Foreign Relations of the United States, 1948, The Near East, South Asia, and Africa, Volume V, Part 2

867N.01/8–2648

Memorandum of Conversation, by the Under Secretary of State (Lovett)¹

secret

[Washington,] August 26, 1948.

Participants:	Mr. Eliahu Epstein, Special Representative of the Provisional Government of Israel
	U—Mr. Lovett
	NEA—Mr. Hare
	NE—Mr. Wilkins

Mr. Epstein called on me this afternoon at my request. Mr. Epstein told me he had been requested by Foreign Minister Shertok to return to Tel Aviv “for a few days”. Mr. Epstein said that although Mr. Shertok had not indicated the purpose of his mission, he assumed it would relate to matters which might arise at the forthcoming General Assembly in Paris.

I told Mr. Epstein that I had been hoping to have an opportunity to see him before today but that developments in Europe had prevented my doing so. I said that I was glad to see him now in view of his returning to Israel because I had a few items of business which we might profitably discuss:

1. Export-Import Bank loan

I said that I had received his letter with regard to the application of the Provisional Government of Israel for an Export-Import Bank loan and that although I had not had an opportunity to reply or discuss it with him I had gone into the matter with the President and with members of the Board of the Export-Import Bank. I pointed out that, in my opinion, Martin’s sentence—”… Reports reaching me do not appear to warrant at this time active consideration by the Export-Import Bank of the credit application filed with the Bank …”—from the Export-Import Bank’s letter of July 25 [26]², as quoted in Mr. Epstein’s letter of August 3,³ appeared to me to be subject to misinterpretation. This sentence, as explained to me by members of the Board, did not mean that the Export-Import Bank was no longer considering the extension of the loan but that members of the Board still had it under study pending the receipt of further information from the applicants. As a banker I understood the difference between a political loan and a banking loan, and gathered from members of the Board that they would be comforted if the Provisional Government of Israel would make application for loans on the basis of specific projects and would be even more comforted if there were some immediate prospect of peaceful conditions in Palestine and progress toward a final settlement of the Palestine question. I suggested that the Provisional Government of Israel’s first application for a loan for a specific project such as harbor construction or some housing unit should be a particularly good one. I observed that the members of the Board of the Export-Import Bank were required, as one of the basic principles of the Bank, to make only loans which offer reasonable assurance of repayment. I said that I could not speak for the members of the Board or say what action they would take, and was merely suggesting a manner in which the Provisional Government of Israel might care to handle its loan application. I expressed the hope that Mr. Epstein in discussing the loan with his colleagues in Tel Aviv would not indicate, as a result of our talk, that loans for specific projects would be immediately forthcoming.

Mr. Epstein said that he appreciated and understood my explanation, and that it was “good news”. Mr. Epstein said that my suggestions were concrete and would certainly give the Provisional Government of Israel a line on which to proceed. He said that he thoroughly understood that I could not speak for the members of the Board and that, on banking grounds, the question of a loan was a matter between the Export-Import Bank and the Provisional Government of Israel.

2. Arab Refugees

I told Mr. Epstein that we were receiving an increasing number of reports from the field indicating that the condition of some 330,000 Arab refugees from Israel was appalling, and that there was grave danger of the outbreak of epidemics. It seemed to me that here the Provisional Government of Israel had an opportunity to demonstrate its friendship toward the Arab states and its desire to establish amicable relations with them by gradually permitting the return of such refugees.

Mr. Epstein said that he appreciated my point of view but that the Provisional Government of Israel felt that the return of Arab refugees would endanger the security of Israel and would constitute a serious drain on its economic resources. The Provisional Government of Israel felt that the return of Arab refugees could not be considered prior to peace negotiations between Israel and the Arab states, as this question would be of importance to them as a bargaining point in such negotiations.

I said there might be differences of view with regard to the merits of the question and that I merely desired to stress the concern which the whole world felt regarding the Arab refugees. I pointed out that unless those concerned now took constructive steps we would have a great deal of difficulty with the problem. Mr. Epstein said that he appreciated my point of view in this respect and would discuss it with his colleagues on his return to Tel Aviv.

3. Final Settlement of the Palestine question

I remarked I had noted reports in the press that the Provisional Government of Israel had approached Arab leaders in Paris and possibly elsewhere with regard to a final settlement.⁴ I wondered how Israel regarded the efforts of Count Bernadotte and whether they had lost confidence in him.

Mr. Epstein said that he was not informed of the position of the Provisional Government of Israel on this subject but that, personally, he believed that the Provisional Government of Israel attached great importance to negotiations with the Arabs, and that he believed that the Provisional, Government of Israel did not place great reliance on Count Bernadotte’s efforts. It was extremely important that peaceful arrangements with the Arabs be found as quickly as possible because the continuance of armed conflict in Palestine represented a terrific drain on Israel’s resources. Count Bernadotte had prejudiced his efforts during the first Security Council’s truce by proposing that the City of Jerusalem be placed under Arab sovereignty and this had increased the Provisional Government of Israel’s difficulties with dissident elements, such as the Irgun and the Stern Gang in Israel. Israel had however temporarily weathered the crisis as evidenced by its action in the Altalena incident and in its military control in the City of Jerusalem.

Mr. Epstein expressed the personal view that the only hope for a final settlement of the Palestine question would be through the direct intervention of the US and Great Britain; that if these two countries approached Israel and the Arabs a settlement would more quickly be arranged; and that otherwise no progress would result from Count Bernadotte’s efforts.

I said that I appreciated Mr. Epstein’s personal views but could make no comment on them. Mr. Wilkins suggested that both the Israelis and the Arabs might informally express their views to Count Bernadotte and that he might thereafter consolidate them and announce the result as a reasonable settlement of the Palestine question. It would seem, in this case, that the UN through the General Assembly might subsequently take official notice of Count Bernadotte’s announcement and might even proclaim it as a final recommendation. Such steps might constitute an expression of UN opinion in which the Arabs could acquiesce. If such a development were properly timed and handled the Arab leaders could more safely return to their capitals with the recommendation that the Arab Governments must of necessity bow before the considered opinion of the UN. Mr. Epstein thought an approach in this manner had considerable merit.

I stressed that our conversation had been informal throughout and that we had expressed personal views. I hoped that Mr. Epstein, in discussing these matters with his colleagues in Tel Aviv, would present them in this fashion and would endeavor to point out the importance we attach to an early settlement of these various questions.

L[ovett]

1. Drafted by Mr. Wilkins.
2. See footnote 2, p. 1261.
3. Copy not found in Department of State files.
4. London reported, on August 25, that “Early in August Elias Sassoon, former head Oriental Section of JA, now resident Paris appears to have written personally to Riad Bey Solh, Lutfi Haffar and Transjordan Minister at London saying that he knew each to be a distinguished Arab personality with whom he would like to renew his acquaintance.… A conversation appears to have taken place between Sassoon and Transjordan Minister during which Sassoon is reported to have said that PGI stands on original partition scheme but would be prepared to give economic aid to Arab areas once settlement reached.” (Telegram 3849, 890B.00/8–2548) Riad Bey Solh was the Lebanese Prime Minister; Lutfi Haffar was a prominent Nationalist Party politician in Syria.