MIKE KINSLEY: Good evening. Welcome to Crossfire. Secretary of State James Baker leaves tomorrow for the Middle East, his fourth trip in three months. Baker thinks he can broker a peace between Israel and the Arabs. Many have tried and failed over the past 43 years but America has just won a war in the region, saving Israelis and Arabs alike from Saddam Hussein. Never before has the U.S. stood so tall, or so Baker thought. Unfortunately gratitude seems to be in short supply. The Israelis continue to build settlements in the occupied territories. The Saudis refuse to attend a peace conference at all. The Arabs won't lift their economic boycott of companies dealing with Israel and all parties quibble endlessly about who will talk to whom about what. Is Jim Baker's Nobel Peace Prize melting away like a desert mirage? Robert Novak is here for Pat. Bob?

ROBERT NOVAK: Ambassador Shoval, word came out of the Secretary of State's office late this afternoon that this will not only be the fourth visit of Secretary Baker to the Mideast but the last visit. How do you react to that news? Do you feel then that this is an effort for the Israeli government to try to be a little bit more forthcoming since it's the last chance or do you say, thank God, he's not coming back and we can be rid of him now?

ZALMAN SHOVAL, Israeli Ambassador to the U.S.: No, not at all. We are very happy that he is coming and we support his effort. As a matter of fact there is agreement between Israel and the United States on most points, though not on all. Agreement is still outstanding on some points between us and the Arabs and the Americans are in the middle, intermediaries, but I would probably take the same view President Bush is taking. He said he is optimistic, I think he said cautiously optimistic and he's -- if he's optimistic we are optimistic because we have the same aims, peace.

NOVAK: You don't think that puts some pressure on you though to try to be a little more forthcoming if this is his last visit or do you think it's just the same as the first visit?

AMB. SHOVAL: Pressure is not needed. Pressure is not needed. We have the same aim in mind. We want to have peace, we want to have security. America wants to have stability in the region. I think most of the countries in the region want stability.

NOVAK: Well, then explain to me then why it is, Mr. Ambassador, that there is- what seems to many Americans to be a deliberate snub to the Secretary of State on his last visit when new settlements were announced during his visit. I know he was very upset by it. Isn't that -- was that just a clumsiness or were you trying to say, we are really -- have a lot of contempt for your efforts?

AMB. SHOVAL: No contempt. We are full of admiration for his efforts. We want to encourage him and the Prime Minister has said this in very clear terms and to put things into proportion, if eight or 12 mobile homes, without expressing an opinion now whether they should or should not have been put up, if they can really hinder peace then the will for peace is feeble. I don't think that's a major item. A major item is the willingness of all sides to make peace or not to make peace. Israel wants to make peace and it wants to approach these negotiations without any prior conditions.

KINSLEY: All right. Mr. El-Reedy, Mr. Ambassador, there's only one country which has actually agreed to sit down at this peace conference without a lot of prior conditions and that is Egypt. As a prize, I'm going to start you off with a nice easy question. Who is the most to blame among the other countries for the failure of this peace conference to materialize?

ABDEL RAOUF EL-REEDY, Egyptian Ambassador to the U.S.: I would say that the Arab countries have been forthcoming. The Secretary has been meeting with President Assad of Syria, with the Palestinians, with King Hussein of Jordan and generally speaking as far as we know the attitude of the Arab countries who are going to sit in that conference is a positive attitude. There might be some one or two points but I believe that the general Arab attitude is a very positive attitude; but let me just say a word about the settlements. The settlements question is not a trifling matter. The creation of more settlements send the signal, a signal of despair, a signal of hopelessness. It is not a question of having eight or ten trailers. No, it is much more. These settlements have been going on and unfortunately whenever Secretary Baker goes to the area, one more settlement is there and that is a serious impediment to peace I would say.

NOVAK: You disagree with that? I mean, it has hurt peace.

AMB. SHOVAL: Yeah, well, I do not think it's a serious impediment or impediment at all because have declared -- the Prime Minister has declared just this week that any political settlement which will be reached at negotiations, at direct negotiations will not hinder -- will not be hindered by the fact there are settlements here or there.

NOVAK: But it obviously -- your other -- your neighbors, your Arab neighbors think it is a hindrance so it becomes a hindrance.

