Emphasising Washington's re-engagement with the 'peace process', US Middle East envoy William Burns was due to travel to the region in late November for talks with Palestinian Prime Minister Ahmed Qurei.

The Palestinians, for their part, do not believe the loan deduction will have the desired effect. 'I'm afraid that this step, as a message, will not deter Israel,' Palestinian Cabinet Minister Saeb Erekat said. The Israeli government has also shown indifference to the loan cut, which amounts to just 3 per cent of the total package. Israeli Foreign Minister Silvan Shalom confirmed that construction of the security barrier would not be halted. 'We are determined to continue building this fence,' he said. 'The fence saves lives.'

The recent announcement will, however, bring extra pressure to bear on Israeli Prime Minister Ariel Sharon. He already faces a growing economic crisis at home, criticism of his policies by four former Shin Bet chiefs and growing support in Israel for the rival Geneva Accord (see Last Word, page 56).