Economic and Political Issues in the Middle East [1 ed.] 9781619420991, 9781612093819

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Copyright © 2011. Nova Science Publishers, Incorporated. All rights reserved. Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

Copyright © 2011. Nova Science Publishers, Incorporated. All rights reserved. Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

POLITICS AND ECONOMICS OF THE MIDDLE EAST

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ECONOMIC AND POLITICAL ISSUES IN THE MIDDLE EAST

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Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

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Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

POLITICS AND ECONOMICS OF THE MIDDLE EAST

ECONOMIC AND POLITICAL ISSUES IN THE MIDDLE EAST

CRISTINA N. PARKER AND Copyright © 2011. Nova Science Publishers, Incorporated. All rights reserved.

DOUGLAS M. WARDE EDITORS

Nova Science Publishers, Inc. New York Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

Copyright © 2011 by Nova Science Publishers, Inc. All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted in any form or by any means: electronic, electrostatic, magnetic, tape, mechanical photocopying, recording or otherwise without the written permission of the Publisher. For permission to use material from this book please contact us: Telephone 631-231-7269; Fax 631-231-8175 Web Site: http://www.novapublishers.com NOTICE TO THE READER The Publisher has taken reasonable care in the preparation of this book, but makes no expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of information contained in this book. The Publisher shall not be liable for any special, consequential, or exemplary damages resulting, in whole or in part, from the readers‘ use of, or reliance upon, this material. Any parts of this book based on government reports are so indicated and copyright is claimed for those parts to the extent applicable to compilations of such works.

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Independent verification should be sought for any data, advice or recommendations contained in this book. In addition, no responsibility is assumed by the publisher for any injury and/or damage to persons or property arising from any methods, products, instructions, ideas or otherwise contained in this publication. This publication is designed to provide accurate and authoritative information with regard to the subject matter covered herein. It is sold with the clear understanding that the Publisher is not engaged in rendering legal or any other professional services. If legal or any other expert assistance is required, the services of a competent person should be sought. FROM A DECLARATION OF PARTICIPANTS JOINTLY ADOPTED BY A COMMITTEE OF THE AMERICAN BAR ASSOCIATION AND A COMMITTEE OF PUBLISHERS. Additional color graphics may be available in the e-book version of this book.

LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA Economic and political issues in the Middle East / editors, Cristina N. Parker and Douglas M. Warde. p. cm. Includes index.

ISBN:  (eBook) 1. Middle East. 2. Middle East--Economic conditions. 3. Middle East--Politics and government. 4. Middle East--Strategic aspects. 5. Middle East--Foreign relations--United States. 6. United States--Foreign relations--Middle East. I. Parker, Cristina N. II. Warde, Douglas M. DS44.E27 2011 956.05'4--dc22 2010051538

Published by Nova Science Publishers, Inc. † New York Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

CONTENTS Preface Chapter 1

Chapter 2

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Chapter 3

vii The United Arab Emirates Nuclear Program and Proposed U.S. Nuclear Cooperation Christopher M. Blanchard and Paul K. Kerr Towards Possible Dynamic and Flexible Labor Market: Aqaba-Jordan F. Al-Azzam, M. Al-Emyan, Z. S. H. Abu-Hamatteh and Abu-Kharmeh S. Suleiman Israeli-Arab Negotiations: Background, Conflicts and U.S. Policy Carol Migdalovitz

1

17

35

Chapter 4

Iran‘s Economic Conditions: U.S. Policy Issues Shayerah Ilias

Chapter 5

U.S. Foreign Aid to the Palestinians Jim Zanotti

121

Chapter 6

Syria: Background and U.S. Relations Jeremy M. Sharp

143

Chapter 7

Afghanistan: Government Formation and Performance Kenneth Katzman

167

Chapter 8

Israel and Hamas: Conflict in Gaza (2008-2009) Jim Zanotti, Jeremy M. Sharp, Casey L. Addis, Christopher M. Blanchard and Carol Migdalovitz

177

Index

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83

213

Copyright © 2011. Nova Science Publishers, Incorporated. All rights reserved. Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

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PREFACE This new book presents and discusses economic and political issues in the Middle East, with a particular focus on U.S. involvement and policies put in place as a result of these problems. Topics discussed herein include Israeli-Arab negotiations; Iran's economic conditions; U.S. foreign aid to the Palestinians; government formation and performance in Afghanistan; the Conflict of Gaza and the United Arab Emirates Nuclear Program and proposed U.S. nuclear cooperation. Chapter 1 - The United Arab Emirates (UAE) has embarked on a program to build civilian nuclear power plants and is seeking cooperation and technical assistance from the United States and others. During 2008 and early 2009, the Bush Administration and the UAE government negotiated and signed a memorandum of understanding and a proposed bilateral agreement on peaceful nuclear cooperation pursuant to Section 123 of the Atomic Energy Act (AEA) of 1954. Then-U.S. Secretary of State Condoleezza Rice signed the proposed agreement on peaceful nuclear cooperation with the UAE on January 15, 2009. The Obama Administration has not submitted the proposed agreement to Congress for the required review period. Under the AEA, Congress has the opportunity to review such a proposed agreement for 90 days of continuous session, after which the agreement becomes effective unless, during that time, Congress adopts a joint resolution disapproving the agreement and the resolution becomes law. The agreement text states the intent of both governments to cooperate in a number of areas including, but not limited to, the development of the UAE‘s ―civilian nuclear energy use in a manner that contributes to global efforts to prevent nuclear proliferation‖ and, ―the establishment of reliable sources of nuclear fuel for future civilian light water reactors deployed‖ in the UAE. The agreement also states that future cooperation may encompass training, scientific exchanges, and technical assistance, including in the areas of nuclear security, infrastructure protection, and nuclear fuel and waste management. To date, some Members of Congress have welcomed the UAE government‘s stated commitments not to pursue proliferation-sensitive nuclear capabilities, such as uranium enrichment or spent fuel reprocessing. Other Members have signaled their intention to weigh the proposed bilateral agreement in light of parallel and specific concerns about the UAE‘s cooperation with international efforts (such as sanctions) to prevent Iran from developing nuclear weapons and ballistic missiles, as well as the potential proliferation or safety risks inherent to exporting U.S. nuclear technology. In the 111th Congress, legislation (H.R. 364) has been introduced that would require President Obama to certify that the UAE has taken a number of steps to strengthen its export

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Cristina N. Parker and Douglas M. Warde

controls and stem illicit trade with Iran before any agreement could come into effect or related U.S. exports of nuclear technology to the UAE could be approved. In 2007, the UAE adopted a stronger export control law, but has yet to issue implementing regulations for the law or to fully staff a national export control body to enforce it. In the interim, export control enforcement functions remain the responsibility of authorities in the UAE‘s individual emirates, in coordination with the national government. The U.S. State Department reports that cooperation with national- and emirate-level officials has improved since 2006, resulting in a number of joint interdiction operations. This report provides background information on the UAE nuclear program, reviews developments to date, analyzes proposed nuclear cooperation with the United States, and discusses relevant legislative proposals and options. See also CRS Report RS2 1852, The United Arab Emirates (UAE): Issues for U.S. Policy, by Kenneth Katzman, and CRS Report RS22937, Nuclear Cooperation with Other Countries: A Primer, by Paul K. Kerr and Mary Beth Nikitin. Chapter 2 - In order for Aqaba to become the growth center envisioned by national plans, Aqaba labour market must be both dynamic and flexible. Such a market would provide substantial benefits both by encouraging investment and by generating higher incomes. Alternatively, a segmented and rigid labour market would inhibit such beneficial developments. Analysis of the labour market in Aqaba indicates that it is segmented and rigid in many ways. Neither the market nor the various labour market institutions are working well. To address those inadequacies and rigidities, the several recommendations are made. Most of these are not specific to Aqaba, but address problems that affect Aqaba as well as the rest of Jordan. Those recommendations call for detailed and objective studies. Chapter 3 - After the first Gulf war, in 1991, a new peace process consisting of bilateral negotiations between Israel and the Palestinians, Jordan, Syria, and Lebanon achieved mixed results. Milestones included the Israeli-Palestine Liberation Organization (PLO) Declaration of Principles (DOP) of September 13, 1993, providing for Palestinian empowerment and some territorial control, the Israeli-Jordanian peace treaty of October 26, 1994, and the Interim Self-Rule in the West Bank or Oslo II accord of September 28, 1995, which led to the formation of the Palestinian Authority (PA) to govern the West Bank and Gaza Strip. However, Israeli-Syrian negotiations were intermittent and difficult, and postponed indefinitely in 2000. Negotiations with Lebanon also were unsuccessful, leading Israel to withdraw unilaterally from south Lebanon on May 24, 2000. President Clinton held a summit with Israeli and Palestinian leaders at Camp David on final status issues that July, but they did not produce an accord. A Palestinian uprising or intifadah began in September. On February 6, 2001, Ariel Sharon was elected Prime Minister of Israel, and rejected steps taken at Camp David and afterwards. On April 30, 2003, the United States, the U.N., European Union, and Russia (known as the ―Quartet‖) presented a ―Road Map‖ to Palestinian statehood. It has not been implemented. Israel unilaterally disengaged (withdrew) from the Gaza Strip and four small settlements in the West Bank in August 2005. On January 9, 2005, Mahmud Abbas had become President of the PA. The victory of Hamas, which Israel and the United States consider a terrorist group, in the January 2006 Palestinian parliamentary elections complicated prospects for peace as the United States, Israel, and the Quartet would not deal with a Hamas-led government until it disavowed violence, recognized Israel, and accepted prior Israeli-Palestinian accords. President Abbas‘s dissolution of the Hamas-led government in response to the June 2007

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Preface

ix

Hamas forcible takeover of the Gaza Strip led to resumed international contacts with the PA. On November 27, at an international conference in Annapolis, MD, President Bush read a Joint Understanding in which Abbas and Israeli Prime Minister Ehud Olmert agreed to simultaneously resume bilateral negotiations on core issues and implement the Road Map. On May 21, 2008, Israel, Syria, and Turkey announced that Syria and Israel had begun indirect peace talks in Istanbul via Turkish mediators. Later in the year, Israeli and U.S. elections appeared to disrupt negotiations on all tracks and the end of the Israeli-Hamas cease-fire in December and the subsequent outbreak of violence led to the official suspension of peace talks. Congress is interested in issues related to Middle East peace because of its oversight role in the conduct of U.S. foreign policy, its support for Israel, and keen constituent interest. It is especially concerned about U.S. financial and other commitments to the parties, and the 111th Congress is engaged in these matters. Congress also has endorsed Jerusalem as the undivided capital of Israel, although U.S. Administrations have consistently maintained that the fate of the city is the subject of final status negotiations. This CRS report will be updated as developments warrant. See also CRS Report R40 101, Israel and Hamas: Conflict in Gaza (2008-2009) , coordinated by Jim Zanotti, CRS Report RS22768, Israeli-Palestinian Peace Process: The Annapolis Conference, by Carol Migdalovitz, CRS Report RL33566, Lebanon: The Israel-Hamas-Hezbollah Conflict, by Jeremy M. Sharp et al., and CRS Report RS22967, U.S. Foreign Aid to the Palestinians, by Jim Zanotti. Chapter 4 - The Islamic Republic of Iran, a resource-rich and labor-rich country in the Middle East, is a central focus of U.S. national security policy. The United States asserts that Iran is a state sponsor of terrorism and that Iran‘s uranium enrichment activities are for the development of nuclear weapons. To the extent that U.S. sanctions and other efforts to change Iranian state policy target aspects of Iran‘s economy as a means of influence, it is important to evaluate Iran‘s economic structure, strengths, and vulnerabilities. Since 2000, Iran has enjoyed broad-based economic growth. However, strong economic performance has been hindered by high levels of inflation and unemployment and low levels of foreign investment. Some contend that President Ahmadinejad‘s expansionary monetary and fiscal policies have worsened unemployment, inflation, and poverty in Iran. Iran has long been subject to U.S. economic sanctions, and more recently, to United Nations sanctions, over its uranium enrichment program and purported support for terror activities. Such sanctions are believed by many analysts to contribute to Iran‘s growing international trade and financial isolation. Iran‘s economy is highly dependent on the production and export of crude oil to finance government spending, and consequently is vulnerable to fluctuations in international oil prices. Although Iran has vast petroleum reserves, the country lacks adequate refining capacity and is highly dependent on gasoline imports to meet domestic energy needs. To reduce this dependency, the country is seeking foreign investment to develop its petroleum sector. While some deals have been finalized, reputational and financial risks may have limited other foreign companies‘ willingness to finalize deals. While Iran-U.S. economic relations are limited, the United States has a key interest in Iran‘s relations with other countries. As some European countries have curbed trade and investment dealings with Iran, other countries, such as China and Russia, have emerged as

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Cristina N. Parker and Douglas M. Warde

increasingly important economic partners. Iran also has focused more heavily on regional trade opportunities, such as with the United Arab Emirates. High oil prices have increased Iran‘s leverage in dealing with international issues, but the country‘s dependence on oil and other weak spots in the economy have to come to light by the 2008 international financial crisis, which may portend a slowing down of Iran‘s economy. Members of Congress are divided about the proper course of action in respect to Iran. Some advocate a hard line, while others contend that sanctions are ineffective at promoting policy change in Iran and hurt the U.S. economy. In the 110th Congress, several bills were introduced that reflect both perspectives. Policies toward Iran likely will remain a key issue for the 111th Congress. This report will be updated as events warrant. Chapter 5 - In March 2009, the Obama Administration pledged $900 million in U.S. assistance to the Palestinians to address both post-conflict humanitarian needs in the Gaza Strip and reform, security, and development priorities in the West Bank. Most of the pledged amount remains subject to congressional appropriation. In April 2009, the Obama Administration issued an FY2009 supplemental budget request that included $815 million in proposed appropriations— $665 million in bilateral assistance and $150 million in contributions to international organizations from the Migration and Refugee Assistance account—to benefit the Palestinians. The request also proposed a provision that some might say could apply different conditions than those applied by previous FY2008 and FY2009 appropriations legislation to possible U.S. assistance to a Palestinian power-sharing government that includes Hamas. Since the signing of the Oslo Accord in 1993 and the establishment of limited Palestinian self- rule in the West Bank and Gaza Strip in 1994, the U.S. government has committed more than $2 billion in bilateral economic assistance to the Palestinians. In the last half of the 1990s, U.S. foreign aid to the Palestinians averaged approximately $75 million per year. That average has increased during this decade, but the outbreak and continuation of the second Palestinian intifada (or ―uprising‖) and Hamas‘s heightened role in Palestinian politics have made it more difficult to implement effective and lasting aid projects that also serve U.S. interests. U.S. aid to the Palestinians has fluctuated considerably over the past three years, largely due to Hamas‘s changing role within the Palestinian Authority (PA). After Hamas led the PA government for over a year, its forcible takeover of the Gaza Strip in June 2007 led to the creation of a nonHamas government in the West Bank—resulting in different models of governance for the two Palestinian territories. Since then, the U.S. has dramatically boosted aid levels to bolster the PA in the West Bank and President Mahmoud Abbas vis-à-vis Hamas. Because of congressional concerns that, among other things, U.S. funds might be diverted to Palestinian terrorist groups, much of this aid is subject to a host of vetting and oversight requirements and legislative restrictions. For FY2009, $275 million in bilateral assistance— which includes projects funded through the U.S. Agency for International Development; direct budgetary assistance to the PA; and training, non-lethal equipment, and facilities for PA civil security forces—have already been appropriated for the Palestinians, and the State Department has already contributed $98.5 million to the U.N. Relief and Works Agency for Palestine Refugees in the Near East (UNRWA). Some of these funds have gone toward emergency humanitarian needs in Gaza created by the 2008-2009 Israel-Hamas conflict.

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Experts advise that PA stability appears to hinge on improved security, economic development, Israeli cooperation, and the continuation of high levels of foreign assistance. The possibility of a consensus or unity government to address the problem of divided rule among Palestinians could lead to a full or partial U.S. aid cutoff if Hamas is included in the government and does not change its stance toward Israel. Even if the immediate objectives of U.S. assistance programs for the Palestinians are met, lack of progress toward a politically legitimate and peaceful two-state solution could undermine the utility of U.S. aid in helping the Palestinians become more cohesive, stable, and self-reliant over the long term. Chapter 6 - Despite its weak military and lackluster economy, Syria remains relevant in Middle Eastern geopolitics. The Asad regime has its hands in each of the four major active or potential zones of conflict in the region (Lebanon, Israel-Palestine, Iraq, and Iran). In the Levant, Syrian leaders aim to dominate the internal politics of Lebanon, and have been accused of involvement in the assassination of four parliamentarians and former Prime Minister Rafik Hariri. The Asad regime has resisted U.S. and French attempts to bolster the pro-Western government of Prime Minister Fouad Siniora, believing that it can weather the storm of U.S. pressure over time. Syria also plays a key role in the Middle East peace process, acting at times as a ―spoiler‖ by sponsoring Palestinian militants and facilitating the rearmament of Hezbollah. At other times, it has participated in substantive negotiations with Israel, most recently in 1999-2000. A September 6 Israeli air strike against an alleged nascent Syrian nuclear facility heightened an already tense atmosphere between the two countries, though most experts believe that neither side desires a new war. Regarding Iraq, the Iraqi refugee crisis has affected Syria far more than Syria has influenced internal Iraqi politics since the fall of Saddam Hussein. There now may be close to 1.4 million Iraqis inside Syria, many of whom face the dim prospect of remaining in permanent exile. Finally, Syria‘s longstanding relationship with the Iranian clerical regime is of great concern to U.S. strategists. As Syria grew more estranged from the United States throughout this decade, Syrian-Iranian relations improved, and some analysts have called on U.S. policymakers to woo Syrian leaders away from Iran. Others believe that the Administration should go even further in pressuring the Syrian government and should consider implementing even harsher economic sanctions against it. A variety of U.S. legislative provisions and executive directives prohibit direct aid to Syria and restrict bilateral trade relations between the two countries, largely because of Syria‘s designation by the U.S. State Department as a sponsor of international terrorism. On December 12, 2003, President Bush signed the Syria Accountability Act, H.R. 1828, as P.L. 108-175, which imposed additional economic sanctions against Syria. In recent years, the Administration has designated several Syrian entities as weapons proliferators and sanctioned several Russian companies for alleged WMD or advanced weapons sales to Syria. Annual foreign operations appropriations legislation also has contained provisions designating several million dollars annually for programs to support democracy in Syria. In recent months, the Obama Administration and the 111th Congress have increased calls for greater U.S. engagement with Syria. Several Congressional delegations have visited Syria, and Administration officials recently held talks with their Syrian counterparts. Whether or not this dialogue will lead to substantial changes in the U.S.-Syrian bilateral relationship remains to be seen. This report analyzes an array of bilateral issues that continue to affect relations between the United States and Syria. It will be updated periodically to reflect recent developments.

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Cristina N. Parker and Douglas M. Warde

Chapter 7 - The central government‘s limited writ and perceived corruption are helping sustain a Taliban insurgency and feeding pessimism about the Afghanistan stabilization effort. However, ethnic disputes remain confined largely to political debate and competition, enabling President Karzai to try to focus on improving governance, reversing security deterioration and on his re-election bid in the fall of 2009. Karzai is running for re-election, but he faces some loss of public confidence and fluid coalitions of potentially strong election opponents. At the same time, U.S. and Afghan officials are shifting toward promoting local governing bodies and security initiatives as a complement to efforts to build central government capabilities. See CRS Report RL30588, Afghanistan: Post-War Governance, Security, and U.S. Policy, by Kenneth Katzman. Chapter 8 - On December 27, 2008, Israel launched a major military campaign dubbed ―Operation Cast Lead‖ against the Palestinian Islamist militant group Hamas in the Gaza Strip in order to counter Palestinian rocket fire and, more broadly, to significantly weaken all aspects of Hamas rule in Gaza. On January 3, 2009, Israel began a ground offensive into Gaza intended to eliminate Hamas‘s willingness or capability to launch rockets at Israeli towns and cities. As of January 14, Israeli bombings and ground forces had reportedly killed over 1,000 Palestinians, while 13 Israelis had been killed by Palestinian rockets and attempts to counter the ground invasion. Some Israeli observers have suggested that neither toppling the Hamas regime nor permanently ending all rocket attacks is a realistic goal. Nevertheless, by temporarily disabling Hamas‘s military capacity and slowing its rearmament, Israel could ease the frequency and intensity of Hamas attacks in the months ahead as it prepares to deploy new, more sophisticated anti-rocket defense systems. One complicating factor for Israel is time: the longer Operation Cast Lead runs without a definitive outcome in Israel‘s favor, the more pressure will grow for a cessation of hostilities. The unraveling of the six-month tahdiya or temporary cease-fire between Israel and Hamas that led to the December 2008 outbreak of violence in and around the Gaza Strip can be linked to several factors—some tactical, some more deeply-rooted. Some commentators have said that giving up on the cease-fire was in both sides‘ interests. The world response to the Gaza crisis has been characterized by consistent calls for an end to the violence and by concern over the humanitarian situation in Gaza. Both houses of Congress have passed resolutions supporting Israel‘s right to defend itself. The crisis has exacerbated tensions between countries in the region with a relatively pro-Western orientation—like Egypt, Jordan, and Saudi Arabia—and other countries and non-state actors—like Iran, Syria, and Hezbollah. Egyptian-facilitated talks aimed at halting the fighting continue after a United Nations Security Council resolution calling for an ―immediate, durable and fully respected ceasefire‖ was passed unanimously on January 8, with the United States abstaining. U.S. President-elect Barack Obama will likely be compelled to address the Gaza situation directly at the outset of his administration. The incoming 111th Congress may be called upon to increase various forms of assistance to Israel, to the Palestinian Authority headed by President Mahmoud Abbas, and to Palestinian civilians in order to support a sustainable postconflict order that guarantees Israel‘s security and attends to the needs of the Palestinian humanitarian situation. The Gaza crisis constitutes a conundrum for all involved. Israel would like to avoid a drawn-out invasion and occupation of Gaza, but at the same time does not want to abandon

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Preface

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the military operation without assurance that the end result will leave Israelis more secure from rocket attacks. Although the ground attack might endanger its rule in Gaza, Hamas may welcome it in the hopes of miring Israeli forces in close-quarters combat to strip away their advantages in technology and firepower and in hopes of heightening perceptions that Palestinians are being victimized. Linking the cessation of violence in and around Gaza with international enforcement of a truce or a broader regional security initiative may be possible, but, at present, no proposed solution appears straightforward. This report will be updated as necessary to reflect further developments. Versions of these chapters were also published in Current Politics and Economics of the Middle East, Volume 1, Numbers 1-4, edited by Frank Columbus, published by Nova Science Publishers, Inc. They were submitted for appropriate modifications in an effort to encourage wider dissemination of research.

Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

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In: Economic and Political Issues in the Middle East Editors: C. N. Parker and D. M. Warde

ISBN: 978-1-61209-381-9 © 2011 Nova Science Publishers, Inc.

Chapter 1

THE UNITED ARAB EMIRATES NUCLEAR PROGRAM  AND PROPOSED U.S. NUCLEAR COOPERATION Christopher M. Blanchard† and Paul K. Kerr ABSTRACT

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The United Arab Emirates (UAE) has embarked on a program to build civilian nuclear power plants and is seeking cooperation and technical assistance from the United States and others. During 2008 and early 2009, the Bush Administration and the UAE government negotiated and signed a memorandum of understanding and a proposed bilateral agreement on peaceful nuclear cooperation pursuant to Section 123 of the Atomic Energy Act (AEA) of 1954. Then-U.S. Secretary of State Condoleezza Rice signed the proposed agreement on peaceful nuclear cooperation with the UAE on January 15, 2009. The Obama Administration has not submitted the proposed agreement to Congress for the required review period. Under the AEA, Congress has the opportunity to review such a proposed agreement for 90 days of continuous session, after which the agreement becomes effective unless, during that time, Congress adopts a joint resolution disapproving the agreement and the resolution becomes law. The agreement text states the intent of both governments to cooperate in a number of areas including, but not limited to, the development of the UAE‘s ―civilian nuclear energy use in a manner that contributes to global efforts to prevent nuclear proliferation‖ and, ―the establishment of reliable sources of nuclear fuel for future civilian light water reactors deployed‖ in the UAE. The agreement also states that future cooperation may encompass training, scientific exchanges, and technical assistance, including in the areas of nuclear security, infrastructure protection, and nuclear fuel and waste management. To date, some Members of Congress have welcomed the UAE government‘s stated commitments not to pursue proliferation-sensitive nuclear capabilities, such as uranium enrichment or spent fuel reprocessing. Other Members have signaled their intention to weigh the proposed bilateral agreement in light of parallel and specific concerns about the UAE‘s cooperation with international efforts (such as sanctions) to prevent Iran from



†

This report is excerpted from CRS Report R40344 dated March 10, 2009. E-mail: [email protected].

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2

Christopher M. Blanchard and Paul K. Kerr developing nuclear weapons and ballistic missiles, as well as the potential proliferation or safety risks inherent to exporting U.S. nuclear technology. In the 111th Congress, legislation (H.R. 364) has been introduced that would require President Obama to certify that the UAE has taken a number of steps to strengthen its export controls and stem illicit trade with Iran before any agreement could come into effect or related U.S. exports of nuclear technology to the UAE could be approved. In 2007, the UAE adopted a stronger export control law, but has yet to issue implementing regulations for the law or to fully staff a national export control body to enforce it. In the interim, export control enforcement functions remain the responsibility of authorities in the UAE‘s individual emirates, in coordination with the national government. The U.S. State Department reports that cooperation with national- and emirate-level officials has improved since 2006, resulting in a number of joint interdiction operations. This report provides background information on the UAE nuclear program, reviews developments to date, analyzes proposed nuclear cooperation with the United States, and discusses relevant legislative proposals and options. See also CRS Report RS2 1852, The United Arab Emirates (UAE): Issues for U.S. Policy, by Kenneth Katzman, and CRS Report RS22937, Nuclear Cooperation with Other Countries: A Primer, by Paul K. Kerr and Mary Beth Nikitin.

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THE UNITED ARAB EMIRATES: BACKGROUND AND U.S RELATIONS The United Arab Emirates (UAE) is a federation of seven emirates (principalities): Abu Dhabi, Dubai, Sharjah, Ajman, Fujayrah, Umm Al Qawayn, and Ras Al Khaymah. National authority rests in the hands of a Federal Supreme Council, which is composed of the hereditary rulers of the country‘s constituent emirates and elects the national president from among its members. Sheikh Khalifa bin Zayed Al Nahyan, the ruler of Abu Dhabi, was elected UAE President in 2004 following the death of his father Sheikh Zayed bin Sultan Al Nahyan, who had ruled Abu Dhabi since 1966 and served as UAE President since 1971. In practice, the wealthier and more powerful emirates of Abu Dhabi and Dubai exercise the strongest influence over the country‘s affairs; under current convention, the ruler of oil-rich Abu Dhabi serves as the UAE President, and the ruler of the UAE‘s commercial hub, Dubai, serves as Vice President. The Supreme Council appoints the Prime Minister and the Council of Ministers (cabinet), which initiates legislation for ratification by the Supreme Council and the President. The United States and the UAE have enjoyed close and cooperative relations in recent years, in spite of periodic differences with regard to political reform, the Israel-Palestinian conflict, counterterrorism, and U.S. policies regarding Iraq and Iran. Military cooperation and arms sales form a key pillar of U.S.-UAE relations. The UAE hosts frequent port calls and shore visits for U.S. naval vessels and allows the U.S. military to use Al Dhafra air base in support of a variety of missions in the U.S. Central Command (CENTCOM) area of operations. In 2007 and 2008, the Bush Administration notified Congress of over $19.4 billion in potential arms sales to the UAE, including what would be the first overseas sale of the Terminal High Altitude Air Defense system. Bilateral trade has increased in recent years, with 2008 U.S. exports valued at almost $11 billion through September 2008, making the UAE the largest U.S. export market in the Middle East. The Bush Administration began negotiating a free trade agreement with the

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The United Arab Emirates Nuclear Program…

3

UAE in 2004, but did not conclude the negotiations. The United States does not import a significant amount of oil from the UAE. However, the UAE exports over 2 million barrels of oil per day, making it a key global energy producer.

