  We report moderate resolution 3-5 micron spectroscopy of the nucleus of NGC
1068 obtained at 0.3 arcsec (20 pc) resolution with the spectrograph slit
aligned approximately along the ionization cones of the AGN. The deconvolved
FWHM of the nuclear continuum source in this direction is 0.3 arcsec. Four
coronal lines of widely different excitations were detected; the intensity of
each peaks near radio knot C, approximately 0.3 arcsec north of the infrared
continuum peak, where the radio jet changes direction. Together with the
broadened line profiles observed near that location, this suggests that
shock-ionization is the dominant excitation mechanism of the coronal lines. The
depth of the 3.4 micron hydrocarbon absorption is maximum at and just south of
the continuum peak, similar to the 10 micron silicate absorption. That and the
similar and rapid variations of the optical depths of both features across the
nucleus suggest that substantial portions of both arise in a dusty environment
just in front of the continuum source(s). A new and tighter limit is set on the
column density of CO. Although clumpy models of the dust screen might explain
the shallowness of the silicate feature, the presence of the 3.4 micron feature
and the absence of CO are strongly reminiscent of Galactic diffuse cloud
environments and a consistent explanation for them and the observed silicate
feature is found if all three phenomena occur in such an environment, existing
as close as 10 pc from the central engine.
