JERUSALEM, FEB. 23 -- Foreign Minister Shimon Peres acknowledged tonight that Israel had been offered a discount on oil purchases amounting to $65 million to $70 million per year in return for approving an Iraqi pipeline project, but said he had failed to pass the offer on to colleagues because he did not take it seriously.
Speaking through an aide, Peres said the offer was made by Swiss financier Bruce Rappaport, a longtime supporter of Peres and his Labor Party, at a secret meeting in Israel in September 1985, at a time when Peres was prime minister. But Peres again denied that Rappaport also had proposed paying a portion of the discount to his party.
After the meeting, the aide said, Peres, at Rappaport's behest, composed a handwritten letter to U.S. Attorney General Edwin Meese expressing support for the pipeline and asking to discuss the matter with U.S. officials when Peres traveled to Washington the following month. He gave the note to Rappaport, who in turn gave it to E. Bob Wallach, an American lawyer hired by Rappaport. Wallach hand-delivered the letter to Meese, his longtime friend.
In a memo Wallach wrote to Meese later that month, he told the attorney general of the Rappaport offer to Peres and added that he had been informed "that a portion of those funds will go directly to Labor."
The memo, released by Meese's lawyers yesterday, has become the focus of a special investigation into whether Meese violated federal law by not initiating a probe after being informed of a possible attempt to bribe a foreign government.
Peres and his aides sought today to staunch any political damage to himself and the Labor Party by insisting that Israel had approved the billion-dollar project nearly a year before Peres took over as prime minister and that Wallach was an unreliable participant who, in the words of one Israeli official, "lived in a dream world."
"No new documents were published that cause me concern and I have nothing to say," an angry Peres told reporters this morning. "We all agreed that we favored the laying of the pipeline, so why would anybody need to use bribes?"
But the explanation his aides offered later in the day left many issues unresolved, especially the question of why Peres did not consider Rappaport's financial offer serious enough to report to other members of his government and why Peres nonetheless agreed to circumvent normal diplomatic procedure by writing directly to Meese about the project.
Peres' aide, who insisted on anonymity, said that since Israel had already approved the project, Peres thought there was no reason for Rappaport, who was representing the Bechtel Co. that was to build the pipeline, to offer financial inducements. "He thought, 'This guy is trying to throw us a bait that doesn't really exist,' " said the aide.
"Peres' support for the project was based on strategic considerations -- the pipeline was supposed to contribute to the stability of the region," the aide added. "The economic element of discounted oil . . . wouldn't have affected his decision one way or the other. We're not denying the offer was made, but it was of no consequence."
The memo's release, coupled with Peres' acknowledgement of the secret financial offer, raised the possibility that the pipeline affair, whose political fallout so far has been limited to Washington, would begin to reverberate here and could threaten U.S. efforts to revive the stalled Middle East peace process.
Secretary of State George P. Shultz is due to arrive here Thursday in a last-ditch effort to get a diplomatic initiative going before elections here and in the United States in November. Peres, whose party constitutes the more dovish half of Israel's divided coalition government, is considered an important ally in Shultz's effort, while Prime Minister Yitzhak Shamir of the more hawkish Likud has expressed reservations.
Two rightist Knesset members opposed to the Shultz initiative, Haim Kaufman of the Likud and Yuval Neeman of the small Tehiya party, called tonight for a commission of inquiry into Peres' actions on the pipeline. Their move was widely seen as a stalking horse for Shamir, who so far has maintained public silence on the pipeline affair.
"Mr. Shamir has enough problems with Mr. Peres without raising this," said a source close to the prime minister, who confirmed that Shamir had not been informed about Rappaport's financial offer.
Another political analyst suggested that the Likud was ducking the issue because, like Labor, it receives large donations from overseas contributors that it would prefer not to disclose. "Everybody lives in glass houses here," said the analyst, "but this could begin to become a political issue because people may perceive that Peres has not told the truth."
As outlined by Peres' aides and by retired civil servant Hanan Bar-On, who as deputy director general of the Foreign Ministry was the senior diplomat involved in the pipeline discussions, the project was first proposed to Israel in late 1983 by State Department officials and by then-U.S. ambassador to Israel Samuel Lewis.
These officials said Iraq -- still recovering from Israel's 1981 bombing raid against a nuclear reactor project near Baghdad -- wanted assurances that Israel would not attack the pipeline, which was to be built from the Jordanian Red Sea port of Aqaba to Iraqi oilfields.
After consideration, the government of Israel, then headed by Shamir, said it would not oppose or damage the project. This assurance was repeated verbally to Shultz by then-defense minister Moshe Arens in June 1984 and reiterated when Peres and Shamir met jointly with Shultz in October of that year.
In a telephone interview arranged by Peres' aides, Bar-On said that apart from concerns about possible ecological damage to its Red Sea resort of Elat, Israel approved of the project in large part because of the enhanced political leverage and economic boost its construction would give to Jordan's King Hussein, a moderate Arab leader.
"We said we had no objections whatsoever," recalled Bar-On. "In fact, we said strategically we're all in favor of it."
The guarantee apparently was not sufficient for the Iraqis, who, according to State Department sources, had grown cool to the project in late 1984. Bechtel then enlisted Rappaport, a native Israeli and longtime donor to Israel and to the Labor Party, to help "rejuvenate" the project, in the words of the Peres aide.
Bar-On said Rappaport's involvement was never disclosed to him, nor was the Swiss oilman's financial offer to Peres. "To the best of my recollection, no one ever mentioned Israeli financial guarantees about the project to me," said Bar-On. "And as far as I knew, Israel was never offered a single penny to approve this project."
Bar-On said he also was never aware of Wallach's involvement in the project, although he said he met Wallach three or four times over the years at social events at the Israeli Embassy in Washington or during Wallach's visits here. Bar-On said his "purely personal impression" was that Wallach "was somebody who lived in a dream world. Frankly, I never took him seriously on anything."
Israeli officials pointed to other elements of Wallach's memo as evidence of a profound lack of understanding of the political scene here.
Wallach told Meese that Rappaport had financed a number of public opinion polls for Labor showing the party far ahead of the Likud in popularity, and he predicted Peres would call elections by early 1986. That prediction proved false. Peres handed over the premiership to Shamir in October 1986 and took over the Foreign Ministry according to a prearranged "rotation" agreement.
Wallach also told Meese that the United States should support Peres' effort to convince the Soviet Union to allow direct flights of Soviet Jews to Israel because this would supply an increased flow of western-oriented Ashkenazi Jews who would vote for Labor. In fact, most surveys suggest Soviet Jews who emigrate to Israel are more inclined to support the Likud and other rightist political groupings.
Peres' aides defended his language in the handwritten letter to Meese, which Meese's lawyers also released yesterday. Peres' statement in the note that "discretion is demanded on our part" referred to the sensitivity of the pipeline to its Arab backers, not to payments to Israel or Labor, the aides said.
They also insisted that Peres barely knew Wallach and had only met him on social occasions as part of a larger group, despite the fact that Peres referred to Wallach as "Bob" in his letter to Meese.
Finally, they denied the issue would cause Peres political damage in Israel. "He doesn't consider it a serious matter," said an aide. "It is all malicious slander and he doesn't think it will take hold. People are trying to find a new Watergate where it doesn't exist."
Another source close to Peres, noting that the memo had been released by Meese's lawyer, said there was a clear attempt being made in Washington to "try to protect Meese by putting the blame on Peres."