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This included the first statement that directly linked further progress in im- plementing Palestinian auton- omy to Yassir Arafat's ability to reign in Islamic terrorists. An Israeli source said the meetings represented a small, but important, step. "The most important aspect is that Nabil Sha'ath [the chief PLO negotiator] came away with a much clearer understanding that the peace process cannot go forward until there is a change on the ground," the source said. "There were no break- throughs," he said. "But the meeting produced a new reality for the Palestinian side." The Palestinian leadership, he added, now "knows exactly what steps they need to take to get the process working again. It's not enough for them to sim- ply talk about terrorism." In private meetings with Mid- dle East activists, Mr. Sha'ath indicated that his fledgling gov- ernment intends to act on Sun- day's warnings. He also repeated criticisms of Israel's continuing ban on Palestinians entering the country. President Clinton, who or- chestrated the meeting, insisted that the United States is ready to intensify its efforts to bring about a Mideast peace. "The United States is still committed to this, more strong- ly than ever," he told the as- sembled leaders. "We are ready to do our part economically. We are certainly ready to do our part in fighting terror." Peace process supporters were buoyed by the new emphasis on the fight against terrorism. As Gail Pressberg, Washington di- rector of Americans for Peace Now, said, "One outcome is that the administration made it clear- er than ever that terrorism is an international problem, not just a problem for Israel. The ques- tion now is how Washington fol- lows up." Secretary of State Warren Christopher also sent a strong signal that Egypt's strident com- plaints about Israel's failure to sign the Nuclear Nonprolifera- tion Treaty are being viewed as - a deliberate attempt to compli- cate the peace process. That issue provoked some of the harshest debate during the seven-hour meeting. Israeli offi- cials were pleased that the treaty — a diplomatic hot potato — was kept out of the final joint com- munique. One of the most important outcomes of one session was the administration's decision to ex- tend the U.S.-Israel Free Trade Agreement to include proposed "industrial parks" in Gaza and the West Bank. Meeting with Clinton produced "a new reality" for Palestinians. If they are approved by Con- gress, the "parks" will boost the Palestinian economy by allowing manufacturers in the newly au- tonomous areas to export products to the United States duty-free, like their Israeli counterparts. "That was a significant devel- opment because these areas desperately need economic devel- opment if we are going to keep the peace process from going down the drain," said Robert 0. Freedman, vice president for academic affairs at Baltimore Hebrew University and an expert in Middle East af- fairs. "It's also important because it will make Israel less reliant on Palestinian labor." _ Egyptian Foreign Minister Amr Moussa remained in Wash- ington after the parley for a round of meetings on Capitol Hill. And while the American of- ficials warned once again about Egypt's stance on the Nuclear Nonproliferation Treaty issue, foreign aid was uppermost on Mr. Moussa's mind. Because of the controversy over the nonproliferation treaty and Egypt's recent efforts to slow down normalization between Arab countries and Israel, pro- Israel activists in Washington have sent out unmistakable sig- nals that American aid to Cairo could be in serious trouble. They can say that because pro- Israel organizations are tradi- tionally the only groups lobbying