A Israeli delegation headed by Amos Yaron, Director-General of the Defense Ministry, arrived in China today to discuss a compensation package for Israel\'s cancellation of the Phalcon surveillance jet deal 18 months ago. The Chinese government is demanding $2 billion in reparations, while Israel is willing to pay $230 million.

Heavy pressure on Israel from the U.S. Congress and the Clinton administration convinced former Prime Minister Ehud Barak to cancel the deal in July, 2000. Regarding the American pressure to cancel the deal, Yoram Ettinger, Israel\'s former liaison to Congress, said at the time that Barak \"was confident that he could push through the Phalcon aircraft deal with China, but he received a rude awakening [from the US] on that issue, and Israeli interests suffered greatly as a result. Ehud Barak is sorely lacking when it comes to reading the Washington political environment...\"

Israeli Ambassador to China at the time, Ora Namir, revealed last month that Barak cancelled the deal because Washington made it a condition for convening the Camp David summit later that summer. At the summit, Barak offered Arafat all of Yesha in exchange for Arafat\'s signature to \"end the conflict with Israel.\"

In a related item, the Bush administration has asked Israel to \"keep a low profile\" regarding contacts toward the sale of the Phalcon early-warning system to India. The message came in light of the current tensions between India and Pakistan. Washington officials indicated to Israel last month their support for the sale of the Phalcon to India.