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THE UNITED ARAB EMIRATES NUCLEAR PROGRAM The government of the United Arab Emirates (UAE), like others in the Middle East, has announced plans to acquire nuclear energy production technology as a means of meeting projected national energy consumption needs [1]. Renewed global interest in nuclear power has led some experts and observers to express concern that the projected spread of nuclear technology in coming years could contribute to nuclear proliferation. In the Middle East, added scrutiny is often applied to the motives and choices of regional actors regarding nuclear technology because of concern that Iran‘s nuclear program and Israel‘s presumed nuclear weapons may motivate other regional governments to seek nuclear technology for strategic or military purposes. Other concerns about nuclear safety relate to potential terrorist attacks or political instability, both of which have threatened some regional countries in recent years. UAE officials report that they have considered these potential risks carefully, and have announced plans and measures intended to address proliferation and security concerns. While UAE officials stress that final decisions about the scope of the nuclear program and potential international participation have not been made, plans for the program are at an advanced stage and are awaiting final legal authorization. Policymakers and advisers in the government of Abu Dhabi, in consultation with representatives from the other six emirates, have set out an ambitious agenda for the program and are guiding its preliminary implementation. In April 2008, the UAE government issued a policy statement [2] that provides a rationale for the country‘s perceived need for nuclear energy and states guiding principles for the nuclear energy program. Nascent operating and regulatory bodies have been formed and are awaiting the passage of authorizing legislation to begin their formal work. The end goal of the program, according to officials and related documents, is to build and operate a ―fleet‖ of nuclear power plants to generate electricity for the UAE, supported by advanced, indigenously-managed safety, regulatory, security agencies. The UAE government pledged $10 million in August 2008 toward an international nuclear fuel bank proposed by the Nuclear Threat Initiative, a non-governmental organization. The bank would be administered by the International Atomic Energy Agency (IAEA), [3] which would also implement safeguards on any future UAE nuclear facilities. Mr. Hamad Al Kaabi, UAE Special Representative for International Nuclear Cooperation, explained August 7 that the contribution is part of the UAE‘s policy to support multilateral fuel supply efforts—a policy consistent with the country‘s decision to rely on foreign fuel suppliers.

Rationale UAE officials estimate that their country must expand its power generation and transmission capacity from the current level of 16 gigawatts to 40 gigawatts by 2020 in order to meet projected demand increases, which they estimate will continue growing at a nine

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percent annual rate. In spite of the recent slowdown in global and domestic economic activity, representatives of the UAE nuclear program believe that the energy demand projections they are using to justify and plan the acquisition of nuclear plants remain accurate, particularly in light of planned industrial and commercial projects in energyintensive sectors in the emirate of Abu Dhabi [4]. To date, UAE officials and representative have not publicly shared economic cost and energy use analyses referred to in briefings on their nuclear program. In arguing for nuclear energy as a solution to the country‘s projected energy needs, the UAE government policy statement concludes that ―known volumes of natural gas that could be made available to the nation‘s electricity sector would be insufficient to meet future demand‖ [5]. The UAE currently exports roughly 600 million standard cubic feet per day of natural gas to Japan under long term supply arrangements and imports roughly 2 billion cubic feet of natural gas from Qatar via the underwater Dolphin pipeline system [6] Similarly, UAE officials believe that crude oil and diesel could be ―logistically viable‖ sources of energy, but would impose high economic opportunity costs (as a result of lost export revenue) and environmental costs. Officials determined that coal could be a more economical solution, but would have even greater environmental costs and, as an import, also would raise concerns for the UAE about the security of supply. UAE officials believe that solar and wind energy sources could supply ―only 6-7% of peak electricity demand by 2020,‖ even after ―aggressive development.‖

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Development Plans The end goal of the program, according to officials and related documents, is to build and operate a ―fleet‖ [7] of nuclear power plants to generate electricity for the UAE, supported by advanced, indigenously-managed safety, regulatory, and security agencies that will be developed over time and with outside assistance. The UAE government is seeking to bring its first nuclear power plant online by 2017 along with required facilities and equipment for safety, storage, and system management. Under current plans, capacity would expand thereafter to include multiple nuclear power plants. Reports suggest that the UAE is moving forward with a contract bidding and award process, with the goal of selecting a primary contractor or team in late 2009. UAE officials reportedly plan to build in contractor incentives for on-time delivery of a turnkey plant before the ambitious 2017 deadline [8]. No specific decisions have been made regarding the source of nuclear fuel for the planned nuclear reactor.

Current Infrastructure and Regulatory Regime The UAE currently has no nuclear material under IAEA safeguards. It signed the NPT in 1995 and completed a small quantities protocol in 2003, which applies to non-nuclear weapons states that do not have significant nuclear programs or nuclear material. The UAE also has undertaken Technical Cooperation projects with the Agency, some of which are directly related to nuclear electricity generation. For example, a project begun in 1977 advised the government ―on the establishment of a nuclear energy administration.‖ A 1984

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project focused on uranium exploration. More recently, a Technical Cooperation project approved in 2005 was designed to assess the ―technical and economic feasibility‖ of a nuclear power and desalination plant. Active IAEA Technical Cooperation projects with the UAE focus on human resources development for atomic energy, feasibility studies for waste management, environmental monitoring, and nuclear accident early warning preparedness and response [9]. A draft national law authorizing the program has not yet been adopted by the Federal Supreme Council. The draft law reportedly would prohibit domestic enrichment or reprocessing. UAE government representatives report that the UAE has sought and received input on its draft nuclear law from the United States, United Kingdom, Japan, Korea, and France [10]. A nuclear energy policy advisory board reportedly has been formed, and UAE officials report that its members, though unnamed, include leading international nuclear energy industry officials [11]. Some limited consulting and contracting between U.S. firms and the UAE related to the UAE‘s proposed nuclear program has already taken place. In August 2008, Virginia‘s Thorium Power Ltd. signed two consulting and advisory services contracts related to the establishment of the Abu Dhabi-based Emirates Nuclear Energy Corporation (ENEC) [12] and the planned UAE Federal Authority for Nuclear Regulation (FANR). In October 2008, ENEC announced that Colorado‘s CH2M Hill, Inc. was selected for a ten-year contract as the managing agent for the evaluation and design stage of the nuclear energy program. Pennsylvania-based Rizzo and Associates Inc., has been hired to survey potential nuclear plant sites in the UAE. The contracts were signed with the government of Abu Dhabi.

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PROPOSED U.S.-UAE COOPERATION Emirates Nuclear Energy Corporation (ENEC) officials have expressed interest in establishing joint ventures with U.S. firms for the design, construction, and operation of nuclear power plants. ENEC also is seeking to sign contracts for the specialized training of operations, security, and regulatory personnel in order to expand the indigenous human capital base within the UAE for independent management of planned nuclear facilities. During 2008 and early 2009, the Bush Administration and the UAE government negotiated and signed a Memorandum of Understanding (MOU) (see below) and a proposed bilateral agreement on peaceful nuclear cooperation pursuant to Section 123 of the Atomic Energy Act (AEA) of 1954.

Memorandum of Understanding On April 21, 2008, the United States and the UAE signed a MOU ―Concerning Cooperation in Peaceful Uses of Nuclear Energy.‖ The MOU states that the two countries ―intend to cooperate, subject to their respective national laws,‖ in a variety of nuclear activities. The MOU is a statement of intent regarding future cooperation, but is not legally binding. Although such memoranda are not prerequisites for concluding future nuclear cooperation agreements, the State Department has argued that they are useful tools for cooperating with countries which are interested in the responsible use of nuclear energy

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because they create opportunities to solicit specific commitments with regard to safeguards and technology choices. An April 21, 2008 State Department press release described the U.S.-UAE MOU as a ―tangible expression of the United States‘ desire to cooperate with states in the Middle East, and elsewhere, that want to develop peaceful nuclear power in a manner consistent with the highest standards of safety, security and nonproliferation.‖ A similar MOU was concluded with Saudi Arabia in May 2008.

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Proposed Bilateral Agreement Pursuant to Section 123 of the Atomic Energy Act of 1954 On January 15, 2009, then-Secretary of State Condoleezza Rice and UAE Foreign Minister Abdullah bin Zayed Al Nahyan signed the text of a proposed bilateral agreement on peaceful nuclear cooperation [13]. Under the Atomic Energy Act of 1954 (AEA), all significant nuclear cooperation with other countries requires a peaceful nuclear cooperation agreement. Such agreements, which require congressional approval, are ―framework‖ agreements which set the terms of reference and provide authorization for cooperation. The AEA includes requirements for an agreement‘s content, presidential determinations, and other supporting information to be submitted to Congress, conditions affecting the implementation of an agreement once it takes effect, as well as procedures for Congress to consider and approve the agreement (see ―Nuclear Cooperation Agreements, Approval Process, and Proposed Changes‖ below). The agreement would enter into force on the date when the two governments ―exchange diplomatic notes informing each other that they have completed all applicable requirements.‖ According to the proposed U.S.-UAE agreement, the two countries ―intend to cooperate‖ in a variety of nuclear activities, including:     

  

Developing ―requirements for grid-appropriate power reactors and fuel service arrangements;‖ Promoting the ―establishment of a reliable source of nuclear fuel for future civil light water nuclear reactors;‖ ―Civil nuclear energy training, human resource and infrastructure development;‖ Cooperating on nuclear security and nonproliferation, ―including physical protection, export control and border security;‖ Developing the UAE‘s ―civil nuclear energy use in a manner that supports global efforts to prevent nuclear proliferation, including, for example, the Global Nuclear Energy Partnership;‖ [14] Applying ―radioisotopes and radiation in industry, agriculture, medicine and the environment;‖ Managing ―radioactive waste and spent fuel;‖ and Identifying ―uranium mining and milling resources.‖

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According to the agreement, cooperation could include:

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    

―Exchange of scientific and technical information and documentation;‖ ―Exchange and training of personnel;‖ ―Organization of symposia and seminars;‖ ―Provision of relevant technical assistance and services;‖ Transfers of ―material, equipment and components.‖

The agreement contains a variety of provisions which are required by the AEA and are designed to ensure that the UAE‘s nuclear program remains exclusively for peaceful purposes. It also includes two nonproliferation provisions which are not typically found in other such U.S. nuclear cooperation agreements, such as a June 2008 U.S. agreement with Turkey [15]. Most significantly, the agreement provides the United States with the right to terminate nuclear cooperation and to require the return of any nuclear ―material, equipment or components.. .and any special fissionable material produced through their use‖ if, after the agreement‘s entry into force, the UAE ―possesses sensitive nuclear facilities within its territory or otherwise engages in activities within its territory relating to enrichment of uranium or reprocessing of nuclear fuel‖ [16]. The other provision requires both parties to give ―due consideration...to non-proliferation and physical protection aspects‖ when selecting a storage facility for special fissionable material [17]. It also is worth noting that an Agreed Minute to the agreement includes a provision which apparently intends to establish the U.S.-UAE agreement‘s conditions as minimum standards for future such agreements in the Middle East. Stating that ―the fields of cooperation, terms and conditions‖ accorded by the U.S.-UAE agreement ―shall be no less favorable in scope and effect than those which may be accorded, from time to time, to any other non-nuclearweapon State in the Middle East in a peaceful nuclear cooperation agreement,‖ the Minute explains that, in the event that Washington concludes a more-favorable agreement with another regional government, the United States will, at the UAE‘s request, consult with the UAE ―regarding the possibility of amending‖ the agreement in order to make its terms equally favorable to the new agreement.

Nuclear Cooperation Agreements, Approval Process, and Proposed Changes Under the Atomic Energy Act (AEA), all significant nuclear cooperation [18] with other countries requires a peaceful nuclear cooperation agreement. [19] Section 123 of the AEA specifies that proposed nuclear cooperation agreements are to include the terms, conditions, duration, nature, and scope of cooperation. It also requires that any such agreement meet a series of nonproliferation criteria and that the President submit any such agreement to the House Committee on Foreign Affairs and the Senate Committee on Foreign Relations. The Department of State is required to provide the President an unclassified Nuclear NonProliferation Assessment Statement (NPAS), which the President is to submit to the committees of referral along with the agreement. The State Department also is required to

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provide a classified annex to the NPAS, prepared in consultation with the Director of National Intelligence. The NPAS is meant to explain how a proposed agreement would meet the aforementioned nonproliferation criteria. The President also must make a written determination ―that the performance of the proposed agreement will promote and will not constitute an unreasonable risk to, the common defense and security.‖ President Bush issued such a determination November 14, 2008 [20]. Under the AEA, Congress has the opportunity to review a 123 agreement for two time periods totaling 90 days of continuous session [21]. The President must submit the text of the proposed nuclear cooperation agreement, along with required supporting documents (including the unclassified NPAS) to the House Foreign Affairs Committee and the Senate Foreign Relations Committee. The President is to consult with the committees ―for a period of not less than 30 days of continuous session.‖ After this period of consultation, the President is to submit the agreement to Congress, along with the classified annex to the NPAS and a statement of his approval of the agreement and determination that it will not damage the national security interests of the United States. This action begins the second period, which spans 60 days of continuous session. In practice, the President has submitted the agreement to Congress, along with the unclassified NPAS, its classified annex, and his approval and determination, at the beginning of the full 90- day period. The 60-day period has been considered as following immediately upon the expiration of the 30-day period. If the President has not exempted the agreement from any requirements of Section 123a., it becomes effective at the end of the 60-day period unless, during that time, Congress adopts a joint resolution disapproving the agreement and the resolution becomes law [22]. The proposed agreement with the UAE is not an exempt agreement. In the 110th Congress, some Members of Congress proposed several amendments to the AEA that would have changed the AEA‘s procedures for the negotiation and approval of peaceful nuclear cooperation agreements [23]. For example, H.R. 7316, which Representative Ileana Ros-Lehtinen introduced in December 2008, would have required Congress to enact a joint resolution of approval before any peaceful nuclear cooperation agreement could become effective. As noted above, such agreements currently become effective unless Congress enacts a joint resolution of disapproval. The bill also proposed adding a section to the AEA which would have required the President to keep the House Foreign Affairs Committee and the Senate Foreign Relations Committee ―fully and currently informed of any initiative or negotiations relating to a new or amended agreement for peaceful nuclear cooperation ...prior to the President's announcement of such initiative or negotiations.‖ The proposed section also would have mandated periodic Presidential consultation with the committees about the progress of negotiations concerning such agreements. In the 111th Congress, H.R. 547, which Representative Ros-Lehtinen introduced January 15, 2009, contains the same language.

ISSUES FOR CONGRESS Although the final text of the proposed U.S.-UAE nuclear agreement was agreed in early November 2008, the Bush Administration, reportedly at the UAE‘s request, did not submit the agreement to the 110th Congress [24]. As of March 9, 2009, the Obama Administration had not submitted the agreement to Congress to begin the consultation periods required under the AEA. State Department officials said the same day said that the Administration‘s policy

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on the agreement is under review [25]. To date, some Members of Congress have welcomed the UAE government‘s stated commitments to foreswear proliferation-sensitive nuclear capabilities, such as uranium enrichment or spent fuel reprocessing. Other Members have signaled their intention to evaluate the proposed bilateral agreement in light of parallel and specific concerns about the UAE‘s cooperation with international efforts to prevent Iran from developing nuclear weapons and the potential proliferation or safety risks inherent to exporting U.S. nuclear technology [26]. Broader diplomatic implications of the proposed agreement also are being weighed by concerned parties on all sides. Since 2001, the UAE has been under increased U.S. scrutiny as an alleged transshipment point for military and dual-use exports to Iran, as an alleged hub of operations for weapons proliferators, [27] and as an alleged transit zone and financial conduit for terrorists and money launderers. At present, particular attention remains focused on U.S. concerns about the UAE government‘s willingness and ability to halt transfers of militarily-sensitive technology to Iran. Since late 2008, some Members of Congress have claimed that the UAE has not acted sufficiently to halt transfers of militarily-sensitive technology to Iran and should not be able to conclude a nuclear cooperation agreement with the United States until the UAE government has taken additional measures against Iranian procurement activities of concern. The United States government has stated publicly that some UAE-based entities are involved in Iranian weapons-related procurement activities. For example, an October 2008 Department of Justice fact sheet states that eight companies, five of which are based in the UAE, were charged the previous month with crimes related to their participation in exporting dual-use items to Iran. Additionally, two men were indicted in July 2008 for ―participation in a conspiracy to export U.S.-made military aircraft parts to Iran‖ via a company based in the UAE, according to the fact sheet [28]. Evidence also suggests that UAE-based entities are involved in procurement activities connected to Iran‘s ballistic missile program. For example, the Department of the Treasury designated two such entities under Executive Order 13382, which freezes assets under U.S. jurisdiction belonging to designated foreign entities engaged in activities related to the proliferation of Weapons of Mass Destruction (WMD). The Treasury Department designated Oriental Oil Kish in October 2007 for unspecified ―proliferation activities.‖ Oriental Oil Kish is an entity affiliated with Iran‘s Islamic Revolutionary Guard Corps (IRGC), a department press release said, adding that the IRGC develops and tests ballistic missiles. In September 2008, the Treasury Department similarly designated Oasis Freight Agencies as a company affiliated with the Islamic Republic of Iran Shipping Lines (IRISL). Adam Szubin, director of the department‘s Office of Foreign Assets Control, indicated during a September 10, 2008 press conference that IRISL has procured items for Iran‘s ballistic missile programs. Additionally, the Treasury Department designated two other entities located in the UAE, Melli Investment Holding International and BMIIC International General Trading Ltd., in March 2009 because of their ties to Iran‘s Bank Melli, which, according to a March 3 Treasury Department statement, has been involved in procurement activities and other forms of support for Iran‘s nuclear and missile programs. Concerns about suspicious transfers to Iran prompted U.S. action in 2007 to encourage the UAE to improve its national export control system. In February 2007, the U.S. Department of Commerce released an advanced notice of proposed rule-making that would have created a new export control designation known as ―Country Group C‖ that would have established license requirements on exports and re-exports to countries that represent a

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diversion or transshipment risk for goods subject to the Export Administration Regulations [29]. Although no countries were mentioned in the notice, the proposal was widely considered to be directed at the UAE [30]. In August 2007, the UAE adopted a stronger national export control law, but, as of February 2009, the government had yet to issue implementing regulations for the law or to fully staff a national export control body to enforce it. In the interim, export control enforcement functions remain the responsibility of authorities in the UAE‘s individual emirates, and are carried out in coordination with the national government. An existing office within the UAE government may assume the responsibilities previously set out for the planned ―National Commission for Commodities Subject to Import, Export, and Re-export Controls.‖ [31] In the interim, U.S. cooperation with national and emirate level officials appears to be strong. A bilateral nonproliferation working group meets annually to review and discuss nonproliferation issues of shared concern. In a September 2008 letter to then-U.S. Secretary of Commerce Carlos Gutierrez, UAE Ambassador to the United States Yousef Al Otaiba detailed six joint and unilateral interdictions on Iran-bound ships completed since June 2008 [32]. The letter further stated that ―the UAE fully supports and has vigorously enforced United Nations resolutions barring the shipment of sensitive materials and technologies to Iran.‖ The UAE also has ―closed dozens of international and local companies involved in the transshipment of dual-use and controlled materials,‖ according to the letter, which also highlighted the government‘s participation in several U.S. security initiatives, including the Container Security Initiative, the Proliferation Security Initiative, and the Department of Energy Megaports Initiative. UAE officials report they remain committed to fully implementing the 2007 law at the national level, including clarifying roles and responsibilities for export control enforcement [33]. As of March 3, 2009, the U.S. government had designated approximately 107 non-UAE companies, based in Iran and elsewhere, under Executive Order 13382, though not necessarily for exports to Iran. Moreover, the UAE is not Tehran‘s only supplier of suspicious goods; Iran has used a network based in Malaysia for procuring dual-use items. The United Kingdom‘s Export Control Organization has also named two entities located in the UAE, Mileace and Tammam Trading, as possibly being involved in procurement activities for Iran‘s WMD programs [34].

Nonproliferation Concerns The most proliferation-sensitive part of a nuclear power program is the capability to produce fuel for nuclear reactors, either by enriching uranium or reprocessing spent nuclear fuel to obtain plutonium. Low-enriched uranium is used as fuel for nuclear reactors. Both highly-enriched uranium and plutonium can be used as fuel in some types of nuclear reactors but are also used as fissile material in nuclear weapons. The dual-use nature of nuclear fuel facilities frequently generates concern that ostensibly peaceful facilities may aid nuclear weapons programs. The April MOU states that the UAE has agreed to the policy commitments described earlier in its April 2008 policy statement, which are designed to boost confidence that the state‘s nuclear program is exclusively for peaceful purposes. For example, the statement

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indicates that the UAE will forgo ―domestic enrichment and reprocessing capabilities in favor of long-term commitments of the secure external supply of nuclear fuel.‖ Moreover, as noted above, the nuclear cooperation agreement‘s text states that the United States can end nuclear cooperation with the UAE if it acquires enrichment or reprocessing facilities. Without such capabilities, a nuclear program poses little proliferation risk. IAEA Director-General Mohamed ElBaradei explained in an August 2007 interview:

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One nuclear reactor by itself means nothing, you are still far from having an atom bomb. I am more worried when a country has a plant for industrial-scale uranium enrichment...In this case it can make a nuclear bomb within a few months [35]

The UAE‘s draft nuclear law currently under consideration also reportedly contains a prohibition on domestic enrichment and reprocessing [36]. As a party to the nuclear Nonproliferation Treaty (NPT), any future UAE nuclear facilities would be subject to IAEA safeguards [37]. Additionally, the UAE agreed to conclude an Additional Protocol to its safeguards agreement. Such protocols give IAEA officials greater access to an NPT state‘s nuclear-related facilities and information. The IAEA Board of Governors approved the Additional Protocol March 3. The UAE currently has a Small Quantities Protocol to its safeguards agreement, but, according to the nuclear cooperation agreement, will terminate that Protocol before the United States issues export licenses for the export of ―nuclear material, equipment, components, or technology‖ pursuant to the cooperation agreement [38]. It is also worth noting that the UAE‘s 2008 policy statement on its nuclear program states that the government plans to rely on light-water reactors, which are considered among the most proliferation-resistant, partly because of the difficultly in producing and obtaining weapons-grade plutonium without detection. Moreover, a May 2008 International Institute for Strategic Studies report points out that ―no successful nuclear-weapons program has ever relied on commercial reactors.‖ [39] Although a civilian nuclear power program could provide cover for a country‘s procurement of dual-use items that could aid a nuclear weapons program, such a program would need to include some covert facilities.

Possible Diplomatic Implications Shaping Nonproliferation Standards and Best Practices The Bush Administration argued that nuclear cooperation with the UAE could set a useful precedent for mitigating the dangers of nuclear proliferation as an increasing number of countries consider developing nuclear power. The State Department stated in April 2008 that the UAE‘s choice to forgo enrichment and reprocessing ―serves as a model for the economical and responsible pursuit of nuclear power.‖ State Department spokesperson Sean McCormack made a similar argument during a December 12 press briefing, adding that the UAE‘s nuclear program ―stands in contradistinction to the actions of Iran,‖ which is pursuing an indigenous uranium enrichment program [40]. As noted above, the proposed U.S.-UAE agreement includes a provision which apparently intends to establish the agreement‘s conditions as minimum standards for future such agreements in the Middle East.

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Commercial Opportunities Licensed nuclear technology contracts with the UAE could provide commercial benefits to the U.S. nuclear industry or its international competitors. While Emirati officials have stated their strong desire for nuclear cooperation with the United States and have incorporated former U.S. government officials and U.S. contractors into their early plans and activities, the UAE also is seeking similar cooperation from other international sources. The expected value of eventual construction and management contracts is in the tens of billions of dollars. The UAE and France signed a nuclear cooperation agreement in January 2008, and the UAE has signed a memorandum of understanding with Japan concerning nuclear technology. The UAE embassy reports that their government is negotiating agreements with the United Kingdom and South Korea. On November 24, 2008, Anwar Mohammed Gargash, Minister of State for Foreign Affairs, stated that the United Kingdom is ―a partner of great interest to the UAE in the pursuit of a civilian nuclear capability and bilateral relations between the UAE and the UK are set to be consolidated on this basis‖ [41]. Bilateral Relations and UAE Cooperation in Nonproliferation Activities As noted above, the United States and the UAE have enjoyed close and cooperative relations in recent years, in spite of periodic differences over some issues. Some observers have speculated that a failure to conclude the proposed nuclear cooperation agreement would be viewed by officials and influential figures in the UAE as an indication of a lack of faith and commitment by the United States government in the UAE, which could have negative implications for other aspects of the bilateral relationship. These fears appear to be based largely on the perceived repercussions of Dubai Ports World‘s failed 2006 bid to acquire and operate U.S. port terminals. However, others believe that while the Dubai Ports World incident undermined feelings of mutual trust and set back some planned commercial ties, the failed initiative did not otherwise damage U.S.-Emirati political or military relations in any tangible, lasting way. By all accounts, Emirati authorities appear committed to moving forward with their nuclear development plans and, while they appear to strongly desire U.S. technical assistance, it seems unlikely that their plans would be curtailed or significantly undermined if the United States declined to authorize the proposed agreement. As noted above, other international parties appear willing to provide technical assistance on a commercial basis. Some observers have argued that without U.S. involvement, the UAE program could adopt technology or systems more vulnerable to proliferation or security concerns. UAE representatives state that their commitment to forego domestic enrichment or reprocessing is fundamental and would apply under cooperative arrangements with non-U.S. suppliers.

LEGISLATIVE DEVELOPMENTS IN THE 110TH AND 111TH CONGRESS In the 110th Congress, Representative Ros-Lehtinen introduced H.R. 7316, the ―Limitation on Nuclear Cooperation with the United Arab Emirates Act of 2008.‖ The bill would have prohibited the proposed U.S.-UAE agreement from coming into effect without presidential certification that the UAE had taken specific steps to improve its export controls

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and to limit the transfer of certain items to Iran. As noted above, H.R. 7316 also sought to change the procedures for the negotiation and approval of peaceful nuclear cooperation agreements by amending the Atomic Energy Act. (See ―Nuclear Cooperation Agreements, Approval Process, and Proposed Changes‖ above.) In the 111th Congress, Representative Ros-Lehtinen has introduced two pieces of legislation to establish similar conditions on U.S.-UAE cooperation and to change negotiation and approval procedures for nuclear cooperation agreements. 

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

H.R. 364, the ―Limitation on Nuclear Cooperation with the United Arab Emirates Act of 2009‖ was introduced and referred to the House Foreign Affairs Committee on January 9, 2009. The bill states that a U.S. civil nuclear cooperation agreement with the UAE may not enter into force ―unless not less than 30 legislative days prior to such entry into force the President certifies‖ to the House Foreign Affairs Committee and the Senate Foreign Relations Committee that the UAE has improved its export control system and halted UAE-based entities‘ transfers of technology relating to Weapons of Mass Destruction programs, particularly to Iran. The bill also requires the UAE to stop the transfer of certain conventional weapons and related components to Iran. H.R. 364 also states that, if the United States and the UAE do conclude a nuclear cooperation agreement, the United States may not grant an export license for ―nuclear material, equipment, or technology‖ to the UAE unless the President certifies within 30 legislative days that the UAE has met the above requirements. H.R. 547, was introduced and referred to the House Foreign Affairs Committee January 15, 2009. It contains the language from H.R. 7316 relating to procedural changes for nuclear cooperation agreements pursuant to the Atomic Energy Act.

