August 12, 1992

Not since the 1950's has the United States recovered from recession while military spending was falling sharply. But now that the cold war is over, America is struggling to do just that, and finding it difficult. The precipitous drop in military spending in the last 18 months has eroded an important pillar of the economy, and many economists say that is a big reason that the United States is now having such trouble pulling out of recession.

The United States, Canada and Mexico tentatively agreed today to create a free trade area covering all of North America, eliminating customs duties and other restrictions. The agreement will allow companies to do business the length of the continent with few barriers. Several people involved in the negotiations and Administration officials said President Bush was virtually certain to announce the accord on Wednesday morning.

SAN DOMENICO, an elegant Italian restaurant on Central Park South with leather chairs and ocher walls, is often sparsely populated at lunch time. But this month, San Domenico is packed. So, too, is the Gotham Bar and Grill, Le Perigord, the Sign of the Dove and other restaurants with reputations for good food but images of being too expensive or too forbidding for most New Yorkers. It took a bargain to bring restaurant madness back to New York.

2 Killed in Queens Robbery Two men, one of them a hostage, were killed in a wild shootout between police officers and gunmen after a botched robbery in Queens. Page B1. 'Ivan' Appeal Advances Claiming Justice Department misconduct, lawyers for John Demjanjuk urged an appeals court to overturn their client's deportation. Page A12. Sergeant Charged in Assault A Brooklyn police sergeant was charged with punching a community leader when the officer was called to a family dispute. Page B1.

President Bush asked for swift action on $10 billion in loan guarantees to Israel after he and Prime Minister Yitzhak Rabin of Israel announced that they had reached an agreement in principle.