Cameron faces leadership questions over Europe

By Guy Faulconbridge and Andrew Osborn

LONDON/NEW YORK (Reuters) - Prime Minister David Cameron faced questions about his leadership on Tuesday after he bowed to pressure from inside the ruling Conservative Party to bring forward draft legislation enforcing a referendum on Britain's European Union membership.

Just hours after U.S. President Barack Obama cautioned against rushing towards the EU exit, Cameron was forced by a rebellion in his party into promising a bill that would pave the way for an in-out vote on Europe.

Cameron denied the move was a desperate measure to placate his increasingly restive and eurosceptic party, where many see the EU as an oppressive and wasteful "superstate" that threatens Britain's sovereignty.

"I think when all the dust has settled people will be able to see the substance of the issue," he said.

"That is that one party, the Conservatives, has a clear agenda: renegotiate, change Europe, have a referendum on it - the others parties don't take that approach," he told Sky news.

On the contrary, he said, he had shown leadership on the issue.

"The whole reason that we are now having this debate is because of the act of leadership I gave," he told ITV News, referring to an earlier promise to hold a referendum.

Yet the more ground Cameron concedes to his eurosceptic MPs, the more they want, deepening the 25-year battle in his party over Europe and undermining his own chances of leading it to victory in a general election set for 2015.

Divisions over Europe helped bring down the last two Conservative prime ministers, Margaret Thatcher and John Major, and many politicians compared Cameron's position to that of Major whose premiership was riven by rows over Europe.

"There is no way that he (Cameron) can give in any further because he's undermining his own position," said Sheila Gunn, who served as spokeswoman to Major.

RISKY PATH

Conservative MPs who back the new bill deny the move undermines Cameron. For them, it is a way of showing a sceptical public that the Conservatives really do want a referendum on Britain's EU membership, but are being held back.

The party's Liberal Democrat partners in coalition government are pro-Europe and oppose a referendum, while the opposition Labour party says it does not support a vote on the EU in 2017, the date proposed by Cameron earlier this year.

"We've set out our position and published this bill to give the British people an in-out referendum on Europe ... Now it's vital to hear whether Labour and the other parties are actually prepared to trust the British public," Conservative Party chairman Grant Shapps said in a statement.

Cameron's advisers hope the draft bill on an EU vote will end internal bickering. A Downing Street spokesman insisted Cameron was still in charge.

History shows Cameron is treading a risky path.

The three eurosceptic Conservative Party leaders who followed Major failed to get into power, and Cameron's capitulation over the new EU referendum bill has created the impression he is not in control of his own party.

"David Cameron's weakness has turned a European issue into a leadership issue," Labour foreign affairs spokesman Douglas Alexander said.

In January, Cameron promised to renegotiate the terms of Britain's EU membership and then hold a referendum by the end of 2017 in a speech meant to draw a line under the issue.

But some MPs had called for further concessions and media reports said Cameron's leadership could be challenged.

Cameron's potential rivals include London Mayor Boris Johnson and Education Secretary Michael Gove.

"RED LINE"

Cameron believes his decision to publish the draft bill will silence his eurosceptic MPs until the next election.

"This is our red line," one senior Conservative source said of the bill. "We're not going to give them any more ground."

Despite his latest concession, up to 100 eurosceptic Conservative members of parliament are still expected to criticise the government's legislative plans on Wednesday because they didn't include a bill promising a vote on EU membership.

Since coming to power in a coalition government three years ago, the Conservatives have been rattled by the popularity of the UK Independence Party (UKIP), which campaigns for Britain's withdrawal from the EU and tighter immigration laws.

A Guardian/ICM poll showed that UKIP's support had surged to a record high of 18 percent, while support for Britain's traditional parties had fallen by 4 percentage points each.

UKIP took a quarter of the vote in local elections this month. Unless Cameron can convince his party he can win the next election he is likely to face more challenges to his leadership.

"With the story changing every day, it's very reminiscent of the old John Major days where, really, the government appears to be being blown around by events," said UKIP leader Nigel Farage.

