This memorandum summarizes the aid package to Israel agreed upon by the State and Defense Departments.
Israeli Aid Package
State and Defense now agree on a package./2/ It doesn't give the Israelis everything they asked for and runs lower than last year. However, on all but one item, I think they'd have to admit we've been as responsive as possible given our limitations.
/2/An April 4 memorandum from Katzenbach to the President with the recommendations summarized here is attached.
Katzenbach recommends about $48 million (Israel's requests total $76 million). We've tried to be as generous as possible in balance of payments type aid because Eshkol faces unemployment after deliberately slowing economic growth to shake out uncompetitive industry, narrow Israel's trade imbalance and get ready for association with the Common Market. The package includes:
--$23.5 million in PL 480 (feedgrains, oil, maybe tobacco, no wheat). Agriculture is thinking of 75% dollar sale. Last year dollar sale was only 25%. I'd go only to 50% this year.
--$9 million in credit for tank and Hawk missile spares. Defense opposes credit for normal maintenance items, but would make an exception to beef up the package. I recommend this inconspicuous military help.
--$5 million in covert aid for Israel's anti-Communist African programs. This is a private request from Eshkol to help with his budget and doubles last year's program. [2 lines of source text not declassified]/3/
/3/A handwritten note, apparently in Johnson's hand, reads: "[less than 1 line of source text not declassified]."
--About $10 million in Ex-Im loans. We can't assign an exact price tag yet because we don't have details on the project. But we'd invite the Israelis to submit a fertilizer project to Ex-Im instead of to AID./4/
/4/A handwritten note, apparently in Johnson's hand, reads: "No development loans."
--We'd offer to accept Israeli bids on AID off-shore procurement for 12 months. Though the price tag is relatively small, this is important in helping put unemployed Israelis to work. Defense is also increasing procurement in Israel. Eshkol's Finance Minister has made a strong pitch for this.
--We'd give the Israelis Hawk missile capability to do all their own maintenance. This costs us nothing but cuts them in on some classified data.
The attached charts shows where this would put us in relation to past years. Since last year's plane sale was unusually high, I think we can justify this FY 1967 level. We still have the desalting project to talk out, and to emphasize that I recommend we move quickly in naming Bunker's successor.
Katzenbach recommends we turn them down on two items:
--They asked for $20 million in Development Loans on top of the $6 million you authorized last fall from an old loan. Israel is doing so well that it ought to be using Ex-Im rather than the softer AID loans. Congress is grumbling about adding Israel to the list when it's trying to limit the number of countries receiving aid. Last year we split their request of $20 million and offered $10 million each from AID and Ex-Im. I think this is the year to get out of AID lending and refer them entirely to Ex-Im. They'll gripe, but this is reasonable.
--Far tougher to turn down is their request for 200 Armed Personnel Carriers ($7.4 million). Harman tells us informally that Eshkol is personally interested and that a turndown will trigger a violent reaction from Jerusalem--and by implication from Israel's friends here.
I agree with State and Defense that we can't give these via grant. A grant would amount to starting a Military Assistance Program in Israel, since all previous deals have been credit or commercial sales. This would be a major change in our policy not to be a major arms supplier in the Middle East.
The real issue is whether to offer a credit sale instead. We understand informally they'd settle for that. Katzenbach earlier recommended that we sell 100. Now he agrees with Defense to recommend against supplying APC's on any terms. The argument:
--We ought to keep the brakes on the Middle East arms race. When we completed the Israeli aircraft deal in March 1965, we told Nasser that sale completed a round of escalation. We said we didn't foresee further sales soon unless the Soviets made more. As far as we know, they haven't, and our December sale to Jordan was too small to affect the balance.
--We don't want to become Israel's sole military supplier, but Israel is trying to maneuver us into that position. In our aircraft deal, we made them agree they'd continue to look to Europe for most of their equipment. Good APC's--unlike the aircraft--are available in Europe at reasonable prices. Israel has 1,000 old ones, and selling even 100 opens the door to our modernizing the whole line.
--We should be tough as long as they play coy on their nuclear position. Eshkol has invited our technicians to visit Dimona on 22 April./5/ It will be more than a year since our last visit. Only when they report will we know whether we should use all our leverage to make them agree to visits every six months.
/5/Telegram 3020 from Tel Aviv, March 23, reported the invitation. (National Archives and Records Administration, RG 59, Central Files 1967-69, AE 11-2 ISR)
--We don't think Israel needs APC's urgently. The 1,000 in operation are World War II vintage and will have to be replaced in five years or so. But the Israelis do a remarkable job of keeping equipment running, and the JCS feels that immediate modernization is not essential.
--We shouldn't compensate the Israelis for our Jordan package since that resulted directly from their attack. They won't take seriously our counsel of restraint if we reward them now.
The strongest argument for a turndown in my book is trying to get a grip on the Middle East arms race. The only approach that could work is an understanding with the USSR to stop big shipments. We've probed before, and the Soviets have shown little interest. But in the context of persuading the Israelis to sign the Non-Proliferation Treaty, they might show more. This is a long shot. But if you decide you can stand the heat, a pause in sales might be worth a try. We could stand up to Israel's friends confident that we're not just stalling. If by fall, the NPT has come to naught, then we'd reconsider.
I've double-checked with Katzenbach, and he doesn't feel we'd be reneging on a commitment to refuse the APC's. Even so, if you approve a turndown, the way we couch our answer will be important. The spirit of our response should be more "not now" than a flat "no."
My suggestion is to have Katzenbach give them our answer. I can background Abe Feinberg, but the official request came through Katzenbach, and I think we ought to try building him as our sympathetic but firm spokesman to the Israelis. The key problem in US-Israeli relations is that the Israelis like to think they have a special relationship with us, while the State and Defense professionals treat them and the Arabs with the same cool even-handedness. Katzenbach should be warmer and more candid, yet still keep this in official channels.
Approve your formulation for refusing APC's
/6/None of these options is checked.
Source: Johnson Library, National Security File, Country File, Israel, Israeli Aid, 5/67. Secret; Sensitive. Received at 7:30 p.m. Rostow's handwritten note on the memorandum reads: "Howard & Hal: Hold--but for your guidance. Walt." None of the approval or disapproval lines is checked, but handwritten numbers appear in the margin. A table dated April 18, attached to Document 406, shows the President's initial decisions, which accord with the marginal notations. (Johnson Library, National Security File, Country File, Israel, Vol. VI) For his final decisions, see footnote 6, Document 416.