(Communicated by the Cabinet Secretariat) July 16, 1996

At the Cabinet meeting today (Tuesday), 16.07.96:

1. Prime Minister Benjamin Netanyahu briefed the Cabinet on his visit to the United States.

The Prime Minister said that the visit created awareness in the American administration of the new government’s positions and led to American public support for the new government. There is a broad base in the American people which identifies with Israel and the government’s policies. In his meetings in Washington, the Prime Minister insisted on several principles:

A. The principle of reciprocity the demand was presented that the other party honor its commitments.

B. It was emphasized that security takes precedence over every other consideration. It was stressed that the Palestinian Authority’s commitment in this field cannot be a variable component which is conditional on anything.

C. The issue of Jerusalem There is a broad public in the U.S. which wants to see a united Jerusalem under Israeli sovereignty. The strength of support for our position regarding Jerusalem was expressed in the Prime Minister’s appearance before the U.S. Congress.

On the issue of Hebron, it was made clear that while we are committed to upholding agreements, we are also committed to security and must formulate our policy on this matter.

The Prime Minister also briefed the Cabinet on concrete matters which were agreed upon, as detailed on page 2 below.

Jerusalem Mayor MK Ehud Olmert who joined the Prime Minister’s visit to the U.S. said that the American administration fully understands that a new government has been elected in Israel, which received a mandate to make peace in a different fashion. This was expressed by U.S. President Clinton as well in his remarks at the press conference. Regarding the issue of Jerusalem, the message of the city’s unity under Israeli sovereignty was properly made.

Bank of Israel Professor Jacob Frenkel who also joined the Prime Minister’s visit to the U.S. said that there were economic meetings with officials from the administration, Congress, and the American business sector. In the background to the visit, the government had decided to cut the budget, and this created a positive atmosphere regarding the government’s seriousness in the economic sphere. Our interlocutors were also informed of the government’s determination to bring about structural changes in the economy and to lower inflation.

We expressed our support for the initiative to establish a regional bank, which was again raised. This was the first visit by an Israeli prime minister to Wall Street in order to encourage investment in Israel. Great interest was expressed on the privatization issue; the Prime Minister delivered an important message on the government’s seriousness regarding this issue.

The ministers praised the Prime Minister on his successful visit to the United States.

2. The Finance Minister briefed the Cabinet on the situation in the capital market. He said that in light of the situation in the capital market, the Prime Minister, himself, and the Governor of the Bank of Israel decided that the government would intervene in the capital market in order to moderate market fluctuations. It was agreed that a Finance Ministry-Bank of Israel team would convene in order to formulate proposals for urgent reforms in the capital market. At a meeting with the participation of the Prime Minister, Finance Minister and Governor of the Bank of Israel, the determination to implement the Cabinet’s decision to cut the budget was expressed.

Prime Minister’s Report on Matters Agreed Upon During the Course of the Prime Minister’s Visit to the United States:

1. The Security Sphere:

A. Group on Joint Activities Against Terrorism

There was agreement in principle with the previous government on establishing this group. In a meeting with Secretary of State Christopher, it was agreed that the group’s activities would actually begin, and that it would hold its first meeting, at a senior level, by the end of the month.

B. Warning Against Ballistic Missiles

The matter concerns providing Israel with the capability to receive information warning of the launch of ballistic missiles against it, from American satellites. The agreement in principle on this matter had undergone some difficulties, and has not been implemented. In a meeting with the Secretary of Defense, these difficulties were overcome, and the Americans gave the "green light" to implement the agreement. President Clinton set the end of the year as the target date for completing the connection of Israel to the American system.

C. Working Group on Prisoners and MIA’s

In a meeting with the Secretary of Defense, it was agreed to establish a working group, within whose framework, a joint effort will be made to obtain information about Israel’s prisoner’s and MIA’s.

D. Nautilus Project

The matter concerns development of a system to shoot down Katyusha missiles by means of a laser. Following doubts about continued development of the project which had been raised recently, it was agreed, in a meeting with the Secretary of Defense, to continue developing the project.

2. The Economic Sphere:

A. Framework for Consultations on Privatization

In a meeting with the Secretary of Commerce, Robert Rubin and with the Head of the President’s Council of Economic Advisor’s, Joseph Steiglitz, it was agreed to establish a joint framework for assessing means of implementing the rapid privatization of the Israeli economy.

B. Framework Concerning the Capital Market

At the same meeting, a joint discussion on assessing means for expanding and increasing the Israeli capital market, was also agreed upon.