The Guardian poll put Labour on 34 percent, the Conservatives on 28 percent and the Lib Dems on 11 percent.

UKIP's poll rating has climbed steadily since Cameron set out his EU strategy in January.

Cameron's bid to renegotiate the terms of Britain's membership has worried the United States, which has warned London that it would lose influence in the world if it did leave the world's biggest economic bloc.

(Additional reporting by Mohammed Abbas, William James, Costas Pitas and William Schomberg; Writing by Guy Faulconbridge and Andrew Osborn; Editing by Giles Elgood)

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HMRC faces court challenge over Goldman "sweetheart deal"

By Estelle Shirbon

LONDON (Reuters) - The HMRC faces a court challenge on Thursday over a deal with Goldman Sachs worth an estimated 10 million pounds to the U.S. bank, a case aimed at pressuring the government into tougher action against corporate tax avoidance.

The challenge by activist group UK Uncut Legal Action stems from public anger in Britain about how big and powerful firms succeed in paying less tax than many ordinary people struggling to cope with a stagnating economy and government spending cuts.

The case concerns a settlement reached in 2010 between Goldman Sachs and the tax authority (HMRC), to end a long-running dispute over a now banned tax avoidance scheme involving the payment of bonuses to UK staff via an offshore tax haven.

UK Uncut Legal Action wants the High Court to declare the settlement, which allowed Goldman Sachs to pay the principal it owed but not the interest that had accrued during a five-year battle with HMRC, as unlawful.

The activist group labels the settlement a "sweetheart deal", a term rejected by the tax authority.

The risk for Goldman Sachs is further damage to its image in Britain after a public outcry in January caused it to scrap plans to delay paying bonuses to its bankers to make the most of an income tax cut for high earners.

In financial terms, the disputed $15 million (9.6 million pounds) is a drop in the ocean for a bank that paid its employees $12.9 billion in compensation and benefits last year.

"At a time when the government is making huge, unjust cuts to public spending, the rich must pay their fair share," said Murray Worthy, director of UK Uncut Legal Action.

The High Court hearing into the Goldman Sachs deal is a judicial review expected to last one day. The court will reserve judgment until a later date. Goldman Sachs, which will not be an active participant in the case, declined to comment.

At a time of budget austerity, revelations about the low tax bills of companies ranging from Vodafone to Starbucks have caused widespread outrage in Britain, putting pressure on the Conservative-Liberal Democrat coalition government to act.

Chancellor George Osborne has called aggressive tax avoidance "morally repugnant" but critics say his new General Anti-Avoidance Rule is not enough.

Asked to comment on the case, HMRC pointed to a 2012 report by the National Audit Office (NAO) that said five big business tax settlements including the Goldman deal were "reasonable" in that HMRC may have received less if it had litigated and lost.

(Reporting by Estelle Shirbon; additional reporting by Lauren LaCapra in New York; Editing by Elaine Hardcastle)

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Labor Sec. Nominee Faces Harsh GOP Scrutiny

Secretary of Labor nominee Thomas Perez faced two hours of intense scrutiny at his nomination hearing Thursday morning as he sought to alleviate Republican concerns over his role in the Civil Rights Division of the Department of Justice.

At issue is a lengthy report released earlier this week in which GOP leaders accuse Perez of attempting to influence the city of St. Paul, Minn., to withdraw a housing discrimination case before it could be brought before the Supreme Court. In exchange, the Department of Justice agreed not to intervene in two whistleblower cases against St. Paul that could have won up to $200 million for taxpayers.

Sen. Lamar Alexander engaged Perez in a heated line of questioning, accusing Perez of doing "an extraordinary amount of wheeling and dealing."

"You have a duty to protect the money, a duty to protect the whistleblower, and at the same time, it seems to me that you're manipulating the legal process to try to get the result you want from the Supreme Court in a way that's inappropriate," Alexander, R-Tenn., said.

Perez defended his actions, saying DOJ chooses not to stay out of "a lot of different things."