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[2]

[3]

[4]

The governments of Turkey, Egypt, Jordan, Saudi Arabia, and Algeria have announced their intent to acquire nuclear energy production capabilities; their respective programs have moved forward in recent years with varying degrees of specificity and commitment. To date, Turkey, Jordan, and Egypt appear to have made the most progress toward their stated goals of constructing and operating domestic nuclear power plants. Like the UAE, their plans do not envision operational plants before 2015. Turkey and Egypt have active peaceful nuclear cooperation agreements with the United States pursuant to Section 123 of the Atomic Energy Act (AEA) of 1954. Policy of the United Arab Emirates on the Evaluation and Potential Development of Peaceful Nuclear Energy, released April 20, 2008. Available at: [https://pcs.en ec.gov.ae/Content/Home.aspx]. For more detail about the proposal, see CRS Report RL34234, Managing the Nuclear Fuel Cycle: Policy Implications of Expanding Global Access to Nuclear Power, by Mary Beth Nikitin, Anthony Andrews, and Mark Holt. CRS meeting with Abu Dhabi Executive Authority and Emirates Nuclear Energy Corporation representatives, Abu Dhabi, December 14, 2008. Large scale petrochemicals and aluminum production projects are already underway in Abu

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[5]

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[17]

[18]

Christopher M. Blanchard and Paul K. Kerr Dhabi‘s Kalifa Industrial Zone. See Chris Stanton, ―Taweelah to host chemical city,‖ The National (Abu Dhabi), May 4, 2008; and, Chris Stanton and Ivan Gale, ―EMAL smelter remains on schedule,‖ The National (Abu Dhabi), January 13, 2009. Policy of the United Arab Emirates on the Evaluation and Potential Development of Peaceful Nuclear Energy, released April 20, 2008. Available at: [https://pcs.enec.g ov.ae/Content/Home.aspx]. One economic press report suggested that the UAE may be paying as little as $1.25/million BTU of natural gas. Middle East Economic Digest, ―UAE purchases gas from Dolphin pipeline at reduced rate,‖ May 16, 2008. For more information on the pipeline, see [http://www.oxy.com/ Our_Businesses/oil_and_gas/Pages/og_mena_dolphin.aspx]. Correspondence between CH2M Hill and U.S. Department of Energy, National Nuclear Security Administration, June 2008. CRS meeting with Abu Dhabi Executive Authority and Emirates Nuclear Energy Corporation representatives, Abu Dhabi, December 14, 2008 See IAEA-Technical Cooperation, National and Regional Asia and the Pacific Projects query page at: [http://wwwtc.iaea.org/tcweb/ tcprogramme/recipients/eastasiapacific/query/default.asp]. CRS analyst interview with UAE official, Washington, DC, March 6, 2009. UAE Minister of Foreign Affairs Shaykh Abdullah bin Zayed Al Nahyan, ―Why Go Nuclear?‖ Bulletin of the Atomic Scientists, September/October 2008; and, CRS meeting with Abu Dhabi Executive Authority and Emirates Nuclear Energy Corporation representatives, Abu Dhabi, December 14, 2008. See ENEC homepage at: [http s://pcs.enec.gov.ae/Content/Home.aspx U.S. Department of State, Office of the Spokesman. Media Note 2009/055, ―U. S.-UAE Agreement for Peaceful Nuclear Cooperation (123 Agreement),‖ Washington, DC, January 15, 2009. For more information on the Partnership, see CRS Report RL34234, Managing the Nuclear Fuel Cycle: Policy Implications of Expanding Global Access to Nuclear Power, by Mary Beth Nikitin, Anthony Andrews, and Mark Holt. The agreement with Turkey is the most recent nuclear cooperation agreement between the United States and a nonnuclear-weapon state. Uranium enrichment and reprocessing spent nuclear fuel are the dual-use nuclear activities of greatest proliferation concern. Uranium enrichment can produce lowenriched uranium for nuclear reactor fuel or highly-enriched uranium, which can be used as fissile material in nuclear weapons. Reprocessing spent nuclear fuel separates plutonium from that fuel. Plutonium can also be used as fissile material in nuclear weapons. According to the agreement text, ―special fissionable material means (1) plutonium, uranium 233, or uranium enriched in the isotope 235, or (2) any other material so designated by agreement of the Parties.‖ Significant nuclear cooperation includes the transfer of U.S.-origin special nuclear material subject to licensing for commercial, medical, and industrial purposes. The term ―special nuclear material,‖ as well as other terms used in the statute, is defined in 42 U.S.C. §2014. ―Special nuclear material‖ means (1) plutonium, uranium enriched in the

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The United Arab Emirates Nuclear Program…

[19]

[20] [21]

[22]

[23] [24]

[25] [26]

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[27]

[28] [29] [30] [31] [32] [33] [34]

15

isotopes 233 or 235, and any other material that is determined to be special nuclear material, but does not include source material, or (2) any material artificially enriched by any of the foregoing, but does not include source material. For a primer on such agreements, which are frequently referred to as ―123 agreements,‖ see CRS Report RS22937, Nuclear Cooperation with Other Countries: A Primer, by Paul K. Kerr and Mary Beth Nikitin. Presidential Determination No. 2009–7, November 14, 2008. When calculating periods of ―continuous session‖ under the AEA, every calendar day is counted, including Saturdays and Sundays. Only days on which either chamber has adjourned for more than three days pursuant to the adoption of a concurrent resolution authorizing the adjournment do not count toward the total. If Congress adjourns its final session sine die, continuity of session is broken, and the count must start anew when it reconvenes. The AEA allows the President to exempt a proposed nuclear cooperation agreement from the nonproliferation criteria specified in Section 123. Such agreements have different procedures for Congressional review. Since the proposed agreement with the UAE is apparently a non-exempt agreement, those procedures are not discussed here. For additional details on these proposals, see CRS Report RS22937, Nuclear Cooperation with Other Countries: A Primer, by Paul K. Kerr and Mary Beth Nikitin. ―UAE, USA Complete Negotiations on Peaceful Nuclear Energy Agreement,‖ Emirates News Agency, December 15, 2008; and, Mark Hibbs, ―US-UAE Cooperation Pact Initialed; Approval Left to Obama, New Congress,‖ Nucleonics Week, November 20, 2008. CRS analysts interview with State Department official, March 9, 2009. See, for example, a November 24, 2008 statement from Representative Brad Sherman and a January 15, 2009 letter from Representative Edward Markey. In connection with revelations of illicit sales of nuclear technology to Iran, Libya, and North Korea by Pakistan‘s nuclear scientist A.Q. Khan, Dubai was named as a key transfer point for Khan‘s shipments of nuclear components. For more detail, see CRS Report RL32745, Pakistan's Nuclear Proliferation Activities and the Recommen dations of the 9/11 Commission: U.S. Policy Constraints and Options. ―Fact Sheet: Major U.S. Export Enforcement Prosecutions During Past Two Years,‖ U.S. Department of Justice, October 28, 2008. ―Country Group C: Destinations of Diversion Control,‖ Advanced Notice of Proposed Rulemaking, 72 Federal Register 8315, February 26, 2007. Inside U.S. Trade, ―UAE Drafts New Export Control Law With U.S. Help,‖ Vol. 25, No. 11, March 16, 2007. CRS analyst conversation with UAE official, Abu Dhabi, December 15, 2008, and Washington, DC, March 6, 2009. Letter from UAE Ambassador to the United States Yousef Al Otaiba to U.S. Secretary of Commerce Carlos Guitierrez, September 17, 2008. CRS analyst conversation with UAE official, Abu Dhabi, December 15, 2008, and Washington, DC, March 6, 2009. ―Iran List - WMD End-Use Control: Licence Applications for Iran,‖ February 26, 2009. Available at [http://www.berr.gov.uk/whatwedo/

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[35]

[36] [37]

[38]

[39] [40]

europeandtrade/strategic-export-control/licensing-policy/end-usecontrol/page29307.html]. ―We‘re approaching the brink: PROFIL Interview with Mohamed El Baradei.‖ Profil, August 8, 2007. Available at: [http://www.iaea.org/NewsCenter/Transcripts/2007/P ROFIL3507.html] UAE representative communication to CRS, March 6, 2009. For more information about IAEA safeguards, see CRS Report RL33865, Arms Control and Nonproliferation: A Catalog of Treaties and Agreements, by Amy F. Woolf, Mary Beth Nikitin, and Paul K. Kerr. The UAE has had an IAEA safeguards agreement in force since 2003. The text is available at: [http://www.iaea.org/Publications/Documents/ Infcircs/2003/infcirc622.pdf.] Some NPT state-parties with small quantities of fissionable materials have concluded a Small Quantities Protocol to their IAEA safeguards agreements. Certain IAEA verification requirements are suspended for such states. International Institute for Strategic Studies, Nuclear Programmes in the Middle East: In the Shadow of Iran, May 2008. For additional information on Iran‘s enrichment program, see CRS Report RL34544, Iran's Nuclear Program: Status, by Paul K. Kerr. ―UAE civilian nuclear program to secure 15 out of the 40 MWs by 2020: Gargash,‖ Emirates News Agency, November 24, 2008.

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[41]

Christopher M. Blanchard and Paul K. Kerr

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In: Economic and Political Issues in the Middle East Editors: C. N. Parker and D. M. Warde

ISBN: 978-1-61209-381-9 © 2011 Nova Science Publishers, Inc.

Chapter 2

TOWARDS POSSIBLE DYNAMIC AND FLEXIBLE LABOR MARKET: AQABA-JORDAN F. Al-Azzam1, M. Al-Emyan1, Z. S. H. Abu-Hamatteh2 and Abu-Kharmeh S. Suleiman3 1

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Aqaba University College, Al-Balqa' Applied University, Jordan 2 Faculty of Engineering Technology, Al-Balqa' Applied University, Jordan 3 Faculty of Planning and Management, Regional Planning Department, Al-Balqa' Applied University, Jordan

ABSTRACT In order for Aqaba to become the growth center envisioned by national plans, Aqaba labour market must be both dynamic and flexible. Such a market would provide substantial benefits both by encouraging investment and by generating higher incomes. Alternatively, a segmented and rigid labour market would inhibit such beneficial developments. Analysis of the labour market in Aqaba indicates that it is segmented and rigid in many ways. Neither the market nor the various labour market institutions are working well. To address those inadequacies and rigidities, the several recommendations are made. Most of these are not specific to Aqaba, but address problems that affect Aqaba as well as the rest of Jordan. Those recommendations call for detailed and objective studies.

Keywords: Labor Market; Investment; Employment Aqaba Special Economic Zone; Jordan; Asia.



Al-Balqa' Applied University, P. O. Box: 62008 (11162) Amman-Jordan. Phone: +962-777-484772, Fax: +962-63491105, E-mail: [email protected], [email protected]

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F. Al-Azzam, M. Al-Emyan, Z. S. H. Abu-Hamatteh et al.

1. INTRODUCTION

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In the year 2000, the Jordanian government established the Aqaba Special Economic Zone Authority (ASEZA) within the Aqaba Governorate which began in February 2001. It is intended to create an advanced investment environment to stimulate tourism, industry, trade, and services in the Zone [1, 2]. Aqaba as the only port in Jordan is slated to become a major growth center as part of Jordan‘s strategy to attract businesses competing in the global economy. Its strategy, intended to benefit both Aqaba and Jordan, through creating a low-tax, duty-free economic environment so as to stimulate economic activity, investment, and exports. The nature and the operations of the labour markets have a considerable impact on the climate of investment which is expected to have a discernable effect on the local labour market and the incomes of Jordanians. Therefore, an understanding of local labour market conditions and institutions is vital to the successful implementation of ASEZA‘s mission. An effective and flexible labour market in Aqaba would provide benefits to the development process and to firms seeking to take advantage of opportunities within the Zone. Alternatively, a segmented and rigid labour market would act to inhibit development and to deter further investment. The purpose of this article is to improve the understanding of labour market conditions and labour market institutions, to identify issues of concern, and to recommend ways of meeting those issues. Moreover, while the Aqaba labour market has some unique aspects, it is also influenced by numerous national governmental directives and activities. Analyses of the situation in the Aqaba labour market against the background and criteria also established, with special emphasis on labour market institutions. It seeks to highlight the strengths and weaknesses of the labour market in Aqaba including some that apply to Jordan as a whole. Those labour market problems may be existing ones or those expected to emerge as a consequence of the market structure and operations.

2. NATIONAL CONTEXT The transformation of traditional Jordanian society and its economy was due to several major historic events such a: (1) The end of colonialism and British (or French) hegemony over much of the Middle East; (2) The establishment of Israel and the conflicts; (3) The creation of OPEC and the resulting massive transfer of wealth from oil-using to oil-producing nations; (4) Massive population transfers from rural to urban areas with rapid increases in population [3]; (5) The end of the Cold War and the emergence of the global economy; (6) The rapid spread of technology, and (7) The reform plan decreed by the Jordanian government in order to meet the challenges posed by these forces and to benefit from them. The reform plan involves reducing the size of the public sector, privatizing state owned enterprises, enhancing the climate for foreign investment and streamlining approval procedures, minimizing external borrowing, limiting access of non-Jordanians to the employment market, and promoting Jordanian employment throughout the Arab region [4]. However, all these changes do not seem to have affected negatively the self confidence and self reliance of Jordanians. They represent a mindset that is compatible with and even supportive of the growth of competitive capitalism and active labour markets. Nonetheless, there are in Jordan mindsets that make more difficult any necessary adjustments to change. Those mindsets, however, are not unique to Aqaba or even Jordan.

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Towards Possible Dynamic and Flexible Labor Market: Aqaba-Jordan

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3. MINDSETS Given the history of Jordan, its centralized government, and its centralized economy until very recently, many people still seek solutions to their myriad problems largely though the government. Historically, economic security and economic advancement could be achieved mainly through some centralized authority. However, decentralized market processes have not yet proven that they can deliver widespread prosperity. Moreover, that long history has led some governmental officials to define their roles as determining the outcome of economic processes; incomes, wages, prices, employment, etc., via the coercive power of government. Under competitive capitalism, the economic role of the government is quite different. The government sets the rules under which the competitive game is played; creating a level playing field rather than determining the economic outcomes of the competition. However, the governmental role does not preclude actions to improve the operations of markets, including the labour market, or taking other amelioratory actions. The privatization effort recently undertaken in Jordan at the highest level reflects a market mindset as distinct from a control mindset [5]. Certainly, Jordan is not alone in this clash of mindsets. Perhaps the most prominent example of the difficulty that the control mindset creates for transition is in Russia and more generally in many of the nations of the former Soviet Union [6]. Education is directly related to productivity, adaptability, and creativity. Under such conditions, schooling may be undertaken largely or solely to acquire the sheepskin with its established perquisites and the social position it confers, without necessarily increasing the productivity or usefulness of the person. Such a phenomenon is rampant in centrally controlled economies; where entry to particular positions and pay levels are determined by some form of credentialization rather than by performance. Clearly, through these and other mindsets, the past continues for some time to influence the present and the future, a process called hysteresis. A closely related phenomenon is the schizophrenia that often accompanies rapid economic and social change; a circumstance Friedman [7] has characterized as the choice under the global economy between the Lexus and the olive tree, symbolizing the promise of the global market to yield higher living standards for productive efforts and the soul-satisfying comfort with security of the old traditions ways of life respectively. The reform movement in Jordan represents a desire for the first, without denigrating the second. So does the evidence on underemployment collected by the Jordanian Department of Statistics (JDS) and analyzed by the National Center for Human Resources Development (NCHRD). As part of their regular survey, the JDS collects data showing the number of employed Jordanians wanting another or an additional job. While these data can be cited as evidence of underemployment, they can also be used to measure the desire of employed Jordanians for a higher scale of living. The evidence shows that 69% of those of labour force age of 15 years age or more seeking other or additional employment in 2003 were doing so because of insufficient earnings or meager incentives [8]. Moreover, the large number varies little across age groups and is only a little lower among employed females than among employed males. An additional 16% were seeking other or additional employment because of work conditions; presumably conditions for which respondents feel inadequately compensated. Some females also find long hours as the major disadvantage of their current job (7.6% of the total). A fine NCHRD case study reached similar conclusions [9]. Clearly, many employed Jordanians want the Lexus and the chance for a better life. In that regard, it is useful to note that average monthly wages of social security system participants in 2000 was

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F. Al-Azzam, M. Al-Emyan, Z. S. H. Abu-Hamatteh et al.

JD 230 (245 for men and 192 for women). Moreover, half of the employed in Jordan in 2003 earned between JD 100-199 despite long workweeks. Workers in Jordan are subject to several major legislative acts. For the purposes of this study, the first and most important is the Labour Law; a compendium of provisions governing much of private employment. By and large, that governing legislation is administered by the Ministry of Labour, which has separate directorates for the enforcement of regulations on compensation, on child labour, on industrial relations, on work conditions, and on foreign labour together with the usual support offices. The Ministry of Labour also has 23 labour centers throughout Jordan, including one in Aqaba [11]. Second in importance is the Social Security Law. While the enabling legislation foresees other provisions, including unemployment insurance, only two major programs are in place - one for work injuries and other disabilities and one for retirees. Not covered by the law are public employees subject to the provisions of the Civil Pension Law and the Military Pension Law, workers whose employment is irregular, workers under 16 years of age, many workers employed in agricultural, forestry and pasturing work, enterprises employing fewer than five employees [12]. Hence, social security participants represented only about 32% of the total labour force in 2003. The system is financed via a tax on employers; a levy of two 2% of payroll monthly on employers to provide insurance against work injuries and occupational diseases, plus an additional nine% of payroll monthly to provide insurance against old-age, disability and death. Each employee also contributes 5.5% of payroll monthly to the latter fund. It is also worth noting that there are plans to modify the regulations to avoid double dipping and make other adjustments [13]. Since the hope that early retirement would increase employment opportunities for the young or reduce unemployment apparently has not been realized. It is also notable that the social insurance system serves is a source of compulsory savings for Jordan and is a major investor in various projects including investments in Aqaba such as the new Intercontinental Hotel. The current article focuses on Aqaba and which has some features that set it aside from the rest of Jordan, national statistics highlight the common problems facing Jordan such as, unemployment, poverty, and development. Although the total population of Jordan equaled 5.450 million persons in 2003, the labour force population ratio (X 100) was only 23.5. Hence, less than one out of every four in the population is in the labour force which is relatively low ratio reflecting both a disproportionately young population and relatively few women are in the labour force. The labour force participation rate is somewhat higher. That rate (labour force participants/the population 15 years of age and older X 100) was 37.4 in 2003 (Table 1) [14]. Table 1. Key Labour Market Indicators for Jordan, 2003 [9,15]

Total Population (persons) Labour Force/Population Rate for Jordanian Labour force participation Rate for Jordanians; also known as the economic Activity Rate ) Employment/Population Rate for Jordanians Employment/Population Rate for Jordanians Unemployment Rate (Unemployed/Labour Force X 100)

Total % 5,450,000 23.5 37.4 23.0 23.0 14.4

Male %

Female %

63.2

11.4

13.4

20.8

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Towards Possible Dynamic and Flexible Labor Market: Aqaba-Jordan

Over 80% of unemployment is found among those who are less than 30 years of age (Table 2). Hence, the national unemployment figures for both males and females understate the severity of the economic problems for young people. Table 2. Estimated Labour Force Participation and Unemployment Rates by Age and Gender Groups in Jordan, 2003 (percentages) [8].

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Labour force participation rates

Unemployment rates

Total

Male

Female

Total

Male

Female

15-19

12.4

22.8

1.1

37.0

36.9

38.9

20-24

45.8

69.1

18.3

28.2

24.8

43.6

25-39

55.0

92.9

18.8

10.5

9.5

15.1

40-54

44.2

82.6

10.2

3.1

5.7

2.8

55-64

22.6

43.2

1.2

1.6

3.2

2.3

65 and above

7.6

13.9

0.4

1.6

1.6

0.0

There is no unemployment compensation system in Jordan, the social safety net for these young people has been and remains their families. Although there may be a casual connection between the high unemployment rate of females and the low participation rate of females. While any such relationship might constitute a kind of discouraged worker effect, there also is a raft of cultural reasons why the labour force participation of females is low. The employment of Jordanians across industrial, educational and occupational groups as a percents of total employment in 2003, particularly, the three major industries are shown in table (3). Note that almost 50% of Jordanian workers had less than a secondary education and that almost 50% of all employees were in the occupational groups. In that regard, it is worth noting that 45.8% of all private sector workers outside of agriculture were in firms employing 1-4 workers, often defined as the informal sector. Another 19% were in firms employing 5-19 workers. More than half of the 190,000 workers in nonagricultural enterprises employing less than 20% were in trade and repairs. Table 3. Jordanian Employment by Industry, Occupation, and Education Level, 2003 (percentage of Total) [9]. Industry Agriculture Manufacturing Utilities Construction Trade Trans. and Comm.

3.6 13.7 17 6.4 20.3 10.0

Occupation Senior Officials and Managers Professionals Technicians Clerks Service, Shop , Sales Skilled Agr. Fisheries

0.3 16.9 11.9 7.5 14.9 2.3

Finance/Real Est. Public Admin Social Service

5.3 39.0

Craft/Related Trade Plant, Machine

17.0 13.2

Operators, Assemblers Elementary Occupations

15.9

Total

100

Education Illiterates Secondary Vocational Secondary Intermediate Bachelors and above

100

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2.3 49.6 2.0 14.3 12.7 19.1

100

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F. Al-Azzam, M. Al-Emyan, Z. S. H. Abu-Hamatteh et al.

As noted above, the informal sector is often defined as employment in small firms (1-4 workers). While that definition is admittedly incomplete, it is clear that micro and small firms provide much of private sector employment and could constitute, under proper conditions, a growth center for the Jordanian economy.

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4. STRUCTURE AND OPERATIONS OF LABOUR MARKETS In developed countries with open and flexible labour markets, labour market institutions generally serve six functions in supporting and maintaining effective labour markets. The first five are directly related to labour market activities. They are: (A) Enforcement of legal provisions with respect to wages, hours, working conditions, work environment, work safety, child labour, and the like; (B) Enforcement and/or adjudication of collective bargaining contracts; (C) Provision of job-related information and job placement; i.e., the labour market brokerage function; (D) Provision of social safety nets; (E) Collection of labour market data for national and/or regional policy purposes, and (F) is the closely related training function, including any necessary connections to the five functions above. It almost goes without saying that form should follow function in each instance. In addition, it should do so without creating organizational conflicts of interest or hampering the efforts of suppliers and demanders of labour to create mutually beneficial contacts and contracts with each other. (E) should not be confused with (A). While one may be able to obtain useful information on labour force participation and unemployment via household surveys, accurate information for (E) on wage levels and changes, hours, turnover and reasons for turnover, absenteeism, and the like by industrial subdivision usually cannot be obtained without the voluntary cooperation of enterprises. That is true even where various enterprises are required by law to prepare regular reports and/or to permit inspection of their records by government agents. Hence, it is not wise to have the enforcement function (A) combined organizationally with the data collection function (E). The separation of functions in Jordan between the Ministry of Labour and the JDS meets this criterion. Similarly, it is not wise to have the brokerage function (C) combined organizationally with the offices administering safety nets-particularly unemployment compensation. To combine those two functions in the same office or bureau increases the impressions of prospective employers that referrals are solely or largely of persons receiving income transfers. Brokers operate effectively only when both sides of the market trust the broker to meet their respective requirements for a good job or a good employee. To compromise that trust in any way is to diminish the effectiveness of the agencies responsible for (C). While there is currently no unemployment compensation system in Jordan, there is an inspection system operating out of the local labour ministry offices which are responsible to some degree for the brokerage function. Turning to the interactions between the training function and the brokerage function, it is wise for the various training schools to cooperate closely with the agency or agencies responsible for (C) wherever the brokers have established their credibility. While the training function should be operationally distinct from the brokerage function, cooperation between the separate organizations could benefit both the students and the prospective employers. The generation of human capital via education and training is analytically distinct from most of the labour market activities noted above. With the exception

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of (E), the various functions are ancillary to an exchange of labour time; i.e., the market for the rental of human capacities and time. Function F is an investment process. While the disparity makes the point about a lack of synchronization between the institutions generating human capital and those desiring to employ persons with those skills, and while this information helps one to understand the high unemployment rates among young people in Jordan and in Aqaba, there is no easy solution for that situation [9]. Despite some suggestions to the contrary, it is nearly impossible to project in advance the number and types of workers needed each year in a dynamic labour market. Hence, the selection of appropriate curricula at any level of schooling is a risky proposition. While one can know that some occupations have been and probably will continue to be demanded in the future no precise matching of the number of graduates with present, much less, future demand appears feasible. Occupational training and schooling are inherently risky, just like any other investment. Equipping the students with transferable skills while simultaneously training him or her well for a specific and well-defined occupation is essential. Indeed, in a dynamic labour market, the non-occupationally specific skills like language, mathematical competencies, computer literacy and competency, and even some understanding of history and society may be of greater long run importance to the student than the particular occupational skills imparted at the institution. In any investment process including the investment in human capital, there is always a chance that one will suffer a capital loss. Therefore, to diversify one‘s human capital portfolio so as to minimize the inherent risks. Such risks exist even in a centralized, credentialized, and lock-step economic system, although they may be smaller. Moreover, the general skill component can reduce substantially the cost of retraining, which is required by changing economic circumstances. Clearly, both good general and occupationally specific training create a solid foundation upon which firms can train individuals in firm specific skills. To expect competitive firms to train effectively in the first two categories is to expect them to risk pirating of their trainees by their labour market competitors. Three levels of training - general, occupational, and firm specific - reflect three sharply different forms of investment in human capital; each with its own economic rationale. No single one will suffice in a dynamic and flexible labour market. These general considerations make it even more important that the brokerage function work well so that matching and rematching can take place over the work life of the various individuals. Economic theory outlines the requirements for effective labour markets. Markets that serve to minimize labour costs for the demanders of services while simultaneously maximizing the incomes of the renters of labour services. In that regard, there are both macroeconomic and microeconomic requirements and considerations. In the macro dimension, economies can operate at or below full employment; where full employment is defined as that level of unemployment reflecting the minimum time necessary for individuals to move freely among jobs. That level is also called the natural rate of unemployment or alternatively, frictional unemployment, and represents a level consistent with price level stability. There is also a seasonal component of measured unemployment; unemployment that reflects normal seasonal and even holiday changes in employment. In Jordan, a type of deseasonalization is accomplished by calculating a simple average of the statistics collected

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F. Al-Azzam, M. Al-Emyan, Z. S. H. Abu-Hamatteh et al.

quarterly by the JDS. The two remaining types of unemployment are cyclical and structural. The former represents levels of unemployment or changes in unemployment that are related to the stage of the business cycle. Moreover, it can be as an important indicator of the health of the economy and as a guide to national monetary and fiscal policy. Unemployment is related to impediments, immobilities, and other restrictions that hamper the expeditious clearing of labour markets. It is unclear how much of the high unemployment in Jordan is structural and how much is cyclical, but there appears to be evidence both of a lack of aggregate demand and many structural impediments. Lack of low cost, accurate information concerning job openings and worker qualifications represents one of these impediments [16].

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5. THE SITUATION IN AQABA Before addressing the specifics of the labour market situation in Aqaba, it is useful to understand the nature of the Aqaba Governorate, the special charge of ASEZA, and the role of the Aqaba Development Corporation (ADC). Aqaba is Jordan‘s only port city; located at the head of the Gulf of Aqaba with a direct outlet to the Red Sea and beyond. With about 90,000 persons and a relatively young population, it contains several deep water ports, including one for containers, and an international airport. Its governmental functions are divided into those performed by the Aqaba Governorate, one of the twelve in Jordan. ASEZA was established as an autonomous organization with financial and administrative independence and began operations in 2001. Its primary function was to organize, manage, and develop the Zone [17]. Effectively, ASEZA is a strong municipal government for a large part of the Governorate. In order to avoid potential conflicts of interest and for other reasons, the ADC assumed the development function in 2004. ASEZA and ADC are charged by law with the maintenance and development of the Zone as a growth center for Jordan; emphasizing and further developing existing specialties and facilities like the port and the tourist industry while encouraging and new investment, new industries, and new social arrangements. Among its other responsibilities, ASEZA issues permits for and inspects imports into the zone and issues work, residency, and visitor permits where required by law. As in the rest of Jordan, the population in the Governorate and in the Zone is relatively young, poorly educated, and poorly paid. The patterns of labour force participation in the Zone are also similar to those in the rest of the nation with 74.4% of the males in the labour force in 2002 and 10.4% of the females. The Zone contains a substantial number of nonJordanians. They total about 9,000, most in the labour force. Table (4) presents estimated labour force, employment and unemployment of Jordanians in the Aqaba Governorate in 2003 by broad age group. Despite the fact that females have higher unemployment rates than males because there are far fewer females in the market. The major problems among the young will be exacerbated in the future by the large age cohorts coming of labour force age. JDS data indicate that in 2002, there were 38,856 persons, aged 0-14, in Aqaba representing 43.7% of the population of the Governorate [2].

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Towards Possible Dynamic and Flexible Labor Market: Aqaba-Jordan

25

Table 4. Estimated Labour Force, Employment, and Unemployment in Aqaba governorate, 2003 [18].

Total 15-29 30-39 40+ Males Females

Labour Force

%

Employment

%

Unemployment

%

22,768 10,308 6,950 5,511 20,425 2,343

100.0 45.3 30.5 24.2 89.7 10.3

20,066 7,530 6,750 5,485 18,105 1,961

100.0 39.0 33.6 27.3 90.2 9.8

2,702 2,478 200 25 2,320 382

100.0 91.7 7.4 0.9 85.9 14.1

Table 5. Educational Attainment in Aqaba, 2003 [18].

