Mr. McGhee observed that, as Mr. Eban doubtless knew, we had
 seen promising possibilities in the Gaza strip idea as :a steP-toward
 Palestine settlement 2 but -that unfortunately, the ,proposal had been
 made in such a way as to produce the effect of being a straight barter
 of refugees against territory. Mr. Eban said that he too felt that the
 presentation of this matter may have left something to bedesired. In
 further discussion on this subject Mr. McGhee observed that although
 direct' discussion on the Gaza proposal was favored as a practical
 measure he assumed that such negotiations would have. to be iite-
 grated in due course into other negotiations, particularly with refer-
 ence to Transjordan. Mr. :Eban indicated that such would doubtless be
 the case.
   Turning Lto the general question of refugees Mr. Eban said that he
 was concerned lest Israel should make a gesture in that direction only
 to have it refused by the Arabs on the basis of inadequacy and thus
 leave Israel "out on-a limb". Hee expressed doubt ,inthe circumstances
 whether it was advisable for Israel to make such a move. Mr. McGhee
 said .that he' viewed -the matter froman entirely- different: point of
 view. Presuming that the gesture made by Israel was indeedserious,
 it would constitute a-positive and much neededI step in the direction of
 peace. It could' for example,: be made contingent on acceptance of the
 remainder byý the Arab States. It -was, of course, obvious that Israel
 would not be able to take:back all of the refugees but a move:which
 would indicate that it was willing to make a real effort to contribute
 to a solution would create an entirely different .and more promising
 atmosphere. Mr. McGhee went on to emphasize the gravity of the situa-
 tion which would arise asa result of failure to take constructive action
 on the refugee question in the very near future. He said that as a result
 of consultations with officials of the United Nations and of his own
 personal knowledge of Congressional attitude he was certain that
 little could be done by way of obtaining further funds on a straight
 relief basis. Relief could only be obtained if promise were given of
 some constructive program  for the liquidation of the problem. It
 would be an. extremely-serious matter for both Israel and the Arab
 States if it should become apparent that failure to take action on this
 important question was the direct result ofa lack of their willingness
 to assume responsibilities which they jointly shared,. Mr. Eban ap-
 peared to be particularly impressed by this argument and said that he
 would make a point of stressing itron his return to Tel Aviv.
 'The Department, -on July 8, instructed the American Delegation at Lausanne
to inform the French and Turkish Delegations of the Gaza strip proposal8
-fad,
by the United States (telegram Unpal 181, 501.BB Palestine/7-849).


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