financing these items ourselves. Letting the Israelis do it would unquestionably make it harder for us not to sell later.
8. Desalting. We are not ready to make a decision. What we know now is that the project as originally planned (100 million gallons per day water, 200 megawatts electricity) would cost about $216 million. The Israelis have since considered two larger plans-one to increase electrical output to 300 megawatts for $224 million and a second to increase electrical capacity to 350 megawatts and water output to 175 MGD for $336 million. For the $336 million plant, there would be a gap of about $150 million that would need to come from “soft” (30 years, 2% or less) loans even if the Israelis paid $84 million in local costs, the US were able to contribute research and development grants of $25 million and $75 million in commercial financing could be found.
In addition to overcoming financial problems, we feel strongly that this project should become a stepping-stone to more rational overall management of the water in the Jordan Valley.
We suggest you discuss frankly with Eshkol the substantial financial gap and then try to get some sense of how much Israel is willing to put in and how willing Eshkol is to integrate this into a regional system (apart from just watering Gaza, which he probably hopes to keep).
The one concrete step we can take at this stage would be to appoint a Mid-East water man to pick up where Bunker left off. Our bureaucracy is still divided (memo from Secretary Udall and Commissioner Seaborg3. is in your briefing book at Background Tab C but this is not the whole story.) A new Bunker may be needed to whip a recommendation into shape.
9. PL 480. The Israelis have asked for about $32 million in wheat, feedgrains, tobacco and vegetable oil. This is larger than last year's $27 million program because the Israelis took no wheat when we were tight. State has some reservations about a larger program which could be interpreted as our support for Israeli conquests, but I think the difference is narrow enough to be manageable. If you wish, you can simply say we can do at least as much as last year.
The other issue is that the Israelis will want at least the 50/50 split between local currency and dollar purchases. Treasury and Budget argue rightly that there is no economic justification—given our aid criteria—for this not to be a 100% dollar sale. I believe we have to keep moving toward 100% to meet Congressional requirements, but I think you could get away with a 75% dollar sale this year if you want. You may not want to be this specific with Eshkol, but you might avoid later misunderstanding by mentioning the problem.
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