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Illiterate or Read/Write Only Secondary Ed. or Less Vocational/Apprenticeship Intermediate Diploma Bachelor‘s and above

Labour Force

Employment

1,422 14,697 774 2457 3419

1269 12725 688 2134 3250

Unemployment No. % 153 0.107 1,972 0,134 86 0.111 323 0.131 169 0.049

It is also useful to note that a sizeable proportion of the Aqaba population has a secondary education or less (Table 5). Given the large number of young people and the educational background of the population, one should be concerned with any factors that represent imperfections in or segmentation of the Aqaba labour market. Aqaba labour market is badly segmented. Each of these divisions or segments is discussed herein. In order to facilitate economic development in the Zone, ASEZA and ADC have been granted many powers to stimulate investment, including tariff exemptions, full foreign ownership of enterprises, issue work and residency permits to non-Jordanians seeking to work in the Zone and the unrestricted flow of capital. However, the framers of the enabling legislation assumed that there would be a labour shortage in a growing Aqaba and made legal provisions to avoid that impediment to growth. Under the enabling legislation, nonJordanians may constitute up to 70% of the workforce in any registered enterprise. ASEZA issues work permits for three months at JD 55 each (including a residency permit), six months at JD 95, and one year for JD 175. Renewals cost the same. Hence, if the zone has 6000 foreign workers, the total revenue from work and residence fees alone is 6000 X JD 175 annually or JD 1,050,000 (almost one and a half million American dollars). Employers who employ foreign workers in the Zone without a work permit are fined JD 50 per violation. It is not clear whether the workers or the employers pay the initial and/or the renewal fees, but given their magnitude in comparison with usual monthly wages, one suspects that the cost is borne by the employers. Regardless of the initial intent, the work permit system divides the Aqaba labour market into two segments; domestic and foreign. Moreover, since the number of foreign workers in Aqaba is around 9000 out of a total work force of perhaps 30,000, the effective wage for low skilled workers is determined largely by the availability of foreign workers without regard to the unemployment level of low skilled Jordanians. While ASEZA does not set wages in any

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direct way, it determines by indirection what that wage will be. Hence, for the occupations in which foreign workers are heavily employed, the market wage is not set in the Aqaba labour market, but by wages overseas. According to officials in the ASEZA office, about 40% of the foreign workers in Aqaba are employed in construction, 30% in services, and 30% in the mines or the ports. This structuring of the foreign labour market is a classic case of monopsony; the existence of a single buyer rather than many competitive buyers, which is established by law. Economic theory submits that in all such cases, employees are paid less than the marginal value of their contribution to output; i.e., the workers are exploited. It matters not whether the employee can earn more than he or she would at home. Moreover, given foreign competition and the monopsonistic relationship described here, all low skilled workers must accept identical or similar wages if they are to find employment. It follows that wage levels for workers who are not in competition with foreigners can be expected to rise with development; sharing in the wealth generating process. Unskilled Jordanians, however, cannot be expected to benefit equally. Not only will some be left out of the wealth generating process, but income disparities among the Jordanian population within the Zone will rise, if other factors do not intervene in the process. Suffice it to say that ASEZA is one important source of segmentation in the Aqaba market, but far from the only one. The second type of segmentation experienced in Aqaba affects all of Jordan: namely, the division of the market into formal and informal segments. Colloquially, that division is often described as one between good and bad jobs. The good jobs in the formal sector are paid better and often have greater benefits including social security, insurance against injury, and the like, whereas, the bad jobs do not. In Jordan, the informal sector is often defined as employment in establishments of 1-4 employees; those employments exempt from social insurance and retirement laws. Although that definition is a useful one, it should also include all employment in unregistered firms, street vending, illegal activities, and the like. Indeed, many of the graduates of the Vocational Training School in Aqaba find employment in that sector. So do many individuals who acquire their trades and skills via family apprenticeships. To the degree that these individuals cannot easily move into covered employment, the labour market will operate less efficiently in matching the best employees with employer who can best use those skills. Exclusion from coverage means employees have no rights under the system and neither employees nor employers are taxed. Covered employment involves an employee contributory tax of 5.5% of his pay and an employer tax of an additional 11%. Such factors represent some reasons for the division between formal and informal markets. Moreover, the high implicit tax rates may effectively deter small firms from expanding unless the expected income flows from expansion are substantial. In some other nations, there appears to be a hiatus in the size distribution of firms immediately above the size at which social security and other taxes become effective. There are lots of small firms and a number of large firms, but relatively few firms of intermediate size. In Aqaba, a substantial proportion of employment is in the informal section, as narrowly defined. These enterprises appear to experience considerable turnover and a distinct lack of job security. In addition, there is an active daily labour market. Workers seeking such employment negotiate with prospective employers [2]. Both the basic labour law and the social security laws treat daily workers as different from other permanent or contract workers.

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Aqaba labour market is sharply divided between Aqabites (longtime residents) and outsiders, who come from other areas of Jordan. While there appears to be little overt discrimination or antagonism, there may be relatively little connection between the two groups. The division of the labour market into insiders and outsiders, particularly when many of the latter are in positions of authority, further segments the Aqaba labour market. Moreover, the insider-outsider segmentation is closely related to the inadequate flows of labour market information. Given the segmentation of the market, it is not surprising that labour market information in Aqaba is limited and often deemed untrustworthy. That conclusion stands in sharp contrast to the situation in labour markets around the world where warranted information from employee referrals, friends and relatives, and other informal approaches is considered both trustworthy and useful. Generally, informal techniques will provide information about highly important dimensions of employment; the nature of the work environment, the character of the employer, the work record of the employee, his or her diligence, loyalty, drive, and the like. In addition to illuminating those crucial dimensions, these sources of information are very inexpensive for both prospective employers and prospective employees. Evidence from innumerable interviews strongly suggests that informal techniques do not work well in present-day Aqaba. Even though Aqaba is a relatively small city, a number of employers and prospective employers said that they had great difficulty in differentiating between local applicants with appropriate skills and work attitudes and those who did not have these qualities. A number expressed concern that the family ties and feeling of duty and obligation to relatives among Aqabites would result in or had resulted in referrals and references of unqualified and/or irresponsible persons. The resulting personnel turnover was costly; particularly after that person or received some training. A number of those interviewed were outsiders, a group which is expected to grow as Aqaba develops. Those outsiders were also deeply concerned with the general level of education and training in Aqaba. As a consequence of their experiences and attitudes, they usually turn to private employment services or to personal contacts in Amman or elsewhere. Some reach out as far as the Philippines for experienced workers of proven reliability. ASEZA work permit system makes that approach a very feasible one. It appears that everyone in Aqaba is involved in education or training. That fact became abundantly with further examination of the human capital development process in the Zone and the Governorate. As indicated in Reynolds‘ study [2], the Aqaba Governorate contains 56 primary and 20 secondary schools teaching about 24,000 and 2,500 students respectively. It also contains two other public training institutions, i.e., Aqaba University College (AUC) and the nearby Vocational Training Center (VTC). There are also several private schools and many short-term training programs through the Aqaba Chamber of Commerce (ACC) and at various enterprises. Although some training and retraining is provided in house and via the ACC, there is as yet no retraining program for those laid off by local industry; layoffs due either to privatization or to business fluctuations. AUC is a branch of Al-Balqa‘ Applied University, a public institution, operated in May 2001. AUC offers Bachelor Degree and two year Associated Degree in a limited number of subjects linked to local employment needs such as Hotel Management, Tourism, Management Information System, Information Technology, Nursing and Finance and Banking. In its brochure, it notes that its objectives include providing the employment market with skilled and well-trained graduates from the academic and applied points of view [20]. AUC has labs

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for computer training, English, and culinary work. In addition to its regular student body of about 700 students, AUC runs various short courses in a number of related areas. In the lock step fashion characteristic of Jordanian education, admission to the two year and four year programs require different levels of competence on the Jordanian Higher Secondary Educational Certificate Examination or its equivalent. Similarly, there are restrictions in curriculum choice depending upon the tracks in which students were enrolled in high school; namely, the scientific, information management, arts, vocational, and industrial tracks. While the AUC stresses outreach activities to local enterprises and some local businesses hire AUC graduates, the student body is not composed entirely or even largely of Aqabites. Interview and other evidence suggest a concern with quality problems; problems which may not reflect the quality of the educational experience at AUC, but at earlier levels. The VTC draws many of its students from the industrial and vocational tracks in high school or at least up to the 10th grade. Students at the Center are often 16 to 18 years of age, but have available to them training in a very large number of occupational skills via the system of centers administered from Amman. As an example, the VTC has instituted courses in underwater welding one might expect for a port city. Although the VTC does not emphasize placement, follow-up studies find that about 78% of graduates are employed subsequent to graduation. The problem is that many of these graduates find employment in the low paying, informal sector; a sector that is also characterized by high rates of turnover, little job security, and no insurance against work injuries and occupational diseases. Many tradesmen in Aqaba acquire their skills in family related apprenticeship systems. There may be an overlap between the two methods of skill acquisition, but the available time was too short to examine any such connections. The authors could not assess the quality of the technical training or even the curriculum at VTC. However, received lots of feedback about low quality at all educational institutions. Moreover, because of the lock-step matriculation procedures in Jordan‘s educational establishment, VTC students are often considered the bottom of the barrel among high school students. Hence, the social status and the self respect of vocational students are apt to be low. Nonetheless, it is well known that many of those who do poorly on academic tests can and often do excel in the shop or the lab. This fact is sometimes overlooked in systems that emphasize credentalization. Despite the selection process for students and the generally low social reputation of tradesmen in Aqaba, the Center may be able to provide to new industries precisely the skills needed in those enterprises if the quality of training is high. Also needed are ways for new industries and establishments to identify skill competences and supportive personal characteristics among these young people. Numerous others have conducted training programs of one sort or the other in Aqaba. The Community Development unit in Aqaba hopes to empower the Human Resources Development Committee so as to identify the training needs of the local community and prepare adequate programs to the needs of the current and expected work force [19]. Others, like the A CC, regularly run short courses at the behest of their members and/or the local government. One of those was the ill-fated training of over 600 women for a textile mill that never materialized. There is also an Institute for Banking Studies courses there cover a wide range of banking and finance related topics and can lead to professional diplomas in financial analysis and bank credit. Reynolds reports that 670 trainees attended 39 training activities at IBS in 2003 [2]. There are few of the private and public firms that did not have a training

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program of some sort. A number of those programs involve internship programs under which the interns were paid some small amounts while acquiring job related skills and through which the employer can assess the capabilities of prospective permanent employees. In the absence of accurate and low cost information concerning the skills, job histories, and personal attributes of prospective employees, such an approach makes considerable sense to profit-maximizing enterprises. Moreover, via the Training and Employment Support Project (TESP) under ASEZA, funds are made available to foreign firms for training purposes up to JD 500 per employee. Suffice it to say that, at least since the publication of the NCHRD project 73 in 1999, Jordanians have recognized and responded to the need for greater and higher quality education and training in many ways [21]. Such investments in human capital represent a positive approach to development in an otherwise resource poor nation; resource poor at least by the standards of some of its nearby neighbors. In that regard, it is notable that the Aqaba Governorate has a Human Resources Council, which seeks to exchange information and coordinate human resource development activities [2].

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Table 6. Labour Market Institutions Impinging on the Aqaba Labour Market by Function [20, 22, 23]. Function A- "Regulation"

Institution Ministry of labour Office in Aqaba; ASEZA

B-―Collective Bargaining‖

Ministry of Labour, Amman

C – ―Brokerage‖

Ministry of Labour Office in Aqaba; ASEZA; AUC and VTC Social Security Corp., Amman

D – ―Safety Nets‖

E – ―Labour Info‖

F – ―Human Capital‖

Department of Statistics, Amman National Center for Human, Amman AUC, VTC, Chamber of commerce, Institute of banking, TSEP (ASEZA), ―In-house‖ Training and Elementary and Secondary Schools

Comments Labour market divided into foreign and domestic segments Enforceable monopsonies; Duplication Limited staff at MOL; of inspections No immediate local implications; National issues related to layoffs and retraining need to be addressed. Extremely weak and limited in reducing segmentation in Aqaba; Highest priority. Contributes to segmentation; Needs Study and /or adjustment for nation as a whole Excellent, developing system of information on population, labour force, unemployment, etc. and related analyses. Inaugurate decimation Persistent complaints about and concerns with educational quality; Need further investigation and remediation, where required

While such an organization can help substantially to minimize frictions and identify pressing labour force needs, each firm or bureau engaging in education or training must respond to its own administrative and organizational imperatives; whether those imperatives reflect the bottom line or particular administrative hierarchies or organizational cultures in Amman. In addition and as noted above, it is nearly impossible in a dynamic labour market to accurately predict labour needs except in broad occupational groups and often not even then.

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Table 6 below summarizes the various institutions impinging on the labour market in Aqaba, including those in education and training. Notwithstanding the admirable emphasis on education and training in Jordan and in Aqaba, a labour market will not work well until (1) trusted information concerning applicant skills, abilities, experiences, and the like is readily available to prospective employers and (2) the various dimensions of available jobs are readily available to prospective employees. In the terminology used above in delineating the six-labour market and human capital development functions, function (F) will not pay off for those investing in human capital or for those demanding requisite skills unless the brokerage function (C) is working well.

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6. REMARKS AND CONCLUSIONS The major thrust of the recommendations below is to minimize the segmentation of the Aqaba labour market while simultaneously maximizing the possibility that the development process will not overlook or leave behind significant portions of the local population; particularly the young and the poor. The recommendations fall into three priority groups; namely (1) recommendations for immediate implementation; (2) recommendations for subsequent implementation, and (3) recommendations for further study and action. To emphasize their importance in the present and near future, there are only two recommenddations for immediate implementation. In order to create and sustain the necessary labour market linkages and compensate to the degree possible for the apparent failure in Aqaba of informal methods of job and employee search, there is a pressing need for an active, effective and on line employment service. That service should be established forthwith. It is further recommended for the reasons noted above that the service be organizationally and operationally separate from any labour market inspection functions, either by the Ministry of Labour or by ASEZA. In order to assure the proper incentives for that new body, it should be private, rather than public, and established under a short term contract with the Government of Jordan. The new organization should be charged with delivering effective job placement services in that time dimension or earlier. Demonstrated success should be required for contract renewal, and success should be measured by coverage of the market and by successful placement rates. Hence, the new service would have to sell itself to both the demanders and suppliers of labour services together with any institutions involved in training or retraining. For example, students at AUC, the VTC, and others should be encouraged to use the system. Hence, the new service might find it useful to hold job fairs and orientations at the various training institutions. Similar orientations could be made available to local and prospective employers. It is also recommended that the UWORKS [24] system currently being employed at the National Employment Center be used in Aqaba, appears to do much more that any other job matching approach of which this researcher is aware. In particular, it incorporates counseling into the system, contains many more personal and employment dimensions than other approaches, and stores that data in accessible memory banks. Hence it contains, among other things, detailed work histories and the ability to generate useful employment resumes. In contrast to some other manpower approaches, it does not attempt to predict or project labour supply and demand, but serves simply as an honest broker [24]. As a fully integrated system,

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it is accessible by both prospective employers and employees on line and has provisions so that applicants can apply on line for desired jobs. The details involved in such a system could go far to assure both parties to a prospective employment contract that they understand the nature of the job and the nature of the applicant. Such system will not compensate fully for the lack of a working system of trusted informal information flows in Aqaba, but it could go a long way in that direction [24]. It is estimated that three or four UWORKS counselors would be able to service the Aqaba labour market. For obvious reasons, those counselors should include at least one female. For equally obvious reasons, at least one of the counselors should be a native Aqabite [24]. Because UWORKS was designed to meet American problems including the interconnections of the extensive American welfare system and their labour market, there are aspects of the system that will not fit the Jordanian experience. Those portions of the program can simply be ignored or blocked out. By the same token, it seems likely that one could easily modify UWORKS to reflect conditions that are particularly important to some Jordanians such as the unwillingness of some prospective employees to accept jobs that violate their religious norms. Employers whose workplaces do not violate those conditions and/or those who can structure their workplaces so as to conform to those norms may find a willing workforce using that particular screen. The national collection and evaluation efforts by the Department of Statistics and the NCHRD will continue to be elaborated along the lines suggested by Hoffmann [14]. As that nationwide population, labour market and education informational system improves and is elaborated to capture more what is happening in Jordan, researchers in labour economics, demography, and sociology both outside and inside those two agencies should be encouraged to examine econometrically the determinants of population growth, labour force participation, wages, employment and the like [25]. This researcher knows of no evidence that those data have been so employed to date. Nor, one suspects, have they been used much for policy considerations. They should be, but that‘s another issue. The other area that needs immediate attention and action in Aqaba as well as the nation as a whole is retooling and retraining of persons who have been unemployed due to privatization and/or business fluctuations. Girgis recommended that a special technical training facility, the Aqaba Training Center (ATC), be set up in Aqaba city [5]. That proposed organization would have two objectives: (1) to retool displaced workers of the privatized government establishments and (2) to make available to potential investors the skills required for economic growth. Note that, at this point in time, there is no institution in Aqaba charged with that responsibility. It is recommended, that the UWORKS system also be used in Aqaba to provide counseling and access to labour market information to those laid off due to either privatization or business fluctuations. Often in segmented markets like Aqaba, there is a disconnect between workers with useful experience and prospective employers, where, UWORKS system could bridge that gap in way to complement and synchronize with any number of retraining and remediation efforts. Moreover, using the details available in the system‘s data base, employers would have more information. It also follows from the arguments above that retraining or remediation programs should not usually involve training in firm specific skills. Monopsony should be avoided so that the labour market will be flexible and wages commensurate with productivity.

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After the UWORKS system has proven its merit in job placement in Aqaba and as unemployment falls in the Aqaba area, the system could be opened to include prospective users from other areas in Jordan. Once the current labour market segmentation has been reduced or eliminated, inter-area clearance may be necessary and desirable both to fill job orders for which there are few qualified workers in Aqaba and to provide appropriate labour market incentives for Aqabites as they compete with other Jordanians. In addition, that clearance of job openings to job applicants in other areas of Jordan will help keep wage levels for all skills from getting out of line with national wage. The labour market segmentation created and perpetuated by the ASEZA work permit system appears to be unsustainable in the long run. All work fields in the Zone shall be open for non-Jordanians according to instructions issued by the Board, provided that Jordanian workers are given priority in work opportunities [1]. Yet, in the absence of a modern employment service, there is no way for ASEZA to give Jordanians priority or even determine their availability other than accepting assurances from prospective employers that they can‘t find appropriate Jordanian workers. In order to reduce or eliminate this problem, it is recommended that both Jordanians and non-Jordanians have access to the UWORKS system. Access by all residents would work to reduce the segmentation and level the playing field between Jordanians and non-Jordanians. It would reduce the exploitation of foreign workers by allowing them to know about other employment opportunities. While their job contracts would still be valid from a legal point of view, their understanding of other options would increase. Moreover, ASEZA could better assure itself that Jordanians are being given priority by prospective employers. Evidence from various interviews suggests that many employers desire to hire Jordanians rather than foreigners but are restrained from doing so by high search costs and inadequate information about worker quality. Reducing search costs and widening the market for all residents would improve substantially the operations of the local labour market and perhaps even reduce social tensions. Some of these recommendations necessarily to be extended beyond the Zone. It is recommended that a detailed and objective analysis be conducted of union and collective bargaining activities in Jordan, including the appropriateness of the current legal provisions to the emerging private market sector. It is also recommended that a detailed and objective study be conducted to ascertain whether or not the severance pay provisions in the current labour law, including the distinctions between permanent workers, contract workers, daily workers and the like, are consistent with the emergence of a dynamic labour market and product market environment. Since the present legal arrangements were designed to deal with employment in public or semi-public enterprises outside the Civil Service system and/or were influenced by historic considerations, those arrangements ought to be revisited. Any unemployment insurance system changes the dynamics and the cost to firms of altering their workforces to meet market contingencies. The issues involved deserve thoughtful consideration. In addition, there may be provisions in union contracts regarding these matters that need to be addressed. Having a modern employment office and provisions for retraining at public expense, however, will make any desired transfer to national unemployment insurance easier to accomplish. It is also recommended that a detailed and objective study be conducted to determine the employment effects of the current social security system; particularly any possible contribution of the high taxes on the size and growth of firms in the informal sector of the economy. Both that issue and the role of the informal sector were discussed above. In the interest of providing a safe work environment and a healthy workforce no matter the size of

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the enterprise. However, the study should consider covering all workers under the work injury system. While that would involve a small increase in costs for firms employing 1-4 workers, no small firm would have a cost advantage over another, and any social security notch or implicit tax rate would be reduced for firms that seek to expand. There is enough evidence in Aqaba and elsewhere to assert that the quality of learning via elementary, secondary, and tertiary schools is a major issue of concern. In Aqaba, some employers or prospective employers note that it is educational quality rather than search costs and the availability of foreign workers at low cost that leads them to hire from outside. While lowering search costs via a modern employment service and integrating foreign workers in the labour force will help economic development in Aqaba, educational quality will remain a key issue. Consequently, that issue should be addressed by a major evaluation effort; an effort that goes beyond test scores or grades. In that regard, a detailed and objective study of the labour market for teachers and teachers‘ compensation seems warranted. Given its important role in Jordanian development, Aqaba should lead the way in improving the quality of education and training in all its dimensions.

REFERENCES ASEZA, Employment, Visas and Residency Directorate, ―Entry, Labour and Residency in the Aqaba Special Economic Zone,‖ Pamphlet, Aqaba, Jordan, undated. [2] Susan Reynolds, Aqaba Community Profile, Issues and Recommendations (Project report submitted to USAID/ASEZA by Nathan Associates, Inc.: an Aqaba Zone Economic Mobilization project), Aqaba, Jordan, May 2004. [3] Farouk El-Baz, Say It in Arabic, New York, USA, Dover Publications, 1968. [4] National Center for Human Resources Development, National Standard Labour and Human Resources Development Indicators for the Hashemite Kingdom of Jordan, Amman, Jordan, Publications Series No. 74, 1999. [5] Maurice Girgis, Labour Issues Arising from the Privatization of Selected Business Organizations in Jordan, Raleigh, NC, USA, LTC Techno-Economics, Inc. (Report submitted to Executive Privatization Commission, Amman, Jordan, September 2002). [6] Robert M. Fearn and Michael K. Jones, ―The Tsar or the Market? Why are Markets Developing so Slowly in Russia?‖ Nezavisimaya Gazeta (The Independent Newspaper from Russia), April 1993. [7] Thomas L. Friedman, The Lexus and the Olive Tree, New York, USA, Farrar, Strauss and Giroux, 1999. [8] Department of Statistics, Household Surveys Directorate, Employment and Unemployment Survey 2003: Annual Report, Amman, Jordan, January 2004. [9] National Center for Human Resources Development, Human Resources Information (HRI) Assessment Report: Case Study “Unemployment,‖ Amman, Jordan, 2004. [10] Naipaul, V. S., Among the Believers: An Islamic Journey, New York, USA, Random House, 1982. [11] Ministry of Labour, Organizational Chart (mimeographed and translated into English), Amman, Jordan, 2005. [12] The Social Security Corporation, The Social Security Law: Social Protection - and Economic Development (Law No. 19 for the Year 2001), Amman, Jordan, May 2001.

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[1]

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[13] The Jordan Times, ―Rise in Early Retirement Age not Imminent,‖ Amman, Jordan, 6 March 2005, pp. 1-2. [14] Eivind Hoffmann, Strengthening Human Resources Information in Jordan: Observations and Recommendations (An Al-Manar Project), Amman, Jordan, National Center for Human Resources Development, January 2005. [15] National Center for Human Resources Development, Human Resources Indicators in Jordan for the Year 2003 (An Al-Manar Project), Amman, Jordan, Pamphlet, 2004. [16] Robert M. Fearn, ―Cyclical, Seasonal and Structural Factors in Area Unemployment Rates,‖ Industrial and Labour Relations Review, 1975, 28(3), pp. 424-31. [17] Aqaba Zone Economic Mobilization , A Proxy Indicator of the Level of Economic Activity in the Aqaba Special Economic Zone (mimeographed draft), Aqaba, Jordan. [18] National Center for Human Resources Development, Human Resources Annual Report (An Al-Manar Project), Amman, Jordan, July 2004. [19] ASEZA, Commission of Investment and Economic Development, Local community Development Directorate, 2005-2007 Projects (mimeographed, Aqaba, Jordan, 2005. [20] Information and Public Relations Department, Al Balqa‘ Applied University, Aqaba University College, Aqaba, Jordan, Flyer, 2004-2005. [21] Munther W. Masri, Human Resources Development Strategy in Jordan, National Center for Human Resources Development, Amman, Jordan, Center Publication Series No. 73, 1999. [22] National Center for Human Resources Development, Technical and Vocational Education and Training, Amman, Jordan, Publication Series No. 77, 1999. [23] Department of Statistics, Employment Surveys Series, Employment and Employees Compensations Surveys for the Year 2000: Questionnaire (mimeographed), 2000. [24] Utah Department of Workforce Services, UWORKS - Utah’s Job Connection: A Look Inside the System, St. Lake City, Utah, USA, (DVD diskette), 2005. [25] William G. Bowen and T. Aldrich Finegan, The Economics of Labour Force Participation, Princeton, NJ, USA, Princeton University Press, 1969.

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In: Economic and Political Issues in the Middle East Editors: C. N. Parker and D. M. Warde

ISBN: 978-1-61209-381-9 © 2011 Nova Science Publishers, Inc.

Chapter 3

ISRAELI-ARAB NEGOTIATIONS: BACKGROUND, CONFLICTS, AND U.S. POLICY Carol Migdalovitz† ABSTRACT

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After the first Gulf war, in 1991, a new peace process consisting of bilateral negotiations between Israel and the Palestinians, Jordan, Syria, and Lebanon achieved mixed results. Milestones included the Israeli-Palestine Liberation Organization (PLO) Declaration of Principles (DOP) of September 13, 1993, providing for Palestinian empowerment and some territorial control, the Israeli-Jordanian peace treaty of October 26, 1994, and the Interim Self-Rule in the West Bank or Oslo II accord of September 28, 1995, which led to the formation of the Palestinian Authority (PA) to govern the West Bank and Gaza Strip. However, Israeli-Syrian negotiations were intermittent and difficult, and postponed indefinitely in 2000. Negotiations with Lebanon also were unsuccessful, leading Israel to withdraw unilaterally from south Lebanon on May 24, 2000. President Clinton held a summit with Israeli and Palestinian leaders at Camp David on final status issues that July, but they did not produce an accord. A Palestinian uprising or intifadah began in September. On February 6, 2001, Ariel Sharon was elected Prime Minister of Israel, and rejected steps taken at Camp David and afterwards. On April 30, 2003, the United States, the U.N., European Union, and Russia (known as the ―Quartet‖) presented a ―Road Map‖ to Palestinian statehood. It has not been implemented. Israel unilaterally disengaged (withdrew) from the Gaza Strip and four small settlements in the West Bank in August 2005. On January 9, 2005, Mahmud Abbas had become President of the PA. The victory of Hamas, which Israel and the United States consider a terrorist group, in the January 2006 Palestinian parliamentary elections complicated prospects for peace as the United States, Israel, and the Quartet would not deal with a Hamas-led government until it disavowed violence, recognized Israel, and accepted prior Israeli-Palestinian accords. President Abbas‘s dissolution of the Hamas-led government in response to the June 2007 Hamas forcible takeover of the Gaza Strip led to resumed international contacts with the PA. On November 27, at an international conference in Annapolis, MD, President Bush read a Joint Understanding in which Abbas 

†

This report is excerpted from CRS Report RL33530 dated March 9, 2009. E-mail: [email protected]

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Carol Migdalovitz and Israeli Prime Minister Ehud Olmert agreed to simultaneously resume bilateral negotiations on core issues and implement the Road Map. On May 21, 2008, Israel, Syria, and Turkey announced that Syria and Israel had begun indirect peace talks in Istanbul via Turkish mediators. Later in the year, Israeli and U.S. elections appeared to disrupt negotiations on all tracks and the end of the Israeli-Hamas cease-fire in December and the subsequent outbreak of violence led to the official suspension of peace talks. Congress is interested in issues related to Middle East peace because of its oversight role in the conduct of U.S. foreign policy, its support for Israel, and keen constituent interest. It is especially concerned about U.S. financial and other commitments to the parties, and the 111th Congress is engaged in these matters. Congress also has endorsed Jerusalem as the undivided capital of Israel, although U.S. Administrations have consistently maintained that the fate of the city is the subject of final status negotiations. This CRS report will be updated as developments warrant. See also CRS Report R40 101, Israel and Hamas: Conflict in Gaza (2008-2009) , coordinated by Jim Zanotti, CRS Report RS22768, Israeli-Palestinian Peace Process: The Annapolis Conference, by Carol Migdalovitz, CRS Report RL33566, Lebanon: The Israel-Hamas-Hezbollah Conflict, by Jeremy M. Sharp et al., and CRS Report RS22967, U.S. Foreign Aid to the Palestinians, by Jim Zanotti.