"It was in the interest of justice and it was entirely appropriate to do so in the opinion of professional responsibility people and others," he told the Senate Health, Education, Labor, and Pensions Committee. "I believe the resolution reached in this case was in fact in the interest of justice."

Democratic senators had kind words for Perez. Sen. Barbara Mikulski, D-Md., introduced him as "one of Maryland's favorite sons," saying "we believe he is the right man for the job."

Senator Patty Murray, D-Wash., joined in the praise, adding "you have a very amazing, impressive, wide range of experience that you are bringing from a number of different agencies…You're something of a turn-around expert for public sector agencies, so thank you for that."

When asked what his very top priority would be should he be confirmed as Secretary of Labor, Perez had one answer: "jobs, jobs, jobs."

He expanded on his goals and priorities, including reauthorizing the Workforce Investment Act, maintaining pension security, and spending his first 100 days as secretary on a listening tour of America, reaching out to small businesses and workers alike.

"The president has asked all of us to consider three questions in the decisions we make," Perez said. "How do we make America a magnet for jobs? How do we equip our people with the skills they need to succeed in those jobs, and how do we ensure that an honest day's work leads to a decent living?"

Perez concluded, "These questions are at the core of the mission of the Department of Labor, and if confirmed you have my word that I will keep them there."

The committee is expected to vote on Perez's nomination on Thursday, April 25.

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After Israeli backslapping, Obama faces Palestinian discontent

By Crispian Balmer and Steve Holland

JERUSALEM (Reuters) - President Barack Obama faces a stony reception when he travels to the West Bank on Thursday for talks with Palestinian leaders who accuse him of letting Israel ride rough-shod over their dream of statehood.

Obama has said he will not bring any new initiatives to try to revive long-dormant peace talks and has instead come to Israel and the Palestinian territories for simple consultations.

Arriving in Israel on Wednesday, the main focus of initial discussions with Prime Minister Benjamin Netanyahu appeared to be pressing regional concerns, primarily Iran's nuclear ambitions and the civil war in neighboring Syria.

After repeated run-ins with Netanyahu during Obama's first term in office, the mood between the two men appeared to be much warmer, angering Palestinians, who blame the 2010 collapse of U.S.-backed peace negotiations on the Israeli leader's expansion of Jewish settlements on land where they want their state.

Obama is to address the decades-old conflict in talks with Palestinian President Mahmoud Abbas and also in a keynote speech just hours later to a large audience of carefully screened Israeli students in Jerusalem.

But after the lofty ambitions of his first term, when he appointed a special envoy to the Middle East on his very first day in charge and said peacemaking was a priority, it was clear that Obama has now set the bar significantly lower.

"I will consider this a success if, when I go back on Friday, I am able to say to myself I have a better understanding of what the constraints are," he told a joint news conference on Wednesday, standing alongside Netanyahu.

The three-day visit is Obama's first to Israel and the Israeli-occupied West Bank since entering the White House in 2009, and the inaugural foreign trip of a second and final four-year term that began in January.

Sporadic protests flared in the West Bank and Gaza Strip this week, with Palestinians accusing Obama of not doing enough to halt Israeli settlement-building on land seized in the 1967 Middle East war.

In 2009, Obama bluntly told Israel it had to halt settlement construction, but he later backed away from the demand and made no mention of the enclaves on Wednesday.

Posters depicting Obama were defaced in the West Bank cities of Ramallah and Bethlehem earlier this week and anti-U.S. sentiment bubbled up on social media.

"Do Not Enter," said one poster put up on Facebook, showing Obama's face with a red line crossed through it. "The people of Palestine do not welcome you here."

BACK-SLAPPING

Obama was feted when he arrived at Tel Aviv airport on Wednesday, with Israeli leaders lining up to praise the U.S. president for his firm commitment to the security of the Jewish state and his pledge not to let Iran develop nuclear weapons.