AMB. SHOVAL: Maybe it's a red herring.

AMB. EL-REEDY: It is serious. It is recognized by everybody. It is recognized by President Bush, by Secretary Baker, by the leaders of the European countries, by the United Nations Security Council, universally recognized as a serious impediment to peace.

KINSLEY: OK. Let's talk --

AMB. EL-REEDY: And I really hope that the Israeli government would heed this and that it would take this into account because it creates the wrong environment.

KINSLEY: Let's talk about another impediment to peace. We don't have a representative of the Saudi government here but here the United States has just spent billions of dollars, hundreds of lives, potentially risked thousands of American lives to protect the Saudi government -- the Saudi society from a basic peril and the Saudi society -- Saudi Arabia is now safe thanks to the United States. The United States asks one thing: will you please sit down with the Israelis and talk about peace, not even make peace, sit down and talk about peace. The Saudis said, no. Now, a lot of Americans find that extremely galling. Do you believe them?

AMB. EL-REEDY: To start with, I'm not the Saudi representative.

KINSLEY: Well, Explain, explain.

AMB. EL-REEDY: Let me tell you that the commitment of Saudi Arabia to peace is unquestioned.

KINSLEY: I question it so it's not unquestioned.

AMB. EL-REEDY: Unquestionable. Let us put it this way --

NOVAK: By reasonable people you mean.

AMB. EL-REEDY: Secretary Baker met with King Fahd, met with the Saudi Foreign Minister and Saudi officials and the king affirmed -- they made more than one statement, several statements that they are committed to peace --

KINSLEY: But you know what they say, fine words butter no parsnips. Why won't they sit down if they're so committed to peace?

AMB. EL-REEDY: The -- here we have to know what is the -- Secretary Baker, by the way, Secretary Baker made the statement during his last visit saying that this is not a matter to -- which you could hinder the peace process in any way --

KINSLEY: We'll get to that.

AMB. EL-REEDY: Secretary Baker, the man who is the most responsible for this process, that's what he said.

KINSLEY: But explain --

AMB. EL-REEDY: Let me explain. We have now -- the issue is the application of Security Council Resolution 242 which in shorthand is territory for peace. Which countries have problems with Israel? It is Israel, Syria whose territory is occupied, Palestinians and Jordanians whose territory --

KINSLEY: But Mr. Ambassador, you want --

NOVAK: He wants to speak, Mike. Go ahead.

AMB. EL-REEDY: Let us get this group of states --

KINSLEY: All right. We'll come back.

AMB. EL-REEDY: And then later on -- if the Saudis would like to attend now but that should not be something that --

NOVAK: All right. Mr. Ambassador, let your colleague in here.

AMB. SHOVAL: Actually all we want our Arab neighbors to do is what your great late President Sadat did.

AMB. EL-REEDY: Yes.

AMB. SHOVAL: He understood there is a psychological barrier which he has to break which he broke. The Saudis may or may not be our direct neighbors. They are at war with us. We have no territorial conflict. All we want them is to declare, we end the state of war. Come and sit down with us --

KINSLEY: But now --

NOVAK: Have you made a gesture since the end of the war that would lead them to --

AMB. SHOVAL: Yes.

NOVAK: What has your gesture been?

AMB. SHOVAL: We were asked to have certain confidence building measures- you remember that-to release prisoners, to open university schools. We did all that. There was nothing in return.

NOVAK: All right. We're going to have to take a break and when we return we will look into the frightening prospect that this last chance for peace may be lost and more war may follow.

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NOVAK: Welcome back to Crossfire. Are we losing a golden moment to achieve peace between Israel and the Arabs? And if that moment is lost are we on the brink of a violent upheaval in the Middle East? Those are the questions posed for Egyptian Ambassador Abdel Raouf El-Reedy, a professional diplomat who has headed the Washington embassy for the past seven years, and Israeli Ambassador Zalman Shoval, a former banker and former member of parliament who came to Washington last October. I'm going to put it straight to you, Mr. Ambassador. Does that fear linger in your breast that if this effort goes astray-and there is not much hope for it now-that you may have yet another Israeli-Arab war?