MOST RECENT DEVELOPMENTS

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Israel-Palestine On November 4, 2008, Israeli troops entered Gaza to blow up a tunnel that Israeli officials said was intended to be used to kidnap Israeli soldiers, and killed seven Palestinian militants. The officials said that the action was to eliminate a threat to the tahdiyah (calm, truce, or cease-fire) that had begun in June and not to end it. Hamas responded by firing dozens of rockets into Israel daily and Israel reacted by closing the borders of Gaza for extended periods of time. On December 15, Hamas leaders announced that the truce would not be extended after it expired on December 19. The expiration date was followed by a barrage of rocket fire into Israel and Israeli airstrikes. On December 27, Israel launched Operation Cast Lead with an air offensive against Hamas training camps, police stations, and intelligence facilities in Gaza. The stated goal of the operation was to strike at Hamas‘s terrorist infrastructure and to improve security for residents of southern Israel. Israeli officials also said that they intended to regain deterrence that was widely perceived to have been weakened by the 2006 war against Hezbollah in Lebanon. The Gaza campaign broadened rapidly to target any site Israel considered part of the Hamas terrorism support network, including mosques, universities, schools, factories, homes of Hamas political and military leaders, and weapons caches. Tunnels under the GazaEgypt border used to smuggle arms, materiel, and goods were prime targets for the Israeli Air Force throughout the 22-day military campaign. On January 3, 2009, Israeli ground troops began to bisect the Gaza Strip. On January 4, Israeli Prime Minister Ehud Olmert set out four conditions for a cease-fire: a halt to rocket attacks, a halt to terror, international supervision of the cease-fire, and an end to Hamas‘s military build-up (via smuggling). Israel would not open its borders with Gaza unless Hamas released Corporal Gilad Shalit, who was kidnapped in June 2006. On January 10, Hamas politburo chief Khalid Mish‘al stated his group‘s counter-demands: a halt to

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Israel‘s ―aggression,‖ the immediate withdrawal of its forces from Gaza, lifting of the siege on Gaza, and opening all the crossings, foremost the Rafah crossing between Gaza and Egypt. The Bush Administration supported Israel. From the outset, Secretary of State Condoleezza Rice held ―Hamas responsible for breaking the cease-fire and for the renewal of violence.‖[1] She later said that any cease-fire should be ―durable and sustainable.‖ President Bush called the Hamas rocket attacks on Israel ―an act of terror,‖ and added that no peace deal would be acceptable without monitoring to halt the flow of smuggled weapons to the group [2]. On January 8, the U.N. Security Council adopted Resolution 1860 by a vote of 14-0, with 1 abstention—the United States. Secretary Rice said that the United States wanted to see the outcome of Egyptian mediation for a cease-fire. The resolution called for ―an immediate, durable, and fully respected cease-fire.‖ While emphasizing the need to alleviate the humanitarian and economic situation in Gaza, it also called for intensified efforts to sustain the cease-fire, including preventing illicit trafficking in arms and ammunition and the sustained reopening of crossing points on the basis of the 2005 Agreement on Movement and Access between the Palestinian Authority (PA) and Israel. Prime Minister Olmert said that the Gaza operation would continue despite the resolution because ―Israel has never agreed that any outside body would determine its right to defend the security of its citizens‖ and because the Palestinian groups were continuing to fire rockets into southern Israel and would not honor the resolution in fact [3]. Hamas said that that the resolution had nothing to do with it because it did not meet the Palestinian people‘s demands and Hamas was not consulted [4]. Egyptian mediation of a cease-fire has been stymied partly by the absence of a reconciliation between Hamas and Fatah-led PA of President Mahmud Abbas. A key issue is preventing smuggling. On January 16, Secretary Rice and Israeli Foreign Minister Tzipi Livni signed a memorandum of understanding (MOU) in which they agreed to work with neighbors and others in the international community to prevent the supply of arms and related materiel to terrorist organizations. In particular, the United States agree to work with regional and NATO partners to address the supply of arms, etc. to Hamas and others in Gaza through the Mediterranean, Gulf of Aden, Red Sea, and eastern Africa [5]. It also agreed to enhance security and intelligence cooperation to counter arms smuggling. Egyptian officials said they were was not bound by the MOU and would not allow foreign troops on their soil. Britain, France, Italy, and Germany jointly wrote to Israeli Prime Minister Olmert and Egyptian President Hosni Mubarak, offering to help end smuggling by all technical, military, naval, and diplomatic means, including patrols off Gaza‘s coast. On January 17, Israel unilaterally declared a cease-fire, effective January 18. Hamas soon followed with its own one-week cease-fire. According to the U.N., which used figures provided by the Palestinian Center for Human Rights, the conflict resulted in over 1,300 Palestinian deaths and 5,400 injured, and 13 Israeli deaths (including three civilians and five soldiers from friendly fire) [6]. Neither side agrees to the other‘s terms for a cease-fire. Israel says that it would ease its blockade of Gaza if Hamas released Cpl. Shalit. Hamas demands that Israel release more than 1,000 prisoners, including Hamas legislators, in exchange for Shalit and considers the border crossings are an unrelated issue. Israeli and Palestinian peace negotiators had said that they would continue meeting until the new U.S. Administration took office and the February 10, 2009 Israeli elections were over. However, talks were suspended several weeks before Israel launched its operation

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against Hamas and formally by Palestinian chief negotiator Ahmed Quray (alternate transliteration: Qurei) on December 29. On February 18, the Israeli Security Cabinet officially declared that the release of Gilad Shalit is Israel‘s top priority and that expanding activity at the border crossings would be discussed (only) upon his release.7 Hamas Political Bureau Chief Khalid Mish‘al had asserted that there could be no calm unless Israel opens all crossings and that Shalit‘s release is only related to Israel‘s release of Palestinian prisoners. Since the cease-fire in January, Palestinians have launched rockets into Israel daily and Israeli has responded with air strikes on tunnels along the Gaza-Egypt border. Israeli national elections were held on February 10, and Benjamin Netanyahu was named to form a new government. On February 28, President Abbas said, ―...we ask the Israeli government to adhere to previous agreements, not to restart from scratch, to be committed to the two-state vision, to stop settlement activity, to remove barriers, and to redeploy to the lines held prior to 28 September 2001, as stipulated in the Road Map.‖ [8] On March 2, the non-governmental organization Peace Now reported that the Israeli government is planning to build more than 73,300 new housing units in the West Bank. It said that approval had been granted for 15,000 housing units and is pending for 58,000 [9]. The Israeli Housing and Construction Ministry claimed that Peace Now had confused government plans showing the maximum density that any site could hold with active housing plans [10]. On March 4, chief Palestinian negotiator Ahmed Quray declared that negotiations with Israel had been suspended because of Israel‘s aggressive policies toward the Palestinian territories and that they would only continue after Israel ended its ―policies of aggression, siege, and settlement expansion.‖ He specifically referred to Israel‘s actions in East Jerusalem, where the Jerusalem municipality had given eviction orders to Palestinians in preparation for home demolitions [11].

U.S. Policy in the Obama Administration At her January 13, 2009 Senate confirmation hearing, Secretary of State-designate Hillary Clinton, said that the Gaza situation was a reminder of ―the tragic humanitarian costs of conflict in the Middle East.... This must only increase our determination to seek a just and lasting peace agreement that brings real security to Israel—normal and positive relations with its neighbors, independence, economic progress, and security to the Palestinians in their own state. We will exert every effort to support the work of Israelis and Palestinians who seek that result....‖ She added that the United States would not negotiate with Hamas until it recognizes Israel, renounces violence, and abides by previous agreements. ―That is just an absolute for me. That is the United States‘ position and the president-elect‘s position.‖ On his first full day in office, January 21, President Barack Obama telephoned President Abbas, Prime Minister Olmert, Egyptian President Hosni Mubarak, and Jordanian King Abdullah II ―to communicate his commitment to active engagement in pursuit of Arab-Israeli peace from the beginning of his term.‖ The next day, President Obama and Secretary Clinton jointly announced the appointment of former Senator George Mitchell as their Special Envoy for Middle East Peace. At that time, the President stated, ―The outline for a durable cease-fire is clear: Hamas must end its rocket fire; Israel will complete the withdrawal of its forces from

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Gaza; the US and our partners will support a credible anti-smuggling and interdiction regime, so Hamas cannot rearm.‖ He added, ―As part of a lasting cease-fire, Gaza‘s border crossing should be open to allow the flow of aid and commerce, with an appropriate monitoring regime, with the international community and Palestinian Authority participating.‖ The President emphasized that Mitchell was ―fully empowered‖ to speak for the White House and State Department, thereby boosting his emissary‘s clout. On January 27, President Obama gave his first television interview to Al Arabiyah television. He said, ―I think it is possible for us to see a Palestinian state—I am not going to put a timeframe on it—that is contiguous, that allows freedom of movement for its people, that allows for trade with other countries, that allows the creation of businesses and commerce so that people have a better life.‖ During his first trip to the region, Mitchell visited Israel, the West Bank, Jordan, Egypt, and Saudi Arabia, but not the Gaza Strip or Syria. His goals were to listen to the region‘s leaders‘ views on an Israeli-Palestinian settlement, to try to stabilize the unofficial cease-fire, and to ensure that humanitarian aid is delivered swiftly to Gaza‘s needy. On January 29, Mitchell said, ―Lasting peace is our objective. The United States will sustain an active commitment to two sides living side by side in peace, stability, and security.‖ Yet he focused more unresolved issues related to the Gaza conflict. ―To be successful in preventing the illicit trade of arms into Gaza, there must be a mechanism to allow the flow of legal goods,‖ and suggested that borders be opened in coordination with the PA [12]. Outgoing Prime Minister Olmert informed Mitchell of ―understandings‖ he had reached with Abbas. They include the uprooting of 60,000 settlers out of 250,000 and Israel‘s withdrawal to its 1967 borders, with adjustments that would allow it to retain large settlement blocs. In return for the settlement blocs, Israel would transfer an equal amount of territory in southern Israel to a Palestinian state. Olmert agreed that Jerusalem would be divided, with eastern neighborhood transferred to Palestinian sovereignty, and holy sites administered by an international authority to include Saudi Arabia, Jordan, the PA, Israel, and the United States, while Israel would retain formal sovereignty over them [13]. Israel would not absorb Palestinian refugees from 1948, but would accept a limited number in a reunification program. On January 27, President Palestinian negotiator Saeb Erekat said that Olmert‘s proposal was never written down and its details were vague. Abbas declared, ―Our stance on the peace process is clear. We want back all the territories occupied in 1967, a fair solution to the refugee issue in accordance with UN General Assembly Resolution 194, and removal of settlements. We accept an international presence in the Palestinian territories provided the Israeli army does not participate in it‖ [14]. Mitchell reportedly told Olmert that the Obama Administration stands behind the commitments in an April 2004 letter that President Bush gave to Prime Minister Ariel Sharon [15]. On February 3, Mitchell said, ―My original assessment is that with patient, determined, and persevering diplomacy, we can help to make a difference and that we can assist those in the region achieve the peace and stability that people on all sides long for‖[16]. In a conference call with Jewish leaders on February 19, Mitchell reportedly expressed support for Egyptian efforts with Fatah and Hamas to forge a Palestinian unity government because divisions among the Palestinians have been an obstacle to bringing peace to the region. He said that Hamas still would need to fulfill the demands that it halt violence, recognize Israel, and accept previous Israeli-Palestinian agreements, and that the chances of

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Hamas doing that were not good [17] Mitchell returned to the region on February 26, when he met Prime Minister-designate Benjamin Netanyahu and others. On March 2, Secretary of State Clinton told an international donors conference in Sharm al Shaykh that ―The United States is committed to a comprehensive peace between Israel and its Arab neighbors, and we will pursue it on many fronts.‖ She announced more than $900 million in aid for the Palestinians and stated that there are safeguards to ensure that no funds go to Hamas. The funds include $300 million in humanitarian aid for Gaza and $600 million in budget and development aid for the Palestinian Authority. During her trip, Clinton emphasized that the United States could not deal with Hamas unless it agreed to the (Quartet‘s) principles that have been adopted by a broad range of international actors. In Israel on March 3, the Secretary expressed understanding of Israel‘s need not ―to stand idly by while its territory and people are subjected to rocket attacks.‖ The next day, in Ramallah, Ms. Clinton described Israel‘s plans to demolish 88 Palestinian homes in East Jerusalem as ―unhelpful and not in keeping with the obligations entered into under the Road Map,‖ and with far-reaching implications [18]. She said that the issue would be raised with the new Israeli government and the municipal government in Jerusalem. Throughout, Secretary Clinton emphasized the Obama Administration‘s commitment to the two-state solution, saying that it was in Israel‘s best interests.

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Israel-Syria While in Turkey on March 7, Secretary of State Clinton said the importance of the Israeli-Syrian track and peace effort ―cannot be overstated.‖ [19]. In Damascus the same day, Acting Assistant Secretary for Near Eastern Affairs Jeffrey Feltman said, ―We do want to see forward momentum on the Syrian-Israeli track at the time when the parties are ready for this. We want to achieve results. I am sure that Syria will want to achieve results, but let‘s not expect that things are going to change dramatically from today until tomorrow‖ [20] In an interview with a United Arab Emirates newspaper published on March 9, Syrian President Bashar al Asad said that a peace ―agreement‖ with Israel was possible, but that the Syrian people would not accept ―peace,‖ meaning trade, normal relations, and open borders, until the position of the Palestinians is resolved. He called for coordination with the Palestinians so that Israel would not use peace talks with Syria to avoid a resolution with the Palestinians [21].

Background Before the first Gulf war in 1991, Arab-Israeli conflict marked every decade since the founding of Israel. With each clash, issues separating the parties multiplied and became more intractable. The creation of the State of Israel in 1948 provided a home for the Jewish people, but the ensuing conflict made refugees of hundreds of thousands of Arab residents of formerly British Palestine, with consequences troubling for Arabs and Israelis alike. It also led to a mass movement of Jewish citizens of Arab states to Israel. The 1967 war ended with

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Israel occupying territory of Egypt, Jordan, and Syria. Egypt and Syria fought the 1973 war, in part, to regain their lands. In 1982, Israel invaded southern Lebanon to prevent terrorist incursions; it withdrew in 1985, but retained a 9-mile ―security zone‖ that Lebanon sought to reclaim. Middle East peace has been a U.S. and international diplomatic goal throughout the years of conflict. The 1978 Camp David talks, the only previous direct Arab-Israeli negotiations, brought about the 1979 Israel-Egypt Peace Treaty [22].

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U.S. Role At the beginning of the Gulf war in 1991, President George H.W. Bush declared solving the Arab- Israeli conflict among his postwar goals. On March 6, 1991, he outlined a framework for peace based on U.N. Security Council Resolutions 242 and 338 and the principle of ―land for peace.‖ Secretary of State James Baker organized a peace conference in Madrid in October 1991 that launched almost a decade of the ―Oslo process‖ to achieve peace. It continued under President William Clinton, who asserted that only the region‘s leaders can make peace and vowed to be their partner. With the Hebron Protocol of 1997, however, the United States seemed to become an indispensable and expected party to IsraeliPalestinian talks. Clinton mediated the 1998 Wye River Memorandum, and the United States coordinated its implementation. He personally led negotiations at Camp David in 2000. The George W. Bush administration initially sought a less prominent role, and Secretary of State Colin Powell did not appoint a special Middle East envoy. After the September 11, 2001, terrorist attacks, the Administration focused on the peace process mainly as part of the war on terrorism. Secretary of State Condoleezza Rice also did not name a special envoy, asserting, ―Not every effort has to be an American effort. It is extremely important that the parties themselves are taking responsibility‖ [23]. She encouraged Israelis and Palestinians to act, but personally mediated a November 2005 accord to reopen the border crossing between Gaza and Egypt after Israel‘s withdrawal from Gaza. In 2007, she engaged again partly in order to elicit the support of moderate Sunni Arab governments to thwart the rise of Iranian influence. Those governments see resolution of the Palestinian issue as a key to regional stability and to denying Iran opportunities for destabilizing actions. The Joint Understanding presented at the November 2007 Annapolis Conference created a new role for the United States as ―judge‖ of Israel‘s and the Palestinians‘ fulfillment of their commitments under the 2003 international Road Map to a two-state solution. In January 2008, President Bush appointed (Air Force) Lt. Gen. William Fraser III, assistant to the Chairman of the Joint Chiefs of Staff, to monitor the parties‘ compliance with their commitments. Gen. Fraser , who has been replaced by Lt. Gen. Paul J. Selva, was not to mediate or enforce compliance. Instead, according to National Security Advisor Stephen Hadley, Fraser ―will be in dialogue with Palestinians and Israelis and get the facts on what each of them is doing to implement the Road Map—what they are doing, what they are not doing—and to bring that to their attention ... encouraging the parties to move forward on their obligations to complete the Road Map‖[24] Fraser was to visit the region ―from time to time,‖ but the trilateral mechanism barely functioned.

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Madrid Conference The peace conference opened on October 30, 1991. Parties were represented by 14member delegations. A combined Jordanian/Palestinian delegation had 14 representatives from each. An unofficial Palestinian advisory team coordinated with the Palestine Liberation Organization (PLO). The United States, the Soviet Union, Syria, Palestinians/Jordan, the European Community, Egypt, Israel, and Lebanon sat at the table. The U.N., the Gulf Cooperation Council, [25] and the Arab Maghreb Union [26] were observers.

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Bilateral Talks and Developments Israel-Palestinians (Incidents of violence are noted selectively.) In November 1991, Israel and the Jordanian/Palestinian delegation agreed to separate Israeli-Jordanian and Israeli-Palestinian negotiating tracks, the latter to address a five-year period of interim Palestinian self-rule in the West Bank and Gaza Strip. In the third year, permanent status negotiations were to begin. On August 9, 1993, Palestinian negotiators were appointed to a PLO coordination committee, ending efforts to make it appear that the PLO was not part of the talks. Secret talks in Oslo produced a Declaration of Principles (DOP), signed by Israel and the PLO on September 13, 1993. Through the end of the decade, incremental advances were made, including Israel‘s withdrawal from major cities and towns and Palestinian self-government as the Palestinian Authority (PA). However, no final agreement was reached. (See ―Significant Agreements,‖ below, for summaries of and links to accords reached between 1993 and 2000. This narrative resumes with the Camp David summit.) President Clinton, Israeli Prime Minister Ehud Barak, and PA Chairman Yasir Arafat held a summit at Camp David, from July 11 to July 24, 2000, to forge a framework accord on final status issues. They did not succeed. The parties had agreed that there would be no agreement unless all issues were resolved. Jerusalem was the major obstacle. Israel proposed that it remain united under its sovereignty, leaving the Palestinians control, not sovereignty, over East Jerusalem and Muslim holy sites. Israel was willing to cede more than 90% of the West Bank, wanted to annex settlements where about 130,000 settlers lived, and offered to admit thousands of Palestinian refugees in a family unification program. An international fund would compensate other refugees as well as Israelis from Arab countries. The Palestinians reportedly were willing to accept Israeli control over the Jewish quarter of Jerusalem and the Western Wall, but sought sovereignty over East Jerusalem, particularly the Haram al Sharif/Temple Mount, a site holy to Jews and Muslims. On September 28, Israeli opposition leader Ariel Sharon, with 1,000 security forces, visited the Temple Mount/Haram al Sharif. Palestinians protested, and Israel responded forcefully. The second Palestinian intifadah or uprising against the Israeli occupation began as a mob in Ramallah killed two Israeli soldiers, provoking Israeli helicopter gunship attacks on Palestinian official sites on October 12. Barak resigned on December 10, triggering an early election for Prime Minister in Israel. Further negotiations were held at Bolling Air Force Base, in Washington, D.C., December 1923. On December 23, President Clinton suggested that Israel cede sovereignty over the

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Temple Mount/Haram al Sharif and Arab neighborhoods in Jerusalem, 96% of the West Bank, all of the Gaza Strip, and annex settlement blocs in exchange for giving the Palestinians Israeli land near Gaza. Jerusalem would be the capital of two countries. The Palestinians would cede the right of refugees to return to Israel and accept a Jewish ―connection‖ to the Temple Mount and sovereignty over the Western Wall and holy sites beneath it. The agreement would declare ―an end to conflict.‖ [27] Barak said he would accept the plan as a basis for further talks if Arafat did so. Arafat sought clarifications on contiguity of Palestinian state territory, the division of East Jerusalem, and refugees‘ right of return, among other issues. The Israeli-Palestinian talks concluded at Taba, Egypt. On February 6, 2001, Ariel Sharon was elected Prime Minister of Israel and vowed to retain united Jerusalem as Israel‘s capital, the Jordan Valley, and other areas for security. Sharon‘s associates asserted that the results of negotiations at and after Camp David were ―null and void.‖ [28]. The Bush Administration said that Clinton‘s proposals were no longer U.S. proposals [29] Sharon sought an interim agreement, not dealing with Jerusalem, Palestinian refugees, or a Palestinian state and, in an interview published on April 13, said that he could accept a disarmed Palestinian state on 42% of the West Bank [30]. On September 24, Sharon declared, ―Israel wants to give the Palestinians what no one else gave them before, the possibility of a state.‖ On October 2, President Bush said, for the first time, ―The idea of a Palestinian state has always been part of a vision, so long as the right of Israel to exist is respected.‖ [31]. On November 10, he declared that the United States is ―working toward the day when two states—Israel and Palestine—live peacefully together within secure and recognized borders....‖ Secretary Powell sent General Anthony Zinni, USMC (Ret.) to work on a cease-fire, but violence impeded his mission. Israel confined Arafat to his headquarters in Ramallah on December 3. On December 7, Sharon doubted that an accord could be reached with Arafat, ―who is a real terrorist.‖ [32] On December 12, Hamas ambushed an Israeli bus in the West Bank and perpetrated two simultaneous suicide bombings in Gaza. The Israeli cabinet charged that Arafat was ―directly responsible‖ for the attacks ―and therefore is no longer relevant.‖ [33] On January 3, 2002, Israeli forces seized the Karine A, a Palestinian-commanded freighter, carrying 50 tons of Iranian-supplied arms. Secretary Powell stated that Arafat ―cannot engage with us and others in the pursuit of peace, and at the same time permit or tolerate continued violence and terror.‖ At the White House on February 7, Sharon said that he believed that pressure should be put on Arafat so that an alternative Palestinian leadership could emerge. On February 17, Saudi Crown Prince (later King) Abdullah unprecedentedly called for ―full withdrawal from all occupied territories, in accord with U.N. resolutions, including Jerusalem, in exchange for full normalization of relations.‖ On March 28, the Arab League endorsed his proposal with some revisions; it is known as the ―Arab Peace Initiative‖[34] Prime Minister Sharon said that he was willing to explore the idea but that it would be a ―mistake‖ to replace U.N. resolutions affirming Israel‘s right to ―secure and recognized borders‖ with total withdrawal to pre-1967 borders. On March 27, Hamas perpetrated a suicide bombing at a hotel in Netanya during Passover celebrations, killing 27 and wounding 130. Israel declared Arafat ―an enemy‖ and Israeli forces besieged his compound in Ramallah; they soon controlled all major Palestinianruled West Bank cities.

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On June 24, President Bush called on the Palestinians to elect new leaders ―not compromised by terror‖ and to build a practicing democracy. Then, he said, the United States will support the creation of a Palestinian state, whose borders and certain aspects of sovereignty will be provisional until a final settlement. He added, ―as we make progress toward security, Israeli forces need to withdraw fully to positions they held prior to September 28, 2000 ... and (Israeli) settlement activity must stop.‖ The President foresaw a final peace accord within three years [35]. On September 17, the Quartet (U.S., European Union (EU), U.N., and Russian officials) outlined a preliminary ―Road Map‖ to peace based on the President‘s ideas. (See ―Significant Agreements,‖ below for summary and link.) On March 7, 2003, in what was seen as a gesture to appeal to the Quartet, Arafat named Mahmud Abbas (aka Abu Mazen) Prime Minister. On April 14, Sharon acknowledged that Israel would have to part with some places bound up in the history of the Jewish people, but insisted that the Palestinians recognize the Jewish people‘s right to its homeland and abandon their claim of a right of refugees to return to Israel [36]. Also on April 14, Israel submitted 14 reservations on the Road Map [37]. On April 30, the Quartet officially presented the Road Map. Abbas accepted it. On May 23, the Bush Administration stated that Israel had explained its concerns and that the United States shares the view ―that these are real concerns and will address them fully and seriously in the implementation of the Road Map,‖ leading Sharon and his cabinet to accept ―steps defined‖ in the Road Map ―with reservations‖ on May 25. The next day, Sharon declared, ―to keep 3.5 million people under occupation is bad for us and them,‖ using the word occupation for the first time. On June 4, President Bush met Abbas and Sharon in Aqaba, Jordan. Abbas vowed to achieve the Palestinians‘ goals by peaceful means, while Sharon expressed understanding of ―the importance of territorial contiguity‖ for a viable Palestinian state and promised to ―remove unauthorized outposts‖ in the West Bank. Abbas said that he would use dialogue, not force, to convince Palestinian groups. On June 29, Hamas and Palestine Islamic Jihad (PIJ) suspended military operations against Israel for three months, while Fatah declared a six-month truce. Israel was not a party to the accord, but began withdrawing forces from Gaza. Abbas asked Sharon to release Palestinian prisoners, remove roadblocks, withdraw from more Palestinian cities, allow Arafat free movement, and end construction of a security barrier that Israeli is building in the West Bank. Israel demanded that the Palestinians dismantle terrorist infrastructures and act against terrorists. Neither fulfilled the other‘s request. On August 6, Israel released 339 prisoners. On August 19, a Hamas suicide bomber exploded in Jerusalem, killing 22, including 5 Americans, and injuring more than 130. Abbas cut contacts with Hamas and the PIJ, and unsuccessfully sought Arafat‘s support to act against terrorists. Israel suspended talks with the Palestinians, halted plans to transfer cities to their control, and resumed ―targeted killings‖ of terrorist leaders, among other measures. On September 6, Abbas resigned because of what he charged was lack of support from Arafat, the United States, and Israel. On October 15, a bomb detonated under an official U.S. vehicle in Gaza, killing three U.S. security guards and wounding a fourth. Palestinian authorities arrested members of Popular Resistance Committees, who would be freed in April 2004. Sounds of discontent with government policy were heard in Israel, culminating in the signing of the Geneva Accord, a Draft Permanent Status Agreement by Israeli opposition politicians and prominent Palestinians on December 1. [38] Perhaps partly to defuse these

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efforts, on December 18, Sharon declared that, ―to ensure a Jewish and democratic Israel,‖ he would unilaterally disengage from the Palestinians by redeploying Israeli forces and relocating settlements in the Gaza Strip and intensifying construction of the security fence in the West Bank [39]. On February 13, 2004, the White House said that an Israeli pullback ―could reduce friction,‖ but that a final settlement ―must be achieved through negotiations.‖ After an upsurge in violence, Israeli missiles killed Hamas leader Shaykh Ahmed Yassin on March 22. On April 14, President Bush and Sharon met and exchanged letters [40]. The President welcomed Israel‘s plan to disengage from Gaza and restated the U.S. commitment to the Road Map. He noted the need to take into account changed ―realities on the ground, including already existing major Israeli population centers,‖ (i.e., settlements), asserting ―it is unrealistic to expect that the outcome of final status negotiations will be full and complete return to the armistice lines of 1949.‖ The President stated that a solution to the refugee issue will be found by settling Palestinian refugees in a Palestinian state, ―rather than in Israel,‖ thereby rejecting a ―right of return.‖ He called for a Palestinian state that is ―viable, contiguous, sovereign, and independent.‖ Sharon presented his disengagement plan as independent of but ―not inconsistent with the Road Map.‖ He said that the ―temporary‖ security fence that Israel is constructing in the West Bank would not prejudice final status issues including borders. A day before, he had identified five large West Bank settlements and an area in Hebron that Israel intends to retain and strengthen. Palestinians denounced the President‘s ―legitimization‖ of settlements and prejudgment of final status. On April 18, Sharon‘s chief of staff Dov Weissglas gave National Security Adviser Condoleezza Rice a written commitment to dismantle illegal settlement outposts [41]. Israel has not fulfilled this commitment. On June 6, Israel‘s cabinet approved a compromise disengagement plan whereby Israel would evacuate all 21 settlements in the Gaza Strip and 4 settlements in the northern West Bank. On June 30, the Israeli High Court of Justice upheld the government‘s right to build a security fence in the West Bank, but struck down some land confiscation orders for violating Palestinian rights and ordered the route to be changed. In subsequent rulings, the Israeli Court has attempted to balance Israel‘s security needs and the humanitarian claims of Palestinians and has sometimes required that the barrier be rerouted. On July 9, the International Court of Justice (ICJ) issued a non-binding, advisory opinion that the wall violates international law [42]. On October 6, Weissglas claimed that disengagement was aimed at freezing the political process in order to ―prevent the establishment of a Palestinian state and a debate regarding refugees, borders, and Jerusalem.‖ [43]. Yasir Arafat died on November 11. Mahmud Abbas became Chairman of the PLO and, on January 9, 2005, was elected President of the PA. He called for implementing the Road Map while beginning discussion of final status issues and cautioned against interim solutions to delay reaching a comprehensive solution. Secretary Rice visited Israel and the PA on February 7. She praised the Israelis‘ ―historic‖ disengagement decision, discussed the need to carry out obligations concerning settlements and outposts, and warned them not to undermine Abbas. She appointed Lt. Gen. William Ward as Middle East Security Coordinator and emphasized the importance of IsraeliPalestinian security cooperation for the disengagement. (Lt. Gen. Keith W. Dayton succeeded Ward in November 2005.)

