overnment has completely departed
from its original position.

"The three important questions still in dispute, as mentioned above,
are the following:

"(1) The German Government's responsibility for American lives lost
in the torpedoing of British Ships.

"(2) The responsibility for the payment of compensation for the
American lives so lost.

"(3) The American demand that _all_ merchant ships should be warned
by our submarines before being attacked.

"This demand was at first so worded as to imply that submarines,
like other warships, had only the right of search.

"The Government, realizing that we could not make concessions on
the above three points, had to be content with our admission that
the case of the _Arabic_ should be regarded as exceptional. This
very fast rendered it impossible to reach a similar settlement
in the case of the _Lusitania_, in which no error on the part of
the submarine commander concerned could be adduced. However, the
Government seemed to be only too satisfied to have come so well
out of their difficulties, and have no wish to raise any further
obstacles because of the _Lusitania_ incident. This matter, as
I have already had the honor to report, may now well be left to
drag on indefinitely, and can be referred in the end to the Hague
Tribunal after the war. Our Press should, therefore, be warned that
further discussion of the controversy between Germany and America
over the submarine campaign is undesirable."

(3) CIPHER

"Cedarhurst, October 20th, 1915.

"Your Excellency's last wireless requested me to render a report
on the settlement of the _Arabic_ question. I have already complied
with these instructions, and the documents are now on their way
to you, and should have reached you. However, it may be advisable
to explain briefly the more important points of the matter.

"From the date of the sinking of the _Lusitania_, America has always
been on the verge of breaking off diplomatic relations with us.
The German people, I am convinced, have no idea of the full danger
of the situation, at least, if one may judge from our Press. On
two occasions we were compelled to sacrifice individuals in order
to avoid a breach, Dernburg and Dumba being our scapegoats. Their
mistakes would under normal circumstances have been overlooked,
but their removal was at the time necessary in order to give the
American Government the opportunity of showing its strength without
breaking of