AMB. SHOVAL: Well, I only hope that the peoples of the area after this terrible war have learned that their interests do not lie in on going warfare and what Israel says and I think Egypt basically supports that position is, let's sit down and talk peace. Everything can be negotiated so I don't really think there's another war coming but if we don't make peace it will not serve the interests of the people in the area.

NOVAK: But, sir, there is a certain feeling-it may be unjust-in this city that the attitude by Israel is, comme ci, comme ca. If there is no deal, no peace conference, it's going to be OK because there is just not going to be another war, it's no skin off your nose.

AMB. SHOVAL: I don't believe so. We have such important efforts now, absorbing immigrants and other things. We want and need peace probably more than anybody else. At least we admit it. Not all of our neighbors admit it. I don't think so.

NOVAK: Well, then how do you explain, sir, that your Foreign Minister, your boss, Foreign Minister Levy had made certain commitments on a peace conference and apparently the Prime Minister Mr. Shamir got cold feet and pulled it back? That doesn't indicate a great quest for peace, does it?

AMB. SHOVAL: Well, isn't it the same, the United States where the chief executive makes the final decision? Secretary -- not Secretary of State but Foreign Minister Levy made a certain proposition. The thing was then discussed between Secretary Baker and the Prime Minister. The Prime Minister had reservations but let's not forget the talks were not concluded because unfortunately Secretary Baker had to leave because of the death of his mother.

KINSLEY: Mr. El-Reedy, the basic Israeli position on these peace talks is if the Arab nations really want to make peace with Israel, they should be willing to sit down, face Israel one on one across a table and talk peace just as Egypt did. That seems a very reasonable position, isn't it?

AMB. EL-REEDY: That is a reasonable position and that is the position which is accepted actually by the Arab side. We will have a conference meeting in any capital and that conference is not going to impose a settlement, is not going to vote. The actual negotiations will take place between the parties concerned. So, when it comes for instance to the occupied Syrian territories, the relations between Syria and Israel, how to exchange them from what they are into relations of peace, it would be the Syrians and the Israelis talking. When it comes to terminating the occupation of the West Bank and Gaza and to give the Palestinians a right to self determination, it will be the Palestinians and the Israelis who would be talking. Nobody is going to -- it will be negotiations, the same like what happened in -- between Egypt and --

KINSLEY: Yes, but what's hanging --

AMB. EL-REEDY: We started that from --

KINSLEY: Excuse me. What's hanging up these talks and it gets very complicated so maybe I've got it wrong is the insistence by the Arab nations that there be some role for a big conference where everyone sits around a big table and the Israelis feel with all the Arab countries and all the European countries which are very unfriendly to Israel, they will get swamped.

AMB. EL-REEDY: No, no. I think you've got it wrong. I'm sorry to say that.

AMB. SHOVAL: That is our fear anyway.

AMB. EL-REEDY: Can I say what it is? You will have a conference. That conference will have maybe the United States, Egypt, possibly the Soviet Union, a representative of European community, maybe the representative of the Secretary General of the United Nations. Don't forget that what we are concerned with here is the implementation of Security Council resolutions and to have the Secretary General or his representative in that conference it is --

NOVAK: What's wrong with that?

AMB. EL-REEDY: But the negotiations will have to take place. The negotiations will take place by --

NOVAK: OK. Let the Ambassador in.

AMB. SHOVAL: The main point is the following. I'll say it very briefly. If there is any way to reconvene that conference after a few months, the Arab states who are going to negotiate with us may not have an incentive to come to an agreement with us because they'll always feel, well, if we don't agree with the Israelis we can go back to that international tribunal. I don't say --

AMB. EL-REEDY: There's no tribunal.

AMB. SHOVAL: I don't say that that's the intention of Egypt.

AMB. EL-REEDY: It is not a tribunal.

AMB. SHOVAL: It may be the intention of some of the other Arab participants and we want to have guarantees that this is going to be like you said, one on one --

NOVAK: Ambassador --

AMB. EL-REEDY: That's all. More than the guarantees of the United States --

NOVAK: Let me make a one on one proposition that I have heard-Mike, you might be interested in-and that is that in dealing with Syria you do negotiate the Golan Heights in return for hands off the West Bank. Is that a deal you might be interested in?

AMB. SHOVAL: I haven't heard about that but I think the West Bank we must negotiate with the Palestinians and the Jordanians basically, not with the Syrians. With the Syrians we will discuss peace between Syria and Israel without preconditions.