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On February 20, Israel‘s cabinet adopted a revised route for the security fence closer to the pre- 1967 border in some areas, taking about 7% to 8% of the West Bank that includes major settlement blocs. On March 16, Israel transferred Jericho to the PA. On March 17, 13 Palestinian groups agreed to extend a ―calm‖ or informal truce until the end of the year. On March 21, Israeli forces transferred Tulkarem to the PA. On March 20, it was reported that Israel‘s defense minister had approved the building of 3,500 new housing units between the Ma‘ale Adumim settlement and East Jerusalem, in the E-1 corridor. Critics charge that the construction would cut East Jerusalem off from Palestinian territory, impose a barrier between the northern and southern West Bank, and prevent a future contiguous Palestinian state. Secretary Rice asserted that the plan was ―at odds with American policy.‖ On April 11, President Bush conveyed to Sharon his ―concern that Israel not undertake any activity that contravenes Road Map obligations or prejudices final status negotiations.‖ Sharon responded, ―It is the position of Israel that the major Israeli population centers will remain in Israel‘s hands under any final status agreement,‖ declared that Ma‘ale Adumim is a major population center, and, therefore, Israel is interested in contiguity between it and Jerusalem. On May 26, President Bush met Abbas and said that ―changes to the 1949 armistice lines must be mutually agreed to.‖ Bush reaffirmed, ―A viable two-state solution must ensure contiguity of the West Bank, and a state of scattered territories will not work. There must also be meaningful linkages between the West Bank and Gaza. This is the position of the United States today, it will be the position of the United States at the time of final status negotiations.‖ He also said, ―The barrier being erected by Israel ... must be a security, rather than political, barrier.‖ Abbas stated that the boundaries of a future state should be those of before the 1967 war and that ―there is no justification for the wall and it is illegitimate.‖ Palestine Islamic Jihad (PIJ) claimed responsibility for a suicide bombing in Netanya on July 12, killing 5 and injuring more than 90. Israeli forces launched operations against the PIJ, reoccupied Tulkarem, and closed the West Bank. Meanwhile, Hamas increased rocket and mortar fire against settlements in Gaza and towns in southern Israel in order to show that disengagement meant that Hamas was forcing Israel to withdraw from the Strip. On August 15, Defense Minister Shaul Mofaz said that Israel would keep the settlement blocs of Ma‘ale Adumim, the Etzyon Bloc, Efrat, Ari‘el, Qedumim-Qarney Shomrom, and Rehan Shaqed—all are within or expected to be on Israel‘s side of the security barrier. Mofaz added that Israel would retain the Jordan Rift Valley to guarantee Israel‘s eastern border [44]. Israel evacuated all settlements in the Gaza Strip and four small settlements in the northern West Bank between August 17 and August 23. On August 29, Sharon declared that there would be no further disengagements and that the next step must be negotiations under the Road Map. He noted that while large settlement blocs would remain in Israeli hands and linked territorially to Israel, not all West Bank settlements would remain, This would be decided in the final stage of negotiations. On September 27, Hamas claimed responsibility for kidnapping and killing an Israeli settler in the West Bank. Israel responded with air and artillery strikes, closure of charities linked to terror groups, mass arrests including likely Hamas candidates in Palestinian parliamentary elections, and targeted killings of terrorists. On October 20, President Bush pressed Abbas to ―confront the threat armed gangs pose to a genuinely democratic Palestine,‖ but did not urge him to prevent Hamas from participating in parliamentary elections or to

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request that candidates renounce violence. Abbas said that they would be asked to renounce violence after election. On October 26, a PIJ suicide bomber killed 6 and wounded more than 20 in Hadera, on the Israeli coast. Sharon announced an offensive against terrorism. He ruled out talks with Abbas until Abbas takes ―serious action‖ against armed groups. On November 14-15, Secretary Rice visited Israel and the PA. Sharon told her that Israel would not interfere if Hamas participated in the January 2006 Palestinian legislative elections, but warned that if an armed terrorist organization is a partner in the Palestinian administration it could lead to the end of the Road Map. Rice asserted that it would be easier to compel Hamas to disarm after the elections because the entire international community would then exert pressure. Rice vowed not to have contacts with an armed Hamas even if it were part of the Palestinian administration. On November 15, she announced that Israel and the PA had reached an Agreement on Movement and Access from the Gaza Strip. On December 5, PIJ perpetrated another suicide bombing in Netanya. Israel barred Palestinians from entering Israel for one week, arrested militants in the West Bank, began air strikes in Gaza, and did not hold scheduled talks with the PA about West Bank-Gaza bus convoys foreseen in the November 15 agreement. After Hamas‘s victories in December 2005 Palestinian municipal elections, speculation increased about possible effects on the peace process if Hamas were similarly successful in January 25, 2006, parliamentary elections. On December 28, the Quartet stated that a future Palestinian cabinet ―should include no member who has not committed to the principles of Israel‘s right to exist in peace and security and an unequivocal end to violence and terrorism.‖ [45]. On January 11, Secretary Rice declared, ―It remains the view of the United States that there should be no place in the political process for groups or individuals who refuse to renounce terror and violence, recognize Israel‘s right to exist, and disarm.‖ On January 4, 2006, Prime Minister Sharon suffered an incapacitating stroke and Deputy Prime Minister Ehud Olmert became Acting Prime Minister. On January 12, Olmert told President Bush that peace efforts could not progress if Hamas joined the Palestinian government. Hamas won the January 25 Palestinian parliamentary elections. It is a U.S.-designated Foreign Terrorist Organization (FTO), claims the entire land of Palestine, including Israel, ―from the [Jordan] river to the [Mediterranean] sea‖ as an Islamic trust, rejects the Oslo agreements of the 1990s, insists on the right of Palestinian refugees to return to Israel, and on the right to ―resistance,‖ which it claims forced Israel from the Gaza Strip [46]. Olmert declared that Israel would not negotiate with a Palestinian administration that included an armed terrorist organization calling for its destruction and demanded that Hamas disarm, annul its Covenant that calls for the destruction of Israel, and accept all prior agreements. President Bush stated that the United States would not deal with a political party ―that articulates the destruction of Israel as part of its platform.‖ On January 30, the Quartet stated that ―future assistance to any new (Palestinian) government would be reviewed by donors against the government‘s commitment to the principles of non-violence, recognition of Israel, and acceptance of previous agreements and obligations, including the Road Map‖ [47]. Hamas countered that it would never recognize Israel, would consider negotiating a ―long-term truce‖ if Israel withdrew to its 1967 borders, released all prisoners, destroyed all settlements, and recognized the Palestinian refugees‘ right

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to return (to Israel), and would create a state on ―any inch‖ of Palestinian territory without ceding another. On February 8, Olmert said that Israel was moving toward a separation from the Palestinians and permanent borders that would include a united Jerusalem, major settlement blocs, and the Jordan Valley. Palestinian Prime Minister-designate Ismail Haniyah of Hamas declared, ―Let them withdraw. We will make the Authority stronger on every inch of liberated land....‖ Damascus- based Hamas Political Bureau Chairman Khalid Mish‘al said that his group would make no concessions and would ―practice resistance side by side with politics as long as the occupation continued.‖ After his Kadima party placed first in the March 28 Israeli parliamentary elections, Olmert said that he aspired to demarcate permanent borders for a Jewish state with a permanent Jewish majority and a democracy. He called for negotiations based on mutual recognition, agreements already signed, the principles of the Road Map, a halt to violence, and the disarming of terrorist organizations. Haniyah said that Hamas would not object to Abbas negotiating with Israel. In an op-ed in (the British newspaper) The Guardian on March 31, Haniyah appealed for no more talk about recognizing Israel‘s ―right to exist‖ or ending resistance until Israel commits to withdraw from the Palestinians‘ lands and recognizes their rights. On April 9, the Israeli security cabinet recommended severing all ties with the Hamas-led PA, which it called a ―hostile entity.‖ Because it viewed the PA as ―one authority and not as having two heads,‖ the cabinet declared that there could be personal contacts, but not negotiations, with President Abbas. On April 17, PIJ carried out a suicide bombing in Tel Aviv, killing 11 and wounding 60, including an American teenager. Abbas condemned the attack as ―despicable‖ and counter to Palestinian interests, while Hamas officials called it an act of ―self-defense.‖ On April 26, Abbas called for an immediate international peace conference with himself as the Palestinian negotiator. He claimed that the Hamas-led government was not an obstacle to negotiations because the PLO, which he heads, had the mandate to negotiate as it had all previous agreements. He also noted that he was empowered as the democratically elected leader of the Palestinians. On May 4, a new Israeli government took office, with guidelines vowing to strive to shape the permanent borders of the State of Israel as a democratic state, with a Jewish majority. Prime Minister Olmert asserted that the security fence would be adapted to conform to borders. The PLO rejected the Olmert plan as aimed at undermining the Palestinian people‘s right to a state on all territories occupied in 1967, with Jerusalem as its capital. On May 10, imprisoned Fatah, Hamas, and other officials drafted a ―National Accord Document‖ calling for a Palestinian state with Jerusalem as its capital, the right of the return of refugees, and the release of all prisoners. It also called for renewing the PLO and for Hamas and PIJ to join it, supported the right to resist the occupation in lands occupied in 1967, and stated that the PLO is responsible for negotiations and that any agreement should be put to a vote by the Palestinian National Council or a referendum [48]. Abbas accepted the document, but Hamas rejected its implied recognition of pre-1967 Israel. On May 23, at the White House, President Bush accepted that Olmert‘s ideas for removing Israeli settlements could lead to a two-state solution if a pathway to progress on the Road Map is not open in the period ahead. Olmert said that he had presented ideas for a ―realignment‖ in the West Bank to ―reduce friction between Israelis and Palestinians, ensure

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territorial contiguity for the Palestinians, and guarantee Israel‘s security as a Jewish state with the borders it desires‖ [49]. Violence increased between Gaza and Israel. The Hamas military wing and other groups repeatedly launched rockets at Sderot in southern Israel, and Israel responded with artillery fire and air strikes. On June 10, Hamas called off its 16-month truce in response to the deaths of Palestinian civilians on a Gaza beach from Israeli artillery fire on June 9. Israel denied responsibility for the deaths, but Israeli strikes caused other Palestinian civilian casualties as well. On June 13, Olmert told a group of British parliamentarians that, even with negotiations, ―Israel will never agree to withdraw from the entire West Bank because the pre-1967 borders are not defensible.‖ He asserted that Israel would withdraw from approximately 90% of the West Bank and observed that not all of Jerusalem‘s Arab neighborhoods would be part of the future Jewish capital [50] On June 28, Palestinian factions agreed on a revised National Accord Document. The Document stated that the PLO and the President of the PA will be responsible for negotiations to create a state on territories occupied by Israel in 1967. It changed the May draft to say that, in tandem with political action, resistance will be concentrated in (but not limited to) territories occupied in 1967. Signatories vowed to work toward establishing a national unity government. [51] PIJ rejected the Document, while Hamas officials insisted that it did not require them to recognize Israel or to accept two states. Israel‘s Foreign Ministry noted that the Document did not mention recognizing Israel‘s right to exist or ending the conflict with Israel and argued that the return of all refugees is a formula for the destruction of Israel, contradicting a two-state solution [52]. On June 25, members of the Hamas military wing, the Popular Resistance Committees, and the previously unknown Army of Islam had attacked Israeli forces in Israel, just outside of Gaza, killing two soldiers, wounding four, and kidnapping Corporal Gilad Shalit. On June 27, after unsuccessful diplomatic efforts to secure Shalit‘s release, Israel forces began a major operation to rescue him, to deter attacks, and to weaken, bring down, or change the conduct of the Hamas-led government. Israeli officials claimed that Hamas had crossed a ―red line‖ with the kidnapping and attack within pre-1967 Israel. On June 29, Israel forces arrested 64 Palestinian (Hamas) cabinet ministers, parliamentarians, and other Hamas officials in the West Bank and Jerusalem. On July 1, the kidnappers demanded 1,000 prisoners in exchange for the Israeli soldier. The next day, Israeli missiles destroyed the offices of the Palestinian Prime Minister. Israeli troops and tanks began sweeping northern Gaza to locate tunnels and explosives near the border and continued targeting Hamas offices in the West Bank. Hamas fired an upgraded rocket at the Israeli port city of Ashkelon prompting the Israeli cabinet to approve ―prolonged‖ activities against Hamas. Diplomatic efforts were undertaken to resolve the crisis. On July 10, Hamas official Mish‘al insisted on the mutual release (―swap‖) of prisoners. Olmert rejected ―trading prisoners with a terrorist bloody organization such as Hamas,‖ adding that to negotiate with Hamas would signal that moderates such as President Abbas are not needed. The White House spokesman said that Hamas had been ―complicit in perpetrating violence‖ and that Israel had a right to defend itself. Although sidelined by the kidnapping, President Abbas tried to assert his power. He said that the National Accord Document would be implemented and discussed forming a national

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unity government with Hamas officials. On September 21, Abbas told the U.N. General Assembly that any future Palestinian government would commit to all prior agreements, particularly the September 1993 mutual recognition of Israel and the PLO [53]. Haniyah differed, declaring, ―I personally will not head any government that recognizes Israel.‖ Abbas concluded that efforts to form a unity government had ―gone back to point zero.‖ On October 31, Israeli forces began a six-day incursion into Beit Hanoun in the northern Gaza Strip to stop Palestinian rocket fire; it resulted in heavy Palestinian casualties and did not stop rockets. After it ended, on November 8, an errant Israeli artillery barrage killed 20 and wounded many more, prompting international outcries. On November 25, Olmert and Abbas agreed to a cease-fire in Gaza. Hamas said that it would respect the accord, but other groups would not. The cease-fire nonetheless produced less rocket fire and shooting along the border. On November 27, Olmert said if the Palestinians established a new government committed to carrying out the Quartet‘s principles, one that will implement the Road Map and bring about the release of the kidnapped soldier, then he would enter a dialogue with Abbas to establish an independent, viable Palestinian state with territorial contiguity and borders outlined by President Bush in his April 14, 2004, letter to Prime Minister Sharon. Olmert said that Israel would ―free many Palestinian prisoners, including ones sentenced to long prison terms,‖ upon the release of the soldier, increase freedom of movement in the territories and across the borders, and release Palestinian funds it had stopped transferring to the PA when Hamas took power. He emphasized that Israel would agree ―to evacuate many areas and settlements‖ in exchange for true peace, and called on the Palestinians to recognize Israel‘s right to live in peace and security alongside them and renounce their demand for the right of return‖ [54]. Although Abbas could not meet Olmert‘s preconditions, the Israeli government and Bush Administration viewed him as the only partner for a peace process and took steps to bolster him in his contest with Hamas for control of the PA. On December 23, Olmert promised to hand over $100 million in tax revenue to Abbas for humanitarian purposes, to ease crossings of goods and people between Israel and the Gaza Strip, and to remove some military checkpoints in the West Bank [55]. On January 5, 2007, Olmert asserted that Israel should deal with Palestinians who are genuinely interested in peace and fight against radical forces. To that end, Israel had authorized Egypt‘s transfer of arms and ammunition to security forces allied with Abbas in Gaza in late December. On January 9, the Egyptian Foreign Minister asserted that there is a common Egyptian, Jordanian, Arab, and Palestinian position that an agreement on the ―end game‖ is needed before resuming the Road Map. Seeming to follow this line, Secretary Rice said that she would discuss ―the broad issues on the horizon, so that we can work on the Road Map‖ with Olmert and Abbas. (The Administration reportedly had promised the ―moderate‖ Arab regimes that it would become more engaged in the peace process in exchange for their support in countering increased Iranian influence in the region.) [56]. On February 8, Abbas designated Haniyah to form a new unity government and called on him to ―respect international resolutions and agreements‖ signed by the PLO, that is, prior accords reached with Israel (italics added because it is not accept). Abbas‘s letter of designation resulted from the Mecca Accord reached at a meeting of Abbas and Hamas Political Bureau Chief Mish‘al hosted by Saudi King Abdullah. The Accord aimed mainly to

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stop Palestinian factions‘ infighting and unite them in a new government; it did not refer to Israel or to the Quartet‘s demands [57]. On February 19, Secretary Rice met Olmert and Abbas in Jerusalem to discuss the Mecca Accord. Afterwards, Olmert said Israel would continue to boycott the Palestinian government until it met the Quartet‘s demands, ended rocket attacks from Gaza, and released Shalit. Israel would not have contact with moderates in a government that does not meet the Quartet‘s conditions, but would maintain contact with Abbas in order to limit terror and ease Palestinian daily life. Olmert rejected negotiating with Abbas because doing so, he said, would free Hamas of the requirement to recognize Israel. On March 11, Olmert and Abbas met in Jerusalem. Olmert would only discuss quality-of-life issues. Palestinians described the meeting as ―very frank and very difficult.‖ The 2002 Arab Peace Initiative was revived [58]. Following his widely reported but officially unconfirmed meeting with Saudi National Security Advisor Prince Bandar in September 2006, Olmert had noted in November 2006 that ―some parts of the Saudi Peace Initiative are positive‖ [59]. On March 11, Olmert again stated that the Saudi Initiative, on which the Arab Peace Initiative is based, is ―a plan that we are ready to address seriously‖ and has ―positive elements.‖ Olmert expressed hope that these elements would be strengthened at an Arab League summit in Saudi Arabia, on March 28. On March 15, a Palestinian unity government was formed, with a program confirming the Palestinian people‘s ―legitimate‖ right of resistance, insisting that halting resistance depends on ending the occupation, the right of refugees to return to their land and belongings, and independence. The government asserted that it ―respects‖ international resolutions and agreements signed by the PLO. At the same time, it said that it would work to consolidate the calm in Gaza, extend it to the West Bank, and transform it into a comprehensive and mutual truce. On March 17, Prime Minister Haniyah vowed to work to establish an independent Palestinian state, with Jerusalem as its capital, along the 1967 borders [60]. Hamas said that it would not recognize Israel‘s right to exist alongside that state. The government program authorized President Abbas to negotiate with Israel. In response, the Israeli cabinet voted to shun all contact with the new Palestinian government until it met the Quartet‘s demands that it renounce violence, recognize Israel, and accept all prior accords with Israel, and called on the international community to maintain the aid embargo. The Bush Administration decided to deal with individuals in the PA government on a case-by-case basis. On March 21, Secretary Rice asserted, ―We will not suspend our contacts with those in the Palestinian government who have a record of fighting for peace‖ [61]. A State Department spokesman said that the aid embargo would continue until the new government meets the Quartet‘s demands. The Arab summit in Saudi Arabia, March 28-29, reiterated adherence, without changes, to the Arab Peace Initiative and called for direct negotiations on all tracks. Abbas voted for the Initiative, while Haniyah abstained. The Israeli Foreign Ministry stated, ―Israel is sincerely interested in pursuing dialogue with those Arab states that desire peace with Israel‖ in order to promote a process of normalization. Prime Minister Olmert welcomed the Arabs‘ ―revolutionary change in outlook‖ that represented ―a new way of thinking, the willingness to recognize Israel as an established fact and to debate the conditions of the future solution‖ and invited all Arab heads of state, including the King of Saudi Arabia, to meet [62]. On April 28, the Arab League named a working group to present their view, and the group designated Egypt and Jordan to contact Israel. Israel expressed disappointment that League members

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with no formal ties to Israel would not be involved, but a spokeswoman said that Israel would be ―happy to hear the ideas.‖ In May, factional fighting in Gaza between Fatah and Hamas escalated. Later, six days of intense infighting ended with Hamas in complete control of the Gaza Strip by June 14. President Abbas declared a state of emergency, dissolved the unity government, dismissed Haniyah, and named technocrat Salam Fayyad prime minister. Hamas claimed that the decrees were illegitimate and that Haniyah was still head of government. Each side accused the other of perpetrating a coup. Secretary Rice endorsed Abbas‘s actions. On June 18, President Bush told Abbas that he was open to restarting peace talks to stabilize the situation. Israeli officials asserted that the elimination of Hamas from the Palestinian government opened ―new possibilities for cooperation‖ and a diplomatic process. On June 25, Olmert, Abbas, Egypt‘s President Mubarak, and Jordan‘s King Abdullah II met in Sharm al Shaykh, Egypt. Abbas called on Olmert to start serious negotiations. Olmert admitted that ―there is an opportunity to renew the peace process,‖ but only agreed to resume biweekly meetings with Abbas to create conditions leading to discussions on a Palestinian state. Olmert said that he would release 250 Palestinian prisoners, transfer tax revenues owed to the PA, resume security cooperation, and ease restrictions on freedom of movement in the West Bank. On July 1, Israel transferred $118 million to the PA and, on July 20, released 256 prisoners. It also granted clemency to 178 members of the Al Aqsa Martyrs‘ Brigades who turned in their weapons and were to be integrated into the Palestinian security force, and Israeli troops scaled back operations in the West Bank. On June 27, the Quartet announced the appointment of former British Prime Minister Tony Blair as their Representative to help the Palestinians build the institutions and economy of a viable state in Gaza and the West Bank. Olmert and Abbas met in Jerusalem on July 16. On July 25, Olmert confirmed that they would work on an ―agreement on principles‖ to include the characteristics of a state, its official institutions, its economy, and customs arrangements with Israel. Olmert favored leaving ―final status‖ issues for the end of negotiations. Abbas preferred putting the ―end game‖ first: a Palestinian state within 1967 borders, the status of Jerusalem, and the fate of refugees, and implementation afterwards. Olmert warned Abbas that a revived Fatah-Hamas unity government would end the diplomatic process. New Palestinian Prime Minister Fayyad presented his government‘s program on July 27. It states that the government will seek to establish a state on all lands occupied by Israel in 1967, with Jerusalem as its capital and a just and agreed solution for Palestinian refugees, but does not refer to armed struggle or resistance, rather to ―popular struggle against the Israeli occupation‖ [63]. The Bush Administration tried to show the Palestinian people that they have a choice ―between the kind of chaos under Hamas in Gaza and the prospect, under President Abbas and Prime Minister Fayyad, for an effective, democratic Palestinian state,‖ according to National Security Advisor Stephen Hadley [64]. On July 16, President Bush promised to support the reforms of Abbas and Fayyad in order to lay the foundations for serious negotiations for a Palestinian state. He called for an ―international meeting this fall of representatives from nations that support a two- state solution, reject violence, recognize Israel‘s right to exist, and commit to all previous agreements between the parties‖ [65]. Olmert and Abbas worked for several months on principles to present to a U.S.-initiated international meeting in Annapolis, MD, on November 27, 2007. Abbas pressed for a

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framework for a substantive agreement on ―core issues,‖ formerly referred to as ―final status issues,‖ as well as for a timetable for implementation, mechanisms for implementation, and monitoring. At first, Olmert emphasized day-to-day issues, but then agreed to discuss core issues, while retaining his desire for a vague declaration without a timetable that would enable him to hold his coalition government together. On September 10, Olmert and Abbas agreed to set up negotiating teams for a two-state solution and ministerial committees to work on security, communications, economic cooperation, water rights, environmental issues, and the like, and later appointed Foreign Minister Tzipi Livni and former Prime Minister Ahmad Quray (aka Abu Ala) to head the teams. Secretary Rice described Annapolis as a meeting at which regional actors and the international community would rally around a bilateral vision of a two-state solution as well as help support the development of Palestinian institutions, economic development, and so forth [66]. Rice excluded Hamas from the process, saying ―If you‘re going to have a two-state solution, you have to accept the right of the other party to exist ... you‘re going to have to renounce violence.‖ On September 24, Olmert described Annapolis as a ―short international meeting intended to give international encouragement to the process that we initiated with the Palestinians.‖ He said that the goal was to increase support for Abbas and deepen Israel‘s ties with moderate Arab countries. Nonetheless, on October 15, Olmert suggested that it is legitimate to question whether Israel should retain outlying Palestinian neighborhoods in Jerusalem, seeming to prepare the Israeli public for concessions and raising the politically sensitive question of ―dividing‖ Jerusalem, which many Israelis and other Jews refer to as their ―eternal, undivided capital.‖ On November 12, Olmert told his cabinet that he did not view a freeze on all building on the West Bank to be part of the Road Map‘s requirements, but that Israel would not build new settlements or expropriate land and would raze illegal outposts [67]. This appeared to conform to Israel‘s policy on so-called ―natural growth,‖ whereby settlers would be allowed to build within the borders of existing settlements. The Palestinians demand a 100% settlement freeze, including ending natural growth, and others in the international community agree with this stance. At the Annapolis Conference on November 27, President Bush read a ―Joint Understanding‖ that dealt with the process of negotiations, not their substance [68]. In it, Olmert and Abbas express determination to ―immediately launch bilateral negotiations in order to conclude a peace treaty to resolve all core issues without exception, as specified in previous agreements.‖ They agree to engage in continuous bilateral negotiations in an effort to conclude an agreement before the end of 2008. The parties also commit to immediately implementing their respective obligations under the Road Map. The parties further commit to continue implementing the Road Map until they reach a peace treaty. Implementation of the future peace treaty will be subject to the implementation of the Road Map, as judged by the United States. The United States will monitor and judge fulfillment of Road Map commitments and lead a tripartite U.S.-Israeli-Palestinian mechanism to follow up on implementation. Also at Annapolis, Abbas called for resolving the refugee issue in accordance with U.N. General Assembly Resolution 194 and for negotiations on final status issues to be supported by a halt to all settlement activity, including natural growth, reopening closed Palestinian institutions in Jerusalem, removing settlement enclaves, lifting roadblocks, releasing prisoners, and facilitating the tasks of the PA in imposing law and order. He said that the

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Palestinians seek East Jerusalem as their capital. Abbas claimed that ending the occupation will eradicate the greatest excuse for terrorism [69]. Olmert asserted that Israel would base its positions not just on U.N. Security Council Resolutions 242 and 338, and the Road Map, but on President Bush‘s April 14, 2004 letter to former Prime Minister Sharon [70]. Both sides were able to appear successful at Annapolis. Israel succeeded in making implementation of any peace treaty dependent upon implementation of the Road Map and in avoiding a rigid timetable and deadline. Israelis also were pleased that President Bush called for Israel to be a homeland for the Jewish people, which the Palestinians have been reluctant to acknowledge because of its possible effect on the refugee issue, and for ending settlement expansion, but not for a freeze [71]. Palestinians were able to remove Road Map implementation as a precondition for final status negotiations, obtained a one-year target date, and involved United States as ―judge‖ of the parties‘ fulfillment of their commitments. Deposed (Hamas)Prime Minister Haniyah asserted that concessions made by the Palestinian delegation at Annapolis would not be binding. General James L. Jones (Ret.) was named special envoy for Middle East security to oversee the full range of security issues for the Israelis and Palestinians and security cooperation with neighboring countries. He was tasked to design and implement a new U.S. plan for security assistance to the PA, and not to monitor compliance with the Road Map nor to replace Lt. Gen. Keith Dayton, the U.S. Middle East Security Coordinator, who had been assisting the Palestinians with improving their security forces. Gen. Jones was based in Washington and continued his full time employment at the U.S. Chamber of Commerce. On December 2, Israel published tenders for the construction of 307 new housing units in the settlement of Har Homa (Jabal abu Ghneim) in East Jerusalem. Israel maintained that, unlike the West Bank, Jerusalem is not part of the requirements of the Road Map, and that Israel would retain Har Homa in any peace accord. The PA condemned the decision and Secretary Rice criticized it, asserting, ―We are in a time when the goal is to build maximum confidence with the parties and this doesn‘t help.... There should not be anything which might prejudge final status negotiations.‖ [72]. Formal peace cted his ministers to seek authorization from him and Defense Minister Barak for ―construction, new building, expansion, preparation of plans, publication of residency tenders, and confiscation of land stemming from settlement activities in the West Bank‖ [73]. The order did not apply to construction that had already been approved, to Jerusalem, or major settlement blocs. On February 12, 2008, the Israeli Housing Minister unveiled plans to build 1,120 new apartments in East Jerusalem. The Palestinians, who claim East Jerusalem as their future capital, condemned the action. Before President Bush‘s January 2008 visit to the Middle East, National Security Advisor Stephen J. Hadley summarized three tracks to build an enduring Israeli-Palestinian peace: negotiations between Israelis and Palestinians for an outline of an agreement for a Palestinian state; implementation of the Road Map; and building institutions of a Palestinian state. Later he would say that implementation of the Road Map and standing up the institutions of a state may take longer than negotiating the outlines of a state [74]. On January 9-10, President Bush visited Israel and the PA. On January 10, the President said that he believed that any peace agreement ―will require mutually agreed adjustments to the armistice lines of 1949 to reflect current realities and to ensure that the Palestinian state is viable and contiguous.‖ He added that new international mechanisms, including compensation, are needed to resolve the refugee issue. He observed that Jerusalem is ―one of the most difficult challenges on the road to peace,‖ but did not offer a remedy [75].