Netanyahu, while citing what he described as Israel's right to defend itself, said effusively that he was "absolutely convinced" that Obama was determined to prevent a nuclear-armed Iran. Tehran says it is enriching uranium for peaceful purposes.

After four years of often icy relations with Netanyahu, the body language suddenly changed. Gone were the pursed lips and ill-disguised scowls. In came firm handshakes and back-slapping.

"Israel has no better friend than the United States of America," Netanyahu said, adding that he hoped his visit would help "turn the page" in relations with the Palestinians.

"Israel remains fully committed to peace and to the solution of two states for two peoples. We stretch out our hand in friendship to the Palestinian people," he added.

Watching from Ramallah, the Palestinian administrative center just outside Jerusalem, Abbas's allies accused Netanyahu of repeating empty rhetoric and said Obama showed no inclination to re-engage with an issue that confounded his predecessors.

"The primary purpose of this visit is Israeli security, Israeli-American relations and saying that the U.S. has its back," said Hanan Ashrawi, a senior official in the Palestine Liberation Organisation (PLO).

Obama will fly by helicopter the few miles from Jerusalem to Ramallah on Thursday morning, giving himself a birds' eye view of the walls and fences of the separation barrier between the two cities and of Israeli settlements on surrounding hilltops.

Before that, he will go to a museum in Jerusalem to see the Dead Sea Scrolls - ancient Jewish parchments discovered in the West Bank in the 1940s.

Israeli diplomats say that will help make amends to Israel for a speech Obama made in Cairo in 2009, when he appeared to argue the Jewish state derived its legitimacy from the Holocaust rather than an attachment to the land dating back to the Bible.

Obama will travel to Bethlehem on Friday to visit the Church of the Nativity, and will also lay a wreath on the grave in Jerusalem of Theodor Herzl, the Zionist visionary who died more than four decades before the 1948 founding of Israel.

The U.S. leader will then fly to neighboring Jordan, one of only two Arab states that has made peace with Israel.

(Additional reporting by Noah Browning in Ramallah, Nidal al-Mughrabi in Gaza and Matt Spetalnick and Jeffrey Heller in Jerusalem; Editing by Alastair Macdonald)

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Netanyahu faces rocky future in new coalition

JERUSALEM (AP) — Forced to rely on the support of two fast-rising rivals in his new governing coalition, Prime Minister Benjamin Netanyahu now faces a reshaped and rocky landscape that could spell trouble ahead: An unwanted culture war with the country's ultra-Orthodox minority as well as pressure to make peace overtures to the Palestinians.

After weeks of difficult negotiations, Netanyahu, who barely hung onto his job, was forced to cede significant power to his new partners, liberal former TV anchorman Yair Lapid and his unlikely ally, pro-settlement hard-liner Naftali Bennett.

Both men make no secret that they want to be prime minister one day, and each can bring down the government at will.

This new constellation is expected to force the cautious Netanyahu, who presided over a broad and stable coalition during his previous four-year term, to confront some of the nation's most contentious issues.

Both Lapid and Bennett have vowed to end years of preferential treatment for the country's small but politically powerful ultra-Orthodox minority. Lapid and the junior partner in the coalition, former Foreign Minister Tzipi Livni, will also put heavy pressure on Netanyahu to take a softer line toward the Palestinians. With President Barack Obama visiting next week, Netanyahu could be forced sooner than later to make difficult decisions about the Palestinians.

"The next term will be one of the most challenging in the history of the state," Netanyahu said Thursday. "We are facing great security and diplomatic challenges."

The ultra-Orthodox minority makes up roughly 8 percent of the country's 8 million people. Because of Israel's coalition system, their political parties have traditionally wielded power far beyond their numbers by guaranteeing a string of prime ministers a parliamentary majority.

Ultra-Orthodox political parties have used their kingmaker status to secure vast budgets for their religious schools and seminaries and to win automatic exemptions from compulsory military service for tens of thousands of young men to pursue religious studies. Older men collect welfare stipends while continuing to study full time.