NOVAK: Will you discuss the Golan Heights?

AMB. SHOVAL: They will raise anything they want and we will raise anything they want and that's enough for today I think. We don't have to go into details.

KINSLEY: OK. Let's take another break here. When we come back, we're going to talk to our friend from Egypt about why his government has announced it's pulling all its troops out of the Gulf area after promising they would not.

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KINSLEY: Mr. Ambassador, President Mubarak, your President, announced this week that Egypt would be pulling out its 39,000 troops that have been in the Gulf, in Saudi Arabia and Kuwait. Now, this was not supposed to happen. The idea was American troops would pull out and the Arab troops would remain behind as the beginnings of a new regional security arrangement where the Arabs would defend themselves against people like Saddam Hussein. Why did you pull your troops out?

AMB. EL-REEDY: Our forces went to the Gulf in order to achieve -- to participate in the achievement of two objectives: one, to defend Saudi Arabia; two, to liberate Kuwait. And that mission, thank God, has been fulfilled. So, the natural thing is --

KINSLEY: Yeah, but the understanding was --

AMB. EL-REEDY: Our forces are going back -- going back maybe in two months or a little bit more or less. The question of the security of the Gulf is something that will have to be worked out.

KINSLEY: Are you saying that this is not -- this is something that was in the cards all along and there's no reason to be surprised at all?

AMB. EL-REEDY: Yes, it is -- I am surprised that there was a surprise about this, quite frankly.

NOVAK: Ambassador Shoval, Foreign Minister Bessmertnykh of the Soviet Union is visiting your country.

AMB. SHOVAL: Tomorrow.

NOVAK: Tomorrow, first time in 50 years. What do you think is going to come out of that? Do you see in the short run a restoration of Israeli- Soviet relations?

AMB. SHOVAL: Well, we hope so and that the Soviet Union realizes of course that if they're going to play an active role in the peace process they will have to reestablish full diplomatic relations and we have heard affirmative signs in the past so we hope that will come about.

NOVAK: Well, you know, Mr. Bessmertnykh, like Ambassador El-Reedy and Secretary of State Baker is very unhappy about this whole settlements question, of the increased settlements. Is there anybody in the world who's on your side on that issue, Ambassador?

AMB. SHOVAL: Well, first of all we are on our side. So, that's an important point, but we have never said, and I repeat that now, that the settlements are not negotiable once we sit down. We don't say, settlements, don't touch it. We do say, let's negotiate without preconditions and I think you can't say more if you really want peace. Like two people quarreling, sit down at the table like he does and I do, we'll achieve peace.

KINSLEY: Last question, very briefly, hasn't the PLO dealt itself out of the game by siding with Saddam Hussein in this war?

AMB. EL-REEDY: I think the PLO made a mistake but we have to care about the Palestinian people. The Palestinian people deserve to be treated as human beings, deserve to have their own right of self determination and at long last we should get this problem resolved and begin a new era in the Middle East, an era of peace, security and development.

KINSLEY: OK. Thank you very much, Ambassador El-Reedy. Thank you, Ambassador Shoval. Mr. Novak and I will be back in just a moment.

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NOVAK: Mike, there are very few things that you and I agree on but I think I can get you as a fair minded person to say that these settlements are an impediment to peace and that when the Shamir government throws up settlements during Baker's visit they are saying we don't give a damn about your efforts.

KINSLEY: Well, actually I do tend to agree with you about that but there are- impediments are not just on one side although you and Secretary Baker both like to give that impression. Look at these Saudis. The idea that they shouldn't come to the table because they're not adjacent to Israel! You have the Arabs saying, we want the British there, we want the Soviets there, we want the French there, but the Saudis don't have to be there. They are in declared war with Israel and they should have come to the table because the United States asked them.

NOVAK: Do you really think that the key to Arab-Israeli peace is Saudi Arabia? Do you really honestly believe that?

KINSLEY: How can you trust anything if even the Saudis who have nothing to risk won't come to the table?

NOVAK: You won't answer my question.

KINSLEY: From the left, I'm Mike Kinsley. Good night for Crossfire.

NOVAK: From the right, I'm Robert Novak. Join us again next time for another edition of Crossfire.