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Mr. Hadley emphasized the importance of a vision of a Palestinian state and moving toward it so that, at a ―moment of clarity,‖ the Palestinian people will choose whether they want to be part of an emerging state or under the rule of Hamas. Olmert emphasized that ―as long as there will be terror from Gaza it will be very, very hard to reach any peaceful understanding between us and the Palestinians‖ [76]. He opposed establishing two Palestinian states—a Hamas state in the Gaza Strip and a Fatah state in the West Bank [77]. On January 3, militants fired a Katyusha rocket with a longer range than usual from Gaza into northern Ashkelon, an Israeli coastal city. On January 15, Israeli forces killed 19 Palestinians, including three civilians, in operations in Gaza. President Abbas denounced the raid as ―a massacre,‖ and, for the first time in seven months, Hamas took credit for launching rockets into Israel. On January 17, in an effort to pressure Hamas to stop the rocket fire, Defense Minister Barak ordered the closing of border crossings from Israel into Gaza, halting supplies of fuel, leading to a major cut in electricity production from the Gaza power plant which affected water and sewage systems, hospitals, and food deliveries. Electricity deliveries from Egypt and Israel continued, and Israel said it would provide for emergency humanitarian needs. There was widespread international condemnation of Israel‘s action and Hamas vowed not to stop firing rockets. On January 23, tens of thousands of Palestinians poured out of Gaza into Egypt after Hamas militants blew holes in the border wall. Israeli officials expressed concern that more weapons would enter the Strip and called on Egypt to reestablish control over the border. According to the Egyptian foreign minister, his country wanted to reinstate arrangements for the Rafah crossing established under a 2005 agreement among Israel, Egypt, the PA, and the European Union (EU). Abbas offered to deploy his Presidential Guards to the border, but Hamas, which is physically in control of the Palestinian side of the border, insisted on participating in a new, purely Palestinian- Egyptian arrangement without an Israeli presence [78]. Abbas ruled out talks with Hamas until it gives up control of Gaza and accepts early elections. Egypt refused to cede control of the crossing to Hamas and resealed the border on February 3. A suicide bombing killed one and injured 23 in the Israeli town of Dimona on February 4. The Hamas military wing took credit and named perpetrators from the West Bank, intending to refute Israeli allegations that the bombers had crossed from Gaza into Egypt via the open border and then infiltrated from Egypt into Israel. It was the first suicide bombing in Israel in more than a year. Israel retaliated with air strikes that killed nine Hamas militants [79]. On February 13, Olmert suggested that, in order to avoid an impasse, it might be best to begin negotiating over borders rather than Jerusalem or refugees. On borders, he said, there are prior understandings and President Bush‘s April 14, 2004-letter to former Prime Minister Ariel Sharon to offer direction. Controversially, Olmert claimed an understanding with the Palestinians to delay talks on Jerusalem until the end of negotiations [80] Palestinian official Saeb Erekat responded, ―The border issue cannot advance without addressing Jerusalem‘s borders.‖ Meanwhile, Foreign Minister Livni said that the talks were proceeding according the principle that ―until everything is agreed on—nothing is agreed on‖ [81]. On January 24, the first battalion of approximately 700 Palestinian security forces crossed into Jordan to begin U.S. training for a new gendarmerie that is projected to be

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50,000 strong. The effort is central to U.S./PA plans to build institutions for an eventual Palestinian state. Violence continued. On March 6, an Arab resident of East Jerusalem killed eight students and wounded nine at a rabbinical seminary in West Jerusalem before an Israeli army officer killed him. A previously unknown group, the Martyrs of Imad Mughniyah (an Hezbollah operative killed in Damascus in February), claimed responsibility, although police attributed the attack to a lone gunman. Hamas ―blessed the operation,‖ while President Abbas condemned it. Several Palestinian groups, including the Hamas military wing, claimed responsibility for a sniper attack near the Israel-Gaza border that wounded an aide to Israeli Public Security Minister Avi Dichter on April 4. On April 9, Palestinian gunmen killed two Israeli civilian employees at the Nahal Oz fuel depot, from which fuel is piped into Gaza. Israeli forces killed two of the perpetrators and an Israeli tank fired at two others, but killed three civilians and others. Israel again suspended fuel shipments to Gaza and, later, Israeli missiles struck a Hamas training site, killing two. On April 16, Hamas claimed responsibility for ambushing and killing three Israeli soldiers in the Gaza Strip as well as the firing of more than 20 rockets into southern Israel; Israeli retaliatory strikes, including missiles, killed 19 Palestinians. The Hamas military wing claimed responsibility for an April 19th suicide car bombing and mortar ambush at the Kerem Shalom crossing between Israel and Gaza in which 13 Israeli soldiers were injured and the Palestinian perpetrators died. Israel retaliated with three airstrikes, killing seven Hamas militants. Five Palestinian groups claimed responsibility for killing two Israeli security guards in Tulkarem on the West Bank on April 25. Israel suspected that PIJ was responsible. On April 28, an Israeli operation against militants resulted in the deaths of a Palestinian mother and four children and the wounding of two other children. Palestinians charged that an Israeli tank shell or missile had struck the home, but an Israeli investigation suggested that they were the victims of explosions caused by Palestinian ammunition and not by a direct Israeli hit. As President Bush arrived in Israel to help celebrate its 60th anniversary on May 14, a rocket landed on a shopping mall in Ashkelon, injuring more than 30 people. PIJ and the Popular Resistance Committees claimed responsibility. Although the two sides agreed not to make public statements about the status of their negotiations and generally have kept this agreement, their officials have occasionally made remarks. On February 26, Abbas reported that committees on core (or final status) issues of water, borders, settlements, refugees, Jerusalem, and security had been formed. On April 18, Olmert maintained that no great gaps exist between him and Abbas ―with the exception of the subject of Jerusalem, which from the outset and by agreement was deferred to a later stage‖[82]. Olmert‘s comment about Jerusalem probably was made for domestic consumption as one of his coalition partners had threatened to and could have brought down his government if Jerusalem became a subject for negotiations. On May 6, however, the PLO Executive Committee (which Abbas chairs) claimed that the gap between the two sides was ―very wide‖ on all final status issues [83]. On May 14, Olmert spoke of the need to reach an ―understanding‖ that would define the parameters of a two-state solution, mentioning only the issues of borders, refugees, and security, and suggesting that it would only include ―a framework for how to deal later with the issue of Jerusalem.‖ This would change the approach of nothing is agreed until everything is agreed [84].

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On June 4, President Abbas called on Hamas to join ―a national and comprehensive dialogue‖ and offered early presidential and parliamentary elections if the talks succeed. He did not mention his previous precondition that Hamas give up control of Gaza before such talks. Abbas‘s frustrations with Israel‘s plans to expand settlements in East Jerusalem, which he specifically mentioned in his address, as well as his possible perception of insufficient progress in the peace talks may have prompted his opening to Hamas [85]. Alternatively, Abbas could not gain acceptance of or implement an accord with Israel without Hamas‘s concurrence and he acted toward that goal. Abbas appeared to back off from this outreach after Hamas‘s Political Bureau Chairman Mish‘al doubted Abbas‘s ability to commit himself to the results of a dialogue due to U.S. influence. The United States encouraged Egypt‘s efforts to achieve a tahdiyah (temporary truce, cease-fire, or calm) between Israel and Hamas. Egyptian General Omar Suleiman (alt: Umar Sulayman), who is in charge of intelligence services, mediated indirect talks. The issues involved were Palestinian rocket fire from the Gaza Strip into Israel, Israel‘s military operations in the Gaza Strip and West Bank and its blockade of Gaza; the border crossing at Rafah between Gaza and Egypt; Hamas‘s release of Cpl. Gilad Shalit; and Israel‘s release of Palestinian prisoners. A ceasefire to last for six months finally took effect on June 19. While Prime Minister Olmert insisted that ―Shalit‘s release is inseparable‖ from the understandings reached for the calm, Hamas maintained that it was not and that separate talks on a prisoner exchange continued. Hamas repeatedly increased the number of prisoners whose release it demands and the prisoner exchange negotiations stalled. It insisted that open border crossings were part of the cease-fire deal. On June 24, in the first breach of the truce, the PIJ fired three rockets into Israel after Israeli troops killed a PIJ leader in Nablus on the West Bank; Israel responded by closing the commercial crossings into Gaza. That pattern continued, with smaller groups, but not Hamas, firing rockets and Israel responding with short-term closures of the crossings. On July 24, the Israeli Defense Ministry approved the construction of 22 new homes in Maskiot, in the Jordan Valley of the West Bank near the border with Jordan, ending a freeze that had been in effect since January 2007. Palestinian officials condemned the move, while the White House stated that ―it undermines confidence across the board‖ [86]. The Israeli Interior Ministry reported that the number of settlers in the West Bank rose by 15,000 in 2007. The non-governmental Peace. Now organization reported that 2,600 new housing units for Israelis are under construction and that construction is 80% more than the prior year, while building in East Jerusalem is intensive [87]. On July 25, Secretary Rice said that there was still time for Israel and the Palestinians to ―reach agreement by the end of the year‖ [88]. However, on July 28, Olmert told a Knesset committee that it was impossible to reach a comprehensive agreement PA this year due to difficult negotiations on Jerusalem and that there were no ongoing negotiations about the city. He added that an agreement on other issues was within reach and that a clause defining a mechanism for dealing with Jerusalem in 2009 could be included. A spokesman for Abbas again responded that any agreement that excludes Jerusalem is unacceptable. On August 21, Palestinian negotiator Quray stated, ―I don‘t think that a peace agreement can be reached by the end of this year because of the difficulties the negotiations face and also because of the internal Israeli political crisis.‖

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On August 12, the Israeli newspaper Haaretz published what it said was the latest Israeli proposal for a final-status agreement. The offer called for Israel to withdraw from 93% of the West Bank and give Palestinians land equivalent to 5.5% of the West Bank in the Negev adjacent to the Gaza Strip to compensate for the less than 100% Israeli withdrawal from the West Bank. Israel would keep the major settlement blocs, settlements surrounding Jerusalem, and some land in the northern West Bank bordering Israel. Israel would immediately receive the settlement blocs, but the PA would receive the land near Gaza and free passage between Gaza and the West Bank only after it retakes control of Gaza. Other settlements in the West Bank would be evacuated in two stages. After an agreement in principle, a voluntary relocation of settlers, with compensation, would be implemented. Israel would remove the remaining (est. 70,000 to 80,000) settlers when the Palestinians are capable of carrying out the entire agreement. Israel also wants the Palestinian state to be demilitarized and only accepts a Palestinian (refugee) ―right of return‖ to the Palestinian state. The proposal does not deal with Jerusalem. Haaretz also reported that a Palestinian proposal called for a smaller land swap of about 2% of the West Bank and for Israel to annex only a few settlements [89]. Palestinian negotiator Saeb Erekat dismissed the Haaretz report as ―half-truths,‖ stating that the Palestinians were unaware of such a proposal and would not accept a solution that excludes Jerusalem and the ―right of return.‖ Abbas‘s spokesman stressed that he would not accept anything less that a Palestinian state with territorial contiguity, Jerusalem as its capital, free of settlements, and on the June 4, 1967 borders [90]. Quray declared that ―these leaks are untrue and were never put on the negotiating table.‖91 Abbas and Palestinian negotiators oppose interim or partial agreements and insist on a comprehensive agreement on everything or no agreement at all. In a September 10, interview with the Palestinian newspaper Al-Ayyam, U.S. Consul General in Jerusalem Jacob Walles said that Secretary Rice had tried to help the two sides clarify what they are negotiating about when they refer to the 1967 borders. He claimed that both had accepted that the West Bank, Gaza Strip, East Jerusalem, and part of the Dead Sea are the basis for negotiations.92 Walles‘s inclusion of Jerusalem appeared to contradict Prime Minister Olmert‘s insistence that negotiations had not started on Jerusalem. Olmert‘s office again claimed that there were no negotiations on Jerusalem, while Foreign Minister Livni stated that what Walles ―said was not correct.‖[93] On September 24, the same paper reported Quray saying that Palestinians reject Olmert‘s suggestion that an agreement excluding Jerusalem be reached. Quray also stressed that the Palestinians do not want the United States to offer suggestions for a solution. He called for the accomplishments of the negotiations to be carried over into the new Israeli and U.S. Administrations. He called for a comprehensive agreement to address all details so that ―there are no arguments when the implementation process starts‖ [94]. Livni said that the political situations in Israel and of President Abbas do not allow an agreement to be signed [95]. In an interview conducted on September 22 and published on September 29, Olmert stated that Israel would have to give up ―almost all‖ of the West Bank and accept the division of Jerusalem for the sake of reaching peace. He also said that the Palestinians must receive an equal amount of Israeli territory for any West Bank land that Israel retains. Abbas disclosed that the Israeli land swap offer is 6.8% in return for 5.5% and that he rejected ―offers that lead to discontinuous land areas and loss of control over water resources‖ [96]. On October 22, Israel and the PA reached an agreement to deploy about 550 U.S.-trained Palestinian police to Hebron.

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On October 26, Foreign Minister and Olmert‘s replacement as Kadima Party leader Livni reported that she had been unable to form a new coalition government, thereby triggering early national elections in Israel on February 10, 2009. After being briefed by President Abbas and Foreign Minister Livni, representatives of the international ―Quartet‖ issued a statement on November 10, 2008, saying ―The parties‘ representatives affirmed that, over the last year, they have engaged in direct, sustained, and intensive bilateral negotiations, based on a joint work plan that included the establishment of more than ten committees. They described how the parties have been actively engaged not only on core issues but on an array of other topics necessary to turn the two-state solution into reality .... (T)he representatives shared their assessment that the present negotiations are substantial and promising and they have succeeded in putting into place a solid negotiating structure for continued progress in the future.‖

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On December 16, the Quartet deemed that ―the bilateral process launched at Annapolis is irreversible and that these negotiations should be intensified in order to end the conflict....‖

Israel-Syria Syria seeks to regain sovereignty over the Golan Heights, 450 square miles of land along the border that Israel seized in 1967. Israel applied its law and administration to the region in December 1981, an act other governments do not recognize. Approximately 20,000 Israeli settlers reside in 33 settlements on the Golan. In 1991, Syria referred to its goal in the peace conference as an end to the state of belligerency, not a peace treaty, preferred a comprehensive Arab-Israeli peace, and rejected separate agreements between Israel and Arab states. Israel emphasized peace, defined as open borders, diplomatic, cultural, and commercial relations, security, and access to water resources. In 1992, Israel agreed that U.N. Security Council Resolution 242 (after the 1967 war) applies to all fronts, meaning that ―land for peace‖ includes the Golan. Syria submitted a draft declaration of principles, reportedly referring to a ―peace agreement,‖ not simply an end to belligerency. Israeli Prime Minister Yitzhak Rabin accepted an undefined withdrawal on the Golan, pending Syria‘s definition of ―peace.‖ On September 23, 1992, the Syrian Foreign Minister promised ―total peace in exchange for total withdrawal.‖ Israel offered ―withdrawal.‖ In 1993, Syrian President Hafez al Asad announced interest in peace and suggested that bilateral tracks might progress at different speeds. In June, U.S. Secretary of State Warren Christopher said that the United States might be willing to guarantee security arrangements in the context of a sound agreement on the Golan. On January 16, 1994, President Clinton reported that Asad had told him that Syria was ready to talk about ―normal peaceful relations‖ with Israel. The sides inched toward each other on a withdrawal and normalization timetable. Asad again told President Clinton on October 27 that he was committed to normal peaceful relations in return for full withdrawal. Asad never expressed his ideas publicly, leaving it to his interlocutors to convey them. On May 24, 1994, Israel and Syria announced terms of reference for military talks under U.S. auspices. Syria reportedly conceded that demilitarized and thinned-out zones may take topographical features into account and be unequal, if security arrangements were equal. Israel offered Syria an early-warning ground station in northern Israel in exchange for Israeli stations on the Golan Heights, but Syria insisted instead on aerial surveillance only and that

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each country monitor the other from its own territory and receive U.S. satellite photographs. It was proposed that Syria demilitarize 6 miles for every 3.6 miles Israel demilitarizes. Rabin insisted that Israeli troops stay on the Golan after its return to Syria. Syria said that this would infringe on its sovereignty, but Syrian government-controlled media accepted international or friendly forces in the stations. Talks resumed at the Wye Plantation in Maryland in December 1995, but were suspended when Israeli negotiators went home after terrorist attacks in February/March 1996. A new Israeli government led by Prime Minister Benjamin Netanyahu called for negotiations, but said that the Golan is essential to Israel‘s security and water needs and that retaining Israeli sovereignty over the Golan would be the basis for an arrangement with Syria. Asad would not agree to talks unless Israel honored prior understandings, claiming that Rabin had promised total withdrawal to the June 4, 1967-border, which gives Syria access to the northern shore of the Sea of Galilee (also known as Lake Tiberias or Lake Kinneret). That border differs from the international border of 1923 and the armistice line of 1949, which Damascus views as the results of colonialist or imperialist decisions [97]. Israeli negotiators say that Rabin had suggested possible full withdrawal if Syria met Israel‘s security and normalization needs, which Syria did not do. An Israeli law passed on January 26, 1999 requires a 61-member majority in the Knesset (parliament) and a national referendum to approve the return of any part of the Golan Heights. However, holding a referendum would depend on a passage of a Basic Law for Public Referenda, which has not been accomplished. In June 1999, Israeli Prime Minister-elect Ehud Barak and Asad exchanged compliments via a British writer. Israel and Syria later agreed to restart talks from ―the point where they left off,‖ with each side defining the point to its satisfaction. Barak and the Syrian Foreign Minister met in Washington on December 15-16, 1999, and in Shepherdstown, WV, from January 3-10, 2000. President Clinton intervened. On January 7, a reported U.S. summary revealed Israeli success in delaying discussion of borders and winning concessions on normal relations and an early-warning station. Reportedly because of Syrian anger over this leak, talks scheduled to resume on January 19, 2000 were ―postponed indefinitely.‖ On March 26, President Clinton met Asad in Geneva. A White House spokesman reported ―significant differences remain‖ and that it would not be productive for talks to resume. Barak indicated that disagreements centered on Israel‘s reluctance to withdraw to the June 1967 border and cede access to the Sea of Galilee, on security arrangements, and on the early-warning station. Syria agreed that the border/Sea issue had been the main obstacle. Asad died on June 10; his son, Bashar, succeeded him. Ariel Sharon became Prime Minister of Israel in February 2001 and vowed to retain the Golan. In a December 1 New York Times interview, Bashar al Asad said that he was ready to resume negotiations from where they broke off. Sharon responded that Syria first must stop supporting Hezbollah and Palestinian terror organizations [98]. On August 29, 2005, Sharon said that it was not the time to begin negotiations with Syria because it is collaborating with Iran, building up Hezbollah, and maintaining Palestinian terrorist organizations‘ headquarters in Damascus from which terrorist attacks against Israel are ordered. Moreover, he observed that there was no reason for Israel to relieve the pressure that France and the United States were putting on Syria (over its alleged complicity in the February 2005 assassination of former Lebanese Prime Minister Rafik Hariri). On June 28, 2006, Israeli warplanes caused sonic booms over President Asad‘s summer residence in Latakia to warn him to discontinue support for the Damascus-based head of the

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Hamas political bureau, Khalid Mish‘al, whom Israel considered responsible for a June 25 attack in Israel, and for other Palestinian terrorists. On July 3, Syrian Foreign Minister Walid al Muallem denied that Mish‘al had a role in the attack and said that Syria would never force him to leave the country. In a speech on August 15 to mark the end of the war in Lebanon, President Asad declared that the peace process had failed since its inception and that he did not expect peace in the near future [99]. Subsequently, he said that Shib‘a Farms (an area near where the Israeli, Syrian, and Lebanese borders meet) are Lebanese, but that the border between Lebanon and Syria there cannot be demarcated as long as it is occupied by Israel. The priority, he said, must be liberation [100]. Responding to speculation about reopening peace talks with Syria, Israeli Prime Minister Olmert said on August 21 that Syria must stop supporting terrorist organizations before negotiations resume. In September, he declared, ―As long as I am prime minister, the Golan Heights will remain in our hands because it is an integral part of the State of Israel.‖ [101]. He also indicated that he did not want to differ from the Bush Administration, which views Syria as a supporter of terror that should not be rewarded. On November 28, U.S. National Security Advisor Hadley concurred that as long as Syria is ―a supporter of terror, is both provisioning and supporting Hezbollah and facilitating Iran in its efforts to support Hezbollah, and is supporting Hamas,‖ then it is ―not on the agenda to bring peace and security to the region.‖ Hadley agreed that you cannot talk about negotiating with that Syria [102]. On December 6, the Iraq Study Group released a Report that included recommendations for changing U.S. policy toward the Arab-Israeli conflict because ―Iraq cannot be addressed effectively in isolation from other major regional issues.‖ It stated that the United States will not be able to achieve its goals in the Middle East unless it has a ―renewed and sustained commitment‖ to a comprehensive, negotiated peace on all fronts, including ―direct talks with, by, and between Israel, Lebanon, Palestinians (those who accept Israel‘s right to exist), and particularly Syria....‖ The Report recommended that Israel return the Golan Heights, with a U.S. security guarantee that could include an international force on the border, including U.S. troops if requested by both parties, in exchange for Syria‘s taking actions regarding Lebanon and Palestinian groups [103]. Olmert rejected any linkage to the situation in Iraq and believed that President Bush shared his view. In December, Asad and his Foreign Minister expressed interest in unconditional negotiations with Israel. Their statements deepened a debate in Israel over Syria‘s intentions. Olmert was skeptical of Asad‘s motives and demanded that Syria first end support for Hamas and Hezbollah and sever ties with Iran [104]. On January 17, 2007, Secretary Rice asserted that ―this isn‘t the time to engage Syria,‖ blaming Damascus for allowing terrorists to cross its territory to enter Iraq, failing to support Palestinians who believe in peace with Israel, and trying to bring down the Lebanese government [105]. On May 4, on the sidelines of a meeting on Iraq in Egypt, Secretary Rice met Foreign Minister Muallem. U.S. officials said that the meeting focused exclusively on Iraq. Some Israeli observers asked why Israelis should not have contacts with Syrians if U.S. officials could do so. On June 8, Israeli officials confirmed that Israel had sent messages to Syria signaling willingness to engage in talks based on the principle of land for peace and attempting to discern whether Damascus might be willing to gradually end its relations with Iran, Hezbollah, and Hamas in exchange.

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In a July 10 interview, Olmert said that he was willing to discuss peace with Asad, but complained that the Syrian only wants negotiations to be conducted via Americans, who do not want to talk to him [106]. On July 17, Asad called on Israel to make an ―unambiguous and official announcement‖ about its desire for peace and ―offer guarantees about the return of the land in full,‖ opening ―channels via a third party, but not direct negotiations.‖ This, he said, would lead to direct talks in the presence of an ―honest broker.‖ Those talks would be on security arrangements and relations, and not land. Asad asserted that he cannot negotiate with Israel because ―we do not trust them.‖ [107]. On July 20, Olmert called on Asad to drop preconditions which Israel cannot accept. On September 6, the Israeli Air Force carried out an air raid against a site in northeastern Syria. On September 12, a New York Times report alleged that the target may have been a nuclear weapons installation under construction with North Korean-supplied materials. Syrian and North Korean officials denied this allegation and, on October 1, President Asad claimed that an unoccupied military compound had been hit. On October 25, the International Institute for Science and International Security released satellite photos showing that a suspected reactor building had been razed and the site scraped, raising suspicions about the site‘s purpose. Syria has not retaliated for the air raid. On January 8, 2008, International Atomic Energy Agency (IAEA) Director General Mohamed El Baradei initially told a pan-Arab newspaper that, ―Based on satellite photographs, experts believe it is unlikely that the targeted construction was a nuclear facility‖ [108]. On January 12, 2008, it was reported that new satellite photos show construction at the site resembling the former building, which would cover the remains of the old one and possibly conceal its past [109]. Syria did not allow inspectors to visit the site until May. In November, the IAEA reported that the site bore features resembling a reactor and finding traces of uranium amid the ruins, but did not come to any conclusions. On February 24, 2009, a Syrian scientist told the IAEA that the site has been converted into a military installation for firing missiles. (See ―Role of Congress/Israeli Raid on Suspected Syrian Nuclear Site,‖ below, for additional information on this issue.) On September 23, 2007, Secretary Rice had expressed hope that participants in the Annapolis meeting would include the members of the Arab League Follow Up Committee, which is made up of 12 Arab governments, including Syria. On October 1, President Asad responded that his government would not attend unless the Golan Heights were discussed [110]. Syria‘s Deputy Minister of Foreign Affairs attended the conference and explained that his presence resulted from the inclusion of the return of the Golan on the agenda. In December, Secretary Rice declared that ―Annapolis was a chance we gave Syria and its test was the (presidential) elections in Lebanon. So far, the Syrians have failed completely.‖ For months, there was speculation about a revived Israel-Syria peace track as Professor Ahmet Davutoglu, a close foreign policy advisor to Turkish Prime Minister Recep Tayyip Erdogan, was reported to be carrying messages between Damascus and Jerusalem. Israeli officials repeatedly hinted that talks were afoot, acknowledging that the price of peace for Israeli would be the Golan Heights and hoping that it might be a way to distance Syria from Iran, Hezbollah, and Hamas [111]. On April 17, Prime Minister Olmert confirmed that the two sides had been in contact and, on April 24, President Asad revealed that Erdogan had informed him ―about Israel‘s readiness for a full withdrawal from the Golan Heights in return for a peace agreement with Israel.‖ Asad claimed that mediation had intensified after the Israel-Hezbollah war of 2006 and especially after Turkey became involved in April 2007. Reports said that Olmert had first

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discussed the possibility of mediation with Erdogan in Turkey in February 2007. Asad also asserted that there would be no direct negotiations, only those through Turkey. He maintained that direct talks require a U.S. sponsor and that Syria might discuss them ―with the next U.S. administration because this one has no vision or a will for the peace process.‖ [112] U.S. State Department spokesman Tom Casey has said that neither party has formally requested the United States to become directly involved. ―If Syria and Israel came to us, we‘d certainly consider the request‖ [113]. On May 21, Israel, Syria, and Turkey simultaneously announced that Israel and Syria had indeed launched peace talks mediated by Turkey. On May 19-21, negotiating teams had held indirect talks in Istanbul. The aim was to reach ―common ground‖ on issues relating to withdrawal, security arrangements, water, and normal peaceful relations from which to move toward direct negotiations. This initiative appeared contrary to the Bush Administration‘s policy of isolating Syria. However, the White House said that the Administration was not surprised by the trilateral announcement and did not object to it. Secretary Rice said, ―We would welcome any steps that might lead to a comprehensive peace in the Middle East .... We are working very hard on the Palestinian track. It doesn‘t mean that the U.S. would not support other tracks.‖ White House spokeswoman Dana Perino added, ―What we hope is that this is a forum to address various concerns that we all share about Syria – the United States, Israel, and many others – in regard to Syria‘s support for Hamas and Hezbollah (and) the training and funding of terrorists that belong to these organizations .... We believe it could help us to further isolate Iran....‖ [114]. On June 5, Secretary Rice thanked Turkey for sponsoring the indirect talks between Israel and Syria. Asad stated that direct talks are unlikely before 2009 and ―depend on the stability of the Israeli government....‖ [115] He said that eventually direct negotiations would tackle the details of water, relations, and other matters, but, when dealing with water, Syria would never compromise on the 1967 borders that stretch to Lake Tiberias (the Sea of Galilee). Referring to Israel‘s demands concerning Syria‘s relations with Iran and Hezbollah, Asad asserted, ―We do not accept the imposition of conditions on us that are linked to countries that have nothing to do with peace....‖ [116] On July 7, Asad told the French newspaper Le Figaro that he would not begin direct talks with Israel while President Bush is in office [117]. On September 4, President Asad disclosed that his representatives had transmitted proposals or principles for peace to serve as a basis for direct talks with Israel to Turkish mediators, but would wait for Israel‘s response before holding direct talks. He repeated that direct talks also await a new U.S. Administration. Asad stressed that ―Syria has no interest in relinquishing its ties with Hezbollah‖ [118]. He added that future negotiations depend on the next Israeli prime minister‘s commitment to pursuing peace. A fifth round of indirect talks was postponed ostensibly due to the resignation of Yoram Turbowicz, Olmert‘s chief of staff and negotiator with Syria. The Turkish government, which serves as mediator, said that Israel had made the request for a delay due to technical and legal problems. Syria‘s Deputy Foreign Minister Faysal Miqdad reported that Syria had asked the Israelis to express a final opinion about the line of withdrawal and insisted that it be on the June 4, 1967 border. Israeli military intelligence reportedly has concluded that, under the next U.S. administration, Syria would be willing to sign a peace accord with Israel if a return to the 1967 border is guaranteed and if it includes generous U.S. economic aid comparable to that which Egypt has received since signing a peace agreement with Israel. The analysts also

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believe that Syria would be willing to ―cool down‖ its relations with Iran as the price of an accord [119]. As a result of Israel‘s offensive against Hamas, Turkey officially ended its efforts to organize additional peace talks between Israel and Syria. The talks already had been suspended after four rounds primarily due to Israel‘s domestic political turmoil and imminent national election on February 10, 2009. On February 2, however, Foreign Minster Walid al Muallem said that Syria may resume indirect talks with Israel if its (February 10) elections bring forth a government willing to reach a comprehensive peace [120].