The system has led to high rates of unemployment in the ultra-Orthodox community, and has bred widespread resentment among the general public. Attempts by ultra-Orthodox activists to impose their customs on broader society, such as pushing for gender-segregated buses, have further angered the public.

Both Lapid and Bennett tapped into this resentment to make great gains in the Jan. 22 election, promising to bring a "sharing of the burden" of military service and paying taxes. Lapid's Yesh Atid Party, running in its first election, emerged as the second-largest faction in parliament, with 19 of 120 seats. Bennett's rejuvenated Jewish Home captured 12 seats.

Netanyahu's Likud-Yisrael Beitenu bloc won 31 seats. Although it's the largest single faction, it is well below its 42-seat level in the previous parliament and far short of the 61 seats needed for a majority. With Lapid, Bennett and Livni's dovish "Movement" on board, Netanyahu controls a 68-seat majority.

Tough negotiations lasted nearly six weeks before it was finalized Friday, just a day ahead of a deadline that could have triggered new elections.

"Indeed, the new government is not what its leader had hoped for. He did everything he could to flee it, as if from a place plagued by boils, locusts, lice and pestilence. These were not the partners he had hoped for: He did his utmost to keep them out of the coalition, and they taught him a thing or two," wrote Yossi Verter in the liberal Haaretz daily.

"He is the Old Guard, they are the new. He, poor guy, will soon be history," he wrote.

In a sign of how tense the talks were, the negotiating teams decided not to hold a formal ceremony to sign the agreements, Yuval Karni reported in the more mainstream Yediot Ahronot paper. It was decided that the agreements would be signed by fax, so that the representatives of the parties would not even see each other at a signing ceremony.

The weeks of negotiations illustrated Netanyahu's limited room for maneuvering, and the significant leverage his partners will wield.

Forming a joint front, Lapid and Bennett forced the prime minister to keep the ultra-Orthodox parties, his traditional ally, out of the coalition. It is only the second time in the past 35 years that they have been in the opposition.

Lapid, a critic of excessive government spending, also forced Netanyahu to scale back the size of the Cabinet. The move had the added effect of infuriating members of Netanyahu's Likud Party by reducing the number of available Cabinet posts.

In a statement Thursday, Yesh Atid said its first order of business would be to submit a bill on reforming the draft system. It also said it would require all schools to teach a "core curriculum" that includes math, science and English. Ultra-Orthodox schools have frequently neglected these areas. The statement also promised "extensive economic steps" to integrate the ultra-Orthodox into the work force.

Lapid's party will control the finance and education ministries, giving him significant influence over budget and school policies. But taking away benefits from the ultra-Orthodox will not be easy. Netanyahu will be reluctant to take on his traditional allies, knowing he could rely on them again in the future.

The ultra-Orthodox, who have been able to mobilize tens of thousands of people into the streets, are already promising to put up a fight. "Our first mission is to topple this government," Arieh Deri, leader of the ultra-Orthodox Shas party, told Israel's Army Radio station.

Dealing with the Palestinian issue will be no easier. Netanyahu's own Likud Party is dominated by hard-liners who oppose significant concessions to the Palestinians, while Bennett, a former head of the West Bank settler movement, takes an even tougher line, calling on Israel to annex large chunks of West Bank territory that would have to be part of any future Palestinian state. He is sure to use his control over the Housing Ministry to try to build more settlement homes.

On the other hand, Lapid announced Thursday that the new coalition agreement promised a commitment to returning to the negotiating table with the Palestinians. Livni, who is to be Netanyahu's chief negotiator, ran for office on a platform devoted to reaching peace.

Netanyahu will be hard-pressed to balance these conflicting forces, yet there are some reasons for optimism.

After presiding over four years of deadlock and international isolation over the issue, Netanyahu has signaled he is eager to restart negotiations under his new government.

The Palestinians demand all of the West Bank, east Jerusalem and Gaza Strip — areas captured by Israel in the 1967 Mideast war — for a future state. They have demanded a freeze in settlement construction and a commitment to make Israel's 1967 lines the basis for a future border.

