Interesting. George Mitchell (administration envoy for mideast peace) indicated in an interview (transcript is here) that one of the tools in the administration's belt in dealing with Israel is preventing loan guarantees.
As I've written before, I think that Israel's long-term security can only come from peace and stability - something that in my opinion its government is moving away from. Nonetheless, the administration must not use Israel's economic vulnerability against it - not good policy, not good for Israel.
If you are pro-Peace, and pro-Israel, as I am, and you think this is a good option for the US to wield, just think about how it could be used. If we go down the road of the US putting serious economic pressure on Israel, one can imagine Israel being put in a totally untenable position one day. Having to act against its security interests in order to avoid the danger of the loss of US aid.
The Administration is trying to walk it back by saying that he was taken out of context; that clearly, Mitchell was simply talking descriptively, not proscriptively, about the mechanisms that the US could use as leverage. That is, he was just saying that this was technically possible, and nothing more, in response to Rose asking him about possible options.
The transcript itself makes that pretty hard, if not impossible, to defend. My read is that he threw out there, in very careful terms, a very mild and vague warning. He even suggests – depending on how you understand his subsequent remarks – that this is something that the Administration is “discussing.” Obviously it’s not to be understood as a suggestion he’s making for US policy, but a subtle message to the Israelis, “we’re not screwing around.” I just think a guy as diplomatically experienced as Mitchell – which is to say, very – doesn’t throw around such things by accident.
What's strange is how little play this is getting in various media. I can't find anything on it from NYT or CNN. It is very big news in Israel. Reuters has a good read on the Israeli reaction here. The article notes that Israel doesn't intend to use guarantees at least for the next two years.