JERUSALEM, JAN. 31 -- Israeli officials, reacting to another potential Washington scandal that -- like the Iran-contra affair -- seems to be ensnaring them in its web, today issued new denials about Israel's role in the $1 billion Iraqi pipeline project being investigated in the United States.
Foreign Minister Shimon Peres denied published reports that he had sent a handwritten letter to Attorney General Edwin Meese III in mid-1985 expressing Israel's support for the project, according to informed sources here.
They said the only letter on the matter written by Peres, who was prime minister at the time, was sent on Nov. 20, 1985, to another "competent official" of the U.S. government whom the sources refused to name. The letter stated that Israel had no objections to the project, the sources said.
The sources also denied that Peres ever discussed the project with American lawyer E. Bob Wallach, a promoter of the project who was a close friend and former lawyer of Meese. Wallach reportedly has claimed he met twice with Peres on the matter in 1985, but sources here said that, while Wallach had discussions with other Israeli officials, he only met the former prime minister on social occasions with other guests present.
At the same time, Bruce Rappaport, a multimillionaire oilman who facilitated negotiations between the Iraqi and Israeli governments over the pipeline proposal, denied that he ever offered or paid bribes to Peres or to any other official or political party in Israel to win their support for the project.
Rappaport, a native-born Israeli now living in Geneva, told Israeli radio in an interview, "Never, believe me, did we have a conversation or a payment of money either to a minister or to a party or to a government or to anyone.
"I haven't yet bribed anyone and one would have to be a fool to think that a man like Peres, whom I've known for 45 years and who has such clean hands, would respond in any manner -- and he might even throw me out of the room."
The radio report said Rappaport added that he believed the only reason the affair had been disclosed in the United States was because of Meese's alleged involvement.
Independent Counsel James C. McKay is investigating Meese's role in the pipeline project, which was being promoted by Wallach. He was representing Rappaport and a group of businessmen seeking to finance the deal.
As first reported in The Los Angeles Times, Wallach allegedly wrote a 1985 memo to Meese discussing a plan that suggested payments to Peres or his Labor Party to secure an Israeli guarantee that it would not harm the pipeline, which was to run from the Jordanian Red Sea port of Aqaba to Iraq through an area close to Israel's borders.
An aide to Peres today repeated the foreign minister's denial that either he or his political party had ever been offered or received money or anything else of value in return for his support for the project.
The aide emphasized that Peres had received approval from all the relevant Cabinet ministers -- including then-foreign minister Yitzhak Shamir, Defense Minister Yitzhak Rabin and Economics and Planning Minister Gad Yaacobi -- but acknowledged that despite the issue's great importance to Israel's security, the matter was never brought before the full Cabinet.
Other sources said that Shamir, now prime minister, had misgivings about the project. He reportedly argued that Iraq, a longtime foe of Israel, should first agree to signal an end to its hostility, perhaps by publicly endorsing United Nations Security Council Resolution 242, which recognizes the right of all nations in the region -- including Israel -- to have secure borders.
These sources said Shamir's misgivings may have helped kill the project. When he became prime minister in October 1986, under a rotation agreement with political rival Peres, the project's backers feared he might renege on the agreement not to attack the pipeline.
A spokesman for the prime minister confirmed tonight that Shamir, leader of the Likud, Labor's main political rival, had gone along with the project. The spokesman said he did not know if Shamir had misgivings about the plan.
Another Israeli source said one of Israel's main concerns was that an oil spill at Aqaba could have done great damage to the Israeli city of Eilat, an important tourist center and Israel's only Red Sea outlet.
Besides the contacts with Rappaport, Israeli sources said Peres had an exchange of letters with the then-Iraqi ambassador to the United States about the project. They did not disclose the contents or dates of the letters.
In the radio interview, Rappaport confirmed that he had served as a go-between "several years ago" for the Iraqi government, which was seeking assurances from Israel that it would not stage a repeat of its 1981 raid on an Iraqi atomic reactor by attacking the pipeline project. Such fears were delaying the approval of the project, Rappaport said.
Rappaport, who is in his sixties, reportedly controls a huge tanker fleet and has been particularly active in Indonesia. He is also well-known here as a philanthropist with close ties to the Labor Party.
In 1979, according to Israeli news reports, he put up $8 million for a medical facility, named the Bruce Rappaport Medical Sciences Building, at the Technion Institute in Haifa, and he pledged $1 million annually for the next 25 years to sponsor medical research there.
Rappaport said he traveled to Israel and lunched with Peres, who approved the proposal in principle and then obtained support for the plan from Shamir, Rabin and two unnamed Cabinet ministers, whom other sources identified as Yaacobi and Energy Minister Moshe Shahal, both of them Labor Party members.
Rappaport said he returned to Geneva, received a letter from the Iraqi government,whose contents he did not describe, and then flew back to Israel. There, he said, he received a letter from Peres stating that "under certain conditions, there wouldn't be any opposition."
Later, in November or December 1986, Rappaport said, he received an invitation to meet with Iraqi President Saddam Hussein. He said the Iraqis wanted more than a letter from the Israelis, that they required "a sort of bank guarantee" that Israel would not damage the project. He suggested that a special fund be established and a panel of arbitrators be named who could order money from the fund paid to Iraq in compensation for an Israeli attack. Since the project later fell through, such a fund was never established and Rappaport did not say whether the Israelis agreed to or were even informed of the idea.
Rappaport made no mention of Wallach. Other Israeli sources suggested that the American lawyer had sought to inflate his role in the pipeline discussions.