Saeb Erekat, the chief Palestinian negotiator, said the Palestinians would have "no problem" talking to Lapid or Livni.

"But if we want to negotiate with the Israelis, the government should accept the two-state solution based on the 1967 borders and implement its obligations like the settlement freeze" he said.

The arrival of Obama next Wednesday could raise pressure on Netanyahu to float some new ideas for restarting talks. Though Obama is not bringing any bold peace plan, he will be meeting separately with both sides in order to lay the groundwork for future talks.

"Netanyahu is going to have Obama visiting next week in Jerusalem and therefore he had to have a more moderate, at least by outlook, government," said Gayil Talshir, a political scientist at Hebrew University. "So the government in terms of Livni getting to be a minister in this government and Lapid being more moderate, it's definitely more moderate when you look at it from the outside."

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Algerian in Jihad Jane plot faces US extradition

DUBLIN (AP) — An Algerian man wanted by U.S. authorities over the abortive "Jihad Jane" plot to assassinate a Swedish artist is expected to face extradition hearings in an Irish courthouse Wednesday after his surprise arrest .

Ali Charaf Damache, 47, had just walked free from court after three years in an Irish prison when detectives acting on an American extradition warrant rearrested and escorted him, handcuffed, to an unmarked police car. Court officials said he was expected to face U.S. extradition demands Thursday in Dublin High Court.

The FBI and U.S. Justice Department accuse Damache of being the ringleader behind an unrealized 2009 conspiracy to target artist Lars Vilks in Sweden over his series of drawings depicting the Muslim prophet Muhammad as a dog. Muslim extremists in Iraq had offered a $100,000 reward for anyone who killed Vilks, who was never attacked.

U.S. prosecutors say Damache, who has lived in Ireland since 2000, recruited two U.S. women via jihadist web sites to help him target Vilks. One of the women who billed herself as "Jihad Jane," Colleen LaRose, was arrested by the FBI soon after she returned from Ireland in September 2009. Damache married the other woman, Jamie Paulin Ramirez, in a Muslim ceremony on the day she arrived in Ireland from Colorado that same month. Ramirez and Damache were arrested in their home in the southeast city of Waterford in March 2010; she voluntarily returned to the United States to face charges there.

Both LaRose, now 49, and Ramirez, now 34, have pleaded guilty — LaRose to conspiring to kill Vilks, Ramirez to lesser charges of aiding terrorists — and are imprisoned in the United States pending their sentencing, which has been repeatedly delayed. LaRose faces up to life in prison, Ramirez a maximum 15 years.

Irish detectives investigating Damache's links to both women trawled his telephone records and discovered he had telephoned a Michigan attorney, Majed Moughni, the lead organizer of an Arab-American protest in Detroit called to denounce Islamic extremists. Moughni told police he received a telephoned death threat the day after that January 2010 demonstration — and taped it.

Damache had pleaded not guilty to Irish charges of making death threats until Tuesday, when prosecutors played the audiotape. A voice identified as Damache's could be heard telling Moughni: "If you were in front of me, I would shoot you. I would put a bullet in your head."

On Wednesday, Damache's lawyers said their client was changing his plea to guilty and wanted to say sorry to Moughni. The presiding judge in Waterford Circuit Court, Donagh McDonagh, described the threat as premeditated and frightening. He gave Damache a four-year sentence but suspended the final year, which meant he was eligible for immediate release given his jail time already served.

Vilks is one of two Scandinavian artists to infuriate Muslims with illustrations denigrating Muhammad, the central figure of Islam, who isn't supposed to be depicted visually at all according to Muslim tradition. The other artist, Danish cartoonist Kurt Westergaard, was threatened in 2010 by an ax-wielding Somali who broke into his home, but police shot and wounded the attacker while the artist hid in a specially barricaded panic room. Westergaard's 2005 newspaper cartoons depicting Muhammad wearing a bomb-shaped turban sparked street protests and violence against Scandinavian embassies in several predominantly Muslim countries.

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