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Israel Tuesday rebuffed a call by Secretary of State James Baker to renounce dreams of a Greater Israel and halt Jewish settlements in occupied areas.

Prime Minister Yitzhak Shamir, in London on an official visit, told a news conference: "I think it's useless, it was useless.""We cannot agree to what he said about some positions of Israel in the future, or even issues not related directly to the peace initiative - for instance, what he said about a Greater Israel or the settlement problem and so on."

Earlier Shamir told Israel Radio in London, "I do not know how one could talk of a Greater Israel. We are a very small country.

"All of us know that Israel's territory is very limited, and it really sounds ironic to speak of a Greater Israel," Shamir said.

Foreign Minister Moshe Arens, in a radio interview from Brussels, said, "There is indeed a dream of a Greater Israel, and the past has shown that Israel's dreams can come true."

Baker, in his first major speech on Middle East policy, told America's leading pro-Israel lobby Monday that Israel should lay aside "the unrealistic vision of a Greater Israel. Forswear annexation. Stop settlement activity (in the occupied West Bank and Gaza Strip)."