Israel-Lebanon Citing Security Council Resolution 425, Lebanon sought Israel‘s unconditional withdrawal from the 9-mile ―security zone‖ in southern Lebanon, and the end of Israel‘s support for Lebanese militias in the south and its shelling of villages that Israel claimed were sites of Hezbollah activity. Israel claimed no Lebanese territory, but said that its forces would withdraw only when the Lebanese army controlled the south and prevented Hezbollah attacks on northern Israel. Lebanon sought a withdrawal schedule in exchange for addressing Israel‘s security concerns. The two sides never agreed. Syria, which then dominated Lebanon, said that Israel-Syria progress should come first. Israel‘s July 1993 assault on Hezbollah prompted 250,000 people to flee from south Lebanon. U.S. Secretary of State Warren Christopher arranged a cease-fire. In March/April 1996, Israel again attacked Hezbollah and Hezbollah fired into northern Israel. Hezbollah and the Israeli Defense Forces agreed to a cease-fire and to refrain from firing from or into populated areas but retained the right of self-defense. The agreement was monitored by U.S., French, Syrian, Lebanese, and Israeli representatives. On January 5, 1998, the Israeli Defense Minister indicated readiness to withdraw from southern Lebanon if the second part of Resolution 425, calling for the restoration of peace and security in the region, were implemented. He and Prime Minister Netanyahu proposed withdrawal in exchange for security, not peace and normalization. Lebanon and Syria called for an unconditional withdrawal. As violence in northern Israel and southern Lebanon increased later in 1998, the Israeli cabinet twice opposed unilateral withdrawal. In April 1999, however, Israel decreased its forces in Lebanon and, in June, the Israeli-allied South Lebanese Army (SLA) withdrew from Jazzin, north of the security zone. On taking office, new Israeli Prime Minister Ehud Barak promised to withdraw in one year, by July 7, 2000. On September 4, 1999, the Lebanese Prime Minister confirmed support for the ―resistance‖ against the occupation, that is, Hezbollah. He argued that Palestinian refugees residing in Lebanon have the right to return to their homeland and rejected their implantation in Lebanon (which would upset its fragile sectarian balance). He also rejected Secretary of State Madeleine Albright‘s assertion that refugees would be a subject of Israeli-Palestinian final status talks and insisted that Lebanon be a party to such talks. On March 5, 2000, the Israeli cabinet voted to withdraw from southern Lebanon by July. Lebanon warned that it would not guarantee security for northern Israel unless Israel also withdrew from the Golan and worked to resolve the refugee issue. On April 17, Israel informed the U.N. of its plan. On May 12, Lebanon told the U.N. that Israel‘s withdrawal would not be complete unless it included Shib‘a Farms. On May 23, U.N. Secretary-General Kofi Annan noted that most of Shib‘a is within the area of operations of the U.N. Disengagement Observer Force (UNDOF) overseeing the 1974 Israeli-Syrian disengagement, and recommended proceeding without prejudice to later border agreements. On May 23, the

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SLA collapsed, and on May 24 Israel completed its withdrawal. Hezbollah took over the former security zone. On June 18, the U.N. Security Council agreed that Israel had withdrawn. The U.N. Interim Force in Lebanon (UNIFIL) deployed only 400 troops to the border region because the Lebanese army did not back them against Hezbollah [121]. On October 7, Hezbollah shelled northern Israel and captured three Israeli soldiers; then, on October 16, it captured an Israeli colonel. On November 13, the U.N. Security Council said that Lebanon was obliged to take control of the area vacated by Israel. On April 16 and July 2, 2001, after Hezbollah attacked its soldiers in Shib‘a, Israel, claiming that Syria controls Hezbollah, bombed Syrian radar sites in Lebanon. In April, the U.N. warned Lebanon that unless it deployed to the border, UNIFIL would be cut or phased out. On January 28, 2002, the Security Council voted to cut it to 2,000 by the end of 2002. In March 2003, Hezbollah shelled Israeli positions in Shib‘a and northern Israel. Israel responded with air strikes and expressed concern about a possible second front in addition to the Palestinian intifadah. At its request, the U.N. Secretary-General contacted the Syrian and Lebanese Presidents and, on April 8, Vice President Cheney telephoned President Asad and Secretary of State Powell visited northern Israel and called on Syria to curb Hezbollah. On January 30, 2004, Israel and Hezbollah exchanged 400 Palestinian and 29 Lebanese and other Arab prisoners, and the remains of 59 Lebanese for the Israeli colonel and the bodies of the three soldiers. U.N. Security Council Resolution 1559, September 2, 2004, called for the withdrawal of all foreign (meaning Syrian) forces from Lebanon [122]. Massive anti-Syrian demonstrations occurred in Lebanon after the February 14, 2005, assassination of former Lebanese Prime Minister Rafik Hariri, widely blamed on Syrian agents. On March 5, Asad announced a phased withdrawal of Syrian troops from Lebanon, which was completed on April 26. On May 28, 2006, Palestinian rockets fired from Syria hit deep inside northern Israel and Israeli planes and artillery responded by striking PFLP-GC bases near Beirut and near the Syrian border. Hezbollah joined the confrontation and was targeted by Israelis. UNIFIL brokered a cease-fire. On July 12, in the midst of massive shelling of a town in northern Israel, Hezbollah forces crossed into northwestern Israel and attacked two Israeli military vehicles, killing three soldiers and kidnapping two. Hezbollah demanded that Israel release Lebanese and other Arab prisoners in exchange for the soldiers and for a third soldier who had been kidnapped by the Palestinian group Hamas on June 25. (On the latter situation, see ―Israel-Palestinians,‖ above.) Hezbollah leader Shaykh Hassan Nasrallah said that the soldiers would be returned only through indirect negotiations for a prisoner exchange. He suggested that the Hezbollah operation might provide a way out of the crisis in Gaza because Israel had negotiated with Hezbollah in the past, although it refused to negotiate with Hamas now. Prime Minister Olmert declared that Hezbollah‘s attack was ―an act of war‖ and promised that Lebanon would suffer the consequences of Hezbollah‘s actions. The Lebanese government replied that it had no prior knowledge of the operation and did not take responsibility or credit for it. Israeli officials also blamed Syria and Iran but were careful to say that they had no plans to strike either one. Immediately after the Hezbollah attack, Israeli forces launched a major military campaign against and imposed an air, sea, and ground blockade on Lebanon. In a July 17 speech, Olmert summarized Israel‘s conditions for the end of military operations: the return of the kidnapped soldiers, the end to Hezbollah rocket attacks, and the deployment of the Lebanese army along the border [123].

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Lebanese Prime Minister Fuad Siniora requested U.N. help in arranging a cease-fire. On August 8, the Lebanese government promised to deploy 15,000 troops to the south for the first time since 1978 if Israel withdrew its forces. Hezbollah agreed to the government proposal, while Olmert found it ―interesting.‖ On August 9, the Israeli security cabinet authorized the Prime Minister and Defense Minister to determine when to expand the ground campaign while continuing efforts to achieve a political agreement. Only after the U.N. Security Council passed Resolution 1701 calling for the end to hostilities on August 11 did Olmert authorize an offensive, and those two days of fighting proved costly for both sides ensued. Resolution 1701 called for the full cessation of hostilities, the extension of the government of Lebanon‘s control over all Lebanese territory, and the deployment of Lebanese forces and an expanded UNIFIL, 15,000 each, in a buffer zone between the IsraeliLebanese border and the Litani River to be free of ―any armed personnel‖ other than the Lebanese army and UNIFIL [124]. The resolution authorized UNIFIL to ensure that its area of operations is not used for hostile activities and to resist by forceful means attempts to prevent it from discharging its duties. It banned the supply of arms to Lebanon, except as authorized by the government, and called for the disarmament of all armed groups in Lebanon. The resolution did not require the return of the abducted Israeli soldiers or the release of Lebanese prisoners. It requested the Secretary-General to develop proposals for the delineation of the international borders of Lebanon, ―including by dealing with the Shib‘a Farms area.‖ The truce went into effect on August 14. In all, 44 Israel civilians and 119 military men, 1191 Lebanese civilians, 46 Lebanese soldiers, and an estimated 600 Hezbollah militants died in the war. The Lebanese Army began to move south to the border on August 17 as Israeli forces handed over positions to the U.N. Hezbollah leader Nasrallah declared victory and said that Hezbollah would not disarm as long as Israel did not withdraw completely from Lebanon, including the Shib‘a Farms. On August 14, the Lebanese Defense Minister said that the army had no intention of disarming Hezbollah, but Hezbollah weapons would no longer be visible. On August 19, Israeli commandos raided an Hezbollah stronghold near Ba‘albek in the Bekaa Valley. Hezbollah did not respond and the cease-fire held. On August 14, Olmert accepted responsibility for the war and claimed as achievements a terrorist organization no longer allowed to operate from Lebanon and a government of Lebanon responsible for its territory. He claimed that a severe blow had been dealt to Hezbollah [125]. After the war, he expressed hope that the cease-fire could help ―build a new reality between Israel and Lebanon,‖ while Lebanese Prime Minister Siniora declared that Lebanon would be the last country to sign a peace agreement with Israel. On September 7, Olmert said that if the Shib‘a Farms is determined to be Lebanese and not Syrian and if Lebanon fulfills its obligations under U.N. resolutions, including the disarming of Hezbollah, then Israel would discuss the Farms with Lebanon. On October 30, the U.N. Secretary-General Ban Ki-moon reported that there has been no breach of the 2006 cease-fire and that the parties show determination to keep it. He noted reports of suspected Hezbollah construction north of the Litani River and in the Bekaa Valley, and stated that the Israeli government contends that Hezbollah has rearmed itself to a level higher than prior to the 2006 conflict because of the transfer of weapons from Iran and Syria in violation of the arms embargo [126].

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On February 12, 2008, Hezbollah operative Imad Mughniyah, who was suspected of planning terrorist attacks in the 1980s against Americans in Lebanon and in the 1990s against Jews and Israelis in Argentina, was killed in a car bombing in Damascus, Syria. On May 31, Hezbollah handed over to Israel the remains of five soldiers killed in the summer war of 2006, and Israel released an Israeli of Lebanese descent who had been convicted of spying for Hezbollah. On June 29, the Israeli cabinet approved a larger prisoner exchange with Hezbollah. The remains of two Israeli soldiers whose capture by Hezbollah during the 2006 raid into northern Israel had triggered the war, a report on Ron Arad, an Israeli pilot missing in action since 1986, and the remains of Israeli soldiers killed in the 2006 war were given to Israel. In exchange, Israel released Samir Kuntar, a Lebanese member of a Palestinian terrorist group who had killed an Israeli man and his young daughter in 1979, four Hezbollah fighters, the bodies of eight Hezbollah members, and the bodies of other terrorists, and information on four missing Iranian diplomats to the U.N. Secretary General. At a later date, Israel released some Palestinian prisoners. During a visit to Lebanon, Secretary Rice called for U.N. action on Shib‘a Farms. Hezbollah has used that Israeli occupation to justify its ―resistance‖ and rejection of disarmament, but now says that putting the Farms in U.N. custody will not end its resistance. On June 18, Israel offered to start direct peace talks on all issues with Lebanon. The Lebanese government rejected the offer, stating that occupied Lebanese territory is subject to ―U.N. resolutions that do not require any negotiations.‖ [127] Beirut demanded that Israel return Shib‘a Farms and provide maps of mines and cluster bombs left during the 2006 war. On July 13, new Lebanese President Michel Suleiman said the Israeli-occupied Shib‘a Farms area should be liberated through diplomatic means, but, if diplomacy fails, military operations would be used. On August 13, he and Syrian President Asad stated that a committee would work to ―define and draw the Syrian-Lebanese borders,‖ but Shi‘ba Farms will not be demarcated until Israel withdraws [128]. On September 4, Hezbollah leader Nasrallah declared that his group would not disarm even if Israel withdrew from the Shib‘a Farms and the northern Ghajar village because its weapons are needed to defend Lebanon from Israel [129]. In his November 18, Report to the Security Council, Secretary-General Ban Ki-moon noted that there had been no breaches of the cessation of hostilities. He again cited Israeli concerns that Hezbollah was rebuilding its military capacity on both sides of the Litani River, but noted that UNIFIL had not been provided with nor found evidence of new military infrastructures or smuggling arms in its area of operation [130]. The Secretary-General also noted that Hezbollah continued to maintain a substantial military capacity district from the Lebanese state in contravention of 1701. In addition, he called on Israel to cease all over flights of Lebanese territory that violate Lebanese sovereignty and 1701.

Israel-Jordan Of Jordan‘s 3.4 million people, 55 to 70% are Palestinian. Jordan initialed a June 1993 agenda with Israel on water, energy, environment, and economic matters on September 14, 1993. On July 25, 1994, Israeli Prime Minister Yitzhak Rabin and King Hussein signed the Washington Declaration, a non-belligerency accord. A peace treaty was signed on October

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26, 1994. (See ―Significant Agreements,‖ below). The border was demarcated and Israel withdrew from Jordanian land on February 9, 1995. More agreements followed. Although supportive of the peace process and of normalization of relations with Israel, on March 9, 1997, King Hussein charged that Israeli Prime Minister Benjamin Netanyahu was ―bent on destroying the peace process....‖ After Israeli agents bungled an attempt to assassinate Hamas official Khalid Mish‘al in Jordan on September 25, 1997, the King demanded that Israel release Hamas founder Shaykh Yassin, which it did on October 1, with 70 Jordanian and Palestinian prisoners in exchange for the detained Israeli agents. On December 5, 1998, the King called for Jordan-Palestinian coordination, observing that many final status issues are Jordanian national interests. King Hussein died on February 7, 1999, and was succeeded by his son Abdullah. King Abdullah said that the Palestinians should administer the Muslim holy sites in Jerusalem, a traditional responsibility of his family, and proposed that Jerusalem be an Israeli and a Palestinian capital, but rejected a Jordanian-Palestinian confederation. Until Israel and the Palestinians reach an accord, however, Jordan insists on its right to maintain and oversee the holy sites. On November 21, 2000, Jordan stopped accreditation of a new ambassador to Israel because of Israeli ―aggression‖ against the Palestinians. On March 18, 2004, the King met Sharon to discuss Israel‘s security barrier and disengagement from Gaza. In February 2005, Jordan proposed deploying about 1,500 Palestinian soldiers (Badr Brigade) from Jordan to the northern West Bank, pending approval of the PA and Israel. Israeli Defense Minister Mofaz said that the Badr Brigade could train Palestinians in the West Bank, but the Brigade was not deployed. Also in February 2005, Jordan sent an ambassador to Israel; in March, its foreign minister visited Israel for the first time in four years. In a March 14, 2007, address to a joint session of Congress, King Abdullah II of Jordan pleaded for U.S. leadership in the peace process, which he called the ―core issue in the Middle East.‖ He suggested that the Arab Peace Initiative is a path to achieve a collective peace treaty.

SIGNIFICANT AGREEMENTS AND DOCUMENTS Israel-PLO Mutual Recognition On September 9, 1993, PLO Chairman Yasir Arafat recognized Israel‘s right to exist, accepted U.N. Security Council Resolutions 242 and 338, the Middle East peace process, and the peaceful resolution of conflicts. He renounced terrorism and violence and undertook to prevent them, stated that articles of the Palestinian Charter that contradict his commitments are invalid, undertook to submit Charter changes to the Palestine National Council, and called upon his people to reject violence. Israeli Prime Minister Yitzhak Rabin recognized the PLO as the representative of the Palestinian people and agreed to negotiate with it [131].

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Declaration of Principles On August 29, 1993, Israel and the Palestinians announced that they had agreed on a Declaration of Principles on interim self-government for the West Bank and Gaza, after secret negotiations in Oslo, Norway, since January 1993. Effective October 13, it called for Palestinian self-rule in Gaza and Jericho; transfer of authority over domestic affairs in the West Bank and Gaza to Palestinians; election of a Palestinian Council with jurisdiction over the West Bank and Gaza. During the interim period, Israel is to be responsible for external security, settlements, Israelis in the territories, and foreign relations. Permanent status negotiations to begin in the third year of interim rule and may include Jerusalem [132].

Agreement on the Gaza Strip and the Jericho Area Signed on May 4, 1994, provides for Israeli withdrawal from Gaza/Jericho, and describes the Palestinian Authority‘s (PA) responsibilities. The accord began the five-year period of interim self-rule [133].

Israel-Jordan Peace Treaty Signed on October 26, 1994.

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Israeli-Palestinian Interim Agreement, West Bank-Gaza Strip (Also called the Taba Accords or Oslo II.) Signed on September 28, 1995. Annexes deal with security arrangements, elections, civil affairs, legal matters, economic relations, IsraeliPalestinian cooperation, and the release of prisoners. Negotiations on permanent status to begin in May 1996. An 82-member Palestinian Council and Head of the Council‘s Executive Authority will be elected after the Israeli Defense Force redeploys from Jenin, Nablus, Tulkarem, Qalqilyah, Ramallah, and Bethlehem, and 450 towns and villages. Israel will redeploy in Hebron, except where necessary for security of Israelis. Israel will be responsible for external security and the security of Israelis and settlements. Palestinians will be totally responsible for Area ―A,‖ the six cities, plus Jericho. Israeli responsibility for overall security will have precedence over Palestinian responsibility for public order in Area ―B,‖ Palestinian towns and villages. Israel will retain full responsibility in Area ―C,‖ unpopulated areas. Palestinian Charter articles calling for the destruction of Israel will be revoked within two months of the Council‘s inauguration [134].

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Protocol Concerning the Redeployment in Hebron Initialed by Israel and the PA on January 15, 1997. Details security arrangements. Accompanying Israeli and Palestinian Notes for the Record and letter from Secretary of State Christopher to Prime Minister Netanyahu [135].

Wye River Memorandum Signed on October 23, 1998. Delineated steps to complete implementation of the Interim Agreement and of agreements accompanying the Hebron Protocol. Israel will redeploy from the West Bank in exchange for Palestinian security measures. The PA will have complete or shared responsibility for 40% of the West Bank, of which it will have complete control of 18.2%. The PLO Executive and Central Committees will reaffirm a January 22, 1998, letter from Arafat to President Clinton that specified articles of the Palestinian Charter that had been nullified in April 1996. The Palestine National Council will reaffirm these decisions. President Clinton will address this conclave [136].

Sharm al Shaykh Memorandum

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(Also called Wye II.) Signed on September 4, 1999 [137]. Israeli Prime Minister Barak and PA Chairman Arafat agreed to resume permanent status negotiations in an accelerated manner in order to conclude a framework agreement on permanent status issues in five months and a comprehensive agreement on permanent status in one year. Other accords dealt with unresolved matters of Hebron, prisoners, etc.

A Performance-Based Road Map to a Permanent Two-State Solution to the Israeli-Palestinian Conflict (More briefly referred to as the Road Map.) Presented to Israel and the Palestinian Authority on April 30, 2003, by the Quartet (i.e., the United States, European Union, United Nations, and Russia). To achieve a comprehensive settlement in three phases by 2005. Phase I calls for the Palestinians to unconditionally end violence, resume security cooperation, and undertake political reforms, and for Israel to withdraw from areas occupied since September 28, 2000, and to freeze all settlement activity. Phase II will produce a Palestinian state with provisional borders. Phase III will end in a permanent status agreement which will end the conflict [138].

Agreement on Movement and Access From the Gaza Strip, reached on November 15, 2005, calls for reopening the Rafah border crossing to Egypt with European Union monitors on November 25, live closed circuit

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TV feeds of the crossing to Israel, Palestinian bus convoys between the West Bank and Gaza beginning December 15, exports from Gaza into Israel, and construction of the Gaza seaport [139].

Joint Understanding Read by President Bush at the Annapolis Conference, November 27, 2007. Prime Minister Olmert and President Abbas express their determination to immediately launch continuous, bilateral negotiations in an effort to conclude a peace treaty resolving all core issues before the end of 2008. They also commit to immediately and continuously implement their respective obligations under the Road Map until they reach a peace treaty. Implementation of the peace treaty will be subject to the implementation of the Road Map, as judged by the United States [140].

ROLE OF CONGRESS

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Aid [141] P.L. 110-5, the Revised Continuing Appropriations Resolution, 2007, signed into law on February 15, 2007, provided $50 million in aid for the West Bank and Gaza. This aid was suspended while the Hamas-led national unity government held power from March to June 2007. On March 23, 2007, the Administration notified Congress that it intended to reprogram $59 million in FY2006 Economic Support Funds (ESF) funds for direct aid to the Palestinian Authority (PA), including $16 million to improve the Karni crossing between Israel and Gaza and $43 million for training and non-lethal assistance to Abbas‘s Presidential Guard. Congress did not object and the President issued a waiver to permit the aid to be disbursed. In June, President Bush issued a waiver to allow an additional $18 million in direct assistance to the PA for democracy assistance, combating money laundering, and security upgrades at Karni. For FY2008, the Administration initially requested $63.5 million for the West Bank and Gaza and $10 million in Child Survival and Health Funds. After the formation of a nonHamas-led PA government, the Administration sought an additional $410 million, including $100 million for direct budgetary support, $25 million for security sector reforms, and $35 million for emergency needs of Palestinian refugees in Gaza, the West Bank, and Lebanon. P.L. 110-161, the Consolidated Appropriations Act, 2008, signed into law on December 26, 2007, appropriates $218,500,000 in assistance for the West Bank and Gaza. If the President waives the ban on providing funds to the PA, then not more than $100 million may be made available for cash transfers to the PA until the Secretary of State certifies and reports that it has established a single treasury account for all financing, has eliminated all parallel financing mechanisms, and has established a single, comprehensive civil service roster and payroll. None of the funds appropriated for cash transfer assistance may be obligated for salaries of PA personnel located in Gaza, and none may be obligated or expended for assistance to Hamas or any entity controlled by Hamas or any power-sharing government with Hamas unless Hamas recognizes Israel‘s right to exist and accepts prior accords between Israel and

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the Palestine Liberation Organization. None of the funds appropriated by the act may be provided to support a Palestinian state unless its governing entity has demonstrated a commitment to peaceful coexistence with Israel and is taking measures to counter terrorism and terrorist financing in the West Bank and Gaza, among other conditions. On December 17, 2007, international donors at a conference in Paris pledged $7.4 billion, including $3.4 billion for 2008, for the PA. The United States pledged $555 million, much of which had been previously announced but not approved by Congress. H.R. 2642, the Supplemental Appropriations Act, 2008, signed into law as P.L. 110-252 on June 30, 2008, appropriates $171 million in ESF for the West Bank and Gaza; none of these funds may be for cash transfers. It also requires the Secretary of State to submit a report on U.S. assistance for training the Palestinian security force [142].

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Jerusalem Israel annexed the city in 1967 and proclaimed it to be Israel‘s eternal, undivided capital. Palestinians seek East Jerusalem as their capital. Successive U.S. Administrations have maintained that the parties must determine the fate of Jerusalem in negotiations. H.Con.Res. 60, June 10, 1997, and S.Con.Res. 21, May 20, 1997, called on the Administration to affirm that Jerusalem must remain the undivided capital of Israel. Congress has repeatedly prohibited official U.S. government business with the PA in Jerusalem and the use of appropriated funds to create U.S. government offices in Israel to conduct business with the PA and allows Israel to be recorded as the place of birth of U.S. citizens born in Jerusalem. These provisions are again in P.L. 110- 161, the Consolidated Appropriations Act, 2008. The State Department does not recognize Jerusalem, Israel as a place of birth for passports because the U.S. government does not recognize all of Jerusalem as part of Israel. A related issue is the relocation of the U.S. embassy from Tel Aviv to Jerusalem. Proponents argue that Israel is the only country where a U.S. embassy is not in the capital, that Israel‘s claim to West Jerusalem, proposed site of an embassy, is unquestioned, and that Palestinians must be disabused of their hope for a capital in Jerusalem. Opponents say a move would undermine the peace process and U.S. credibility in the Islamic world and with Palestinians, and would prejudge the final status of the city. P.L. 104-45, November 8, 1995, provided for the embassy‘s relocation by May 31, 1999, but granted the President authority, in national security interest, to suspend limitations on State Department expenditures that would be imposed if the embassy did not open. Presidents Clinton and Bush each used the authority several times. The State Department Authorization Act for FY2002-FY2003, P.L. 107-228, September 30, 2002, urged the President to begin relocating the U.S. Embassy ―immediately.‖ The President replied that the provision would ―if construed as mandatory ... impermissibly interfere with the president‘s constitutional authority to conduct the nation‘s foreign affairs.‖ The State Department declared, ―our view of Jerusalem is unchanged. Jerusalem is a permanent status issue to be negotiated between the parties.‖

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Compliance/Sanctions The President signed the Syria Accountability and Lebanese Sovereignty Restoration Act, P.L. 108-175, on December 12, 2003, to hold Syria accountable for its conduct, including actions that undermine peace. On May 11, 2004, he cited the act as his authority to block property of certain persons and prohibit the exportation or reexportation of certain goods to Syria. These measures have since been extended annually, most recently on May 8, 2008.

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Israeli Raid on Suspected Syrian Nuclear Site H.Res. 674, introduced on September 24, 2007, would express ―unequivocal support ... for Israel‘s right to self defense in the face of an imminent nuclear or military threat from Syria.‖ Sec. 328 of the Conference Report (H.Rept. 110-478) for H.R. 2082, the Intelligence Authorization Act for FY2008, agreed to in the House on December 13, would limit spending of the intelligence budget to 30% until each member of the intelligence committees has been informed with respect to intelligence regarding the facility targeted on September 6. The Administration objected that this provision would circumvent the Executive‘s authority to control access to extraordinarily sensitive information.143 The Senate agreed to the Conference Report on February 13, 2008, by a vote of 51-45 and the bill was cleared for the White House. On April 24, National Security Advisor Stephen Hadley, CIA Director Michael Hayden, and Director of National Intelligence Mike McConnell presented evidence to congressional committees that the Israeli target was a nuclear reactor, designed by and being built with the assistance of North Korea. Hayden said that the reactor was within weeks or months of completion and, within a year of entering operation, it could have produced enough material for at least one weapon. These officials reportedly acknowledged lack of no evidence indicating that Syria was working on nuclear weapons designs and that they had not identified a source of nuclear material for the facility. They expressed ―low confidence‖ that the site was part of a nuclear weapons program.144 They also denied U.S. involvement in planning or executing the September 6 strike. Experts suggested that the inability to identify a source of fuel raised questions about when the reactor would have been operational and agreed that the inability to identify facilities to separate plutonium from fuel raised further questions about whether the reactor was part of a weapons program.145 On June 16, International Atomic Energy Agency (IAEA) Director General Mohammed ElBaradei told Al Arabiyah Television, ―We have no evidence that Syria has the human resources that would allow it to carry out a large nuclear program. We do not see Syria having nuclear fuel.‖ [146]

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Source: Map Resources. Adapted by CRS.

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Figure 1. Israel and Its neighbors.

Other H.Res. 185, agreed to in the House by a voice vote on April 1, 2008, resolves, inter alia, that a Middle East peace agreement must resolve outstanding issues related to the legitimate rights of all refugees, including Jews, Christians, and others displaced from Arab countries for it to be credible and enduring. H.Res. 951, agreed to in the House on March 5, 2008, by a vote of 404-1, 4 present, condemns the ongoing Palestinian rocket attacks on Israeli civilians by Hamas and other Palestinian terrorist organizations. S.Res. 10, agreed to by unanimous consent in the Senate on January 8, 2009, and H.Res. 34, agreed to in the House on January 9, by a vote of 390-5, 22 present, recognize Israel‘s right to defend itself against attacks from Gaza, and reaffirm the United States‘ strong support for Israel, and support the Israeli-Palestinian peace process. H.Res. 130, introduced on February 4, 2009, expressing support for the appointment of former Senator George Mitchell as Special Envoy for Middle East Peace.

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REFERENCES [1] [2] [3] [4]

[5] [6]

[7]

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[8]

[9] [10] [11] [12] [13]

[14]

[15]

[16]

U.S. State Department, December 29, 2008. Margaret Coker, ―Israel Ground-Invasion Threat Looms in Gaza,‖ Wall Street Journal, January 3, 2009, quoting President Bush‘s weekly radio address. ―Olmert Says Israeli Army to Continue Gaza Operation Despite UN Ceasefire Resolution,‖ Xinhua, January 9, 2009. ―Hamas Says ‗Has Nothing to do with UN Resolution 1860,‘Says was not Consulted,‖ Palestine Information Center, January 9, 2009, Open Source Center Document GMP 20090109761004. Text of Memorandum of Understanding signed by US Secretary of State Rice and Israeli Foreign Minister Livni, www.haaretz.com, January 16, 2009. Palestinian figures are from U.N. Security Council, Update Report No. 3, Israel/Palestine: Gaza, January 26, 2009. Israeli Military Intelligence counted 1,134 Palestinian deaths by name It claimed that 673 of them were members of terrorist organizations and 288 civilians. Amos Harel, ―Two-thirds of Palestinians killed in Gaza Fighting were Terrorists,‖ www. haaretz.com, February 13, 2009. Later, the Israeli Defense Forces Gaza Coordination and Liaison Administration reported more than 1,200 Palestinian fatalities and said that 580 were members of Hamas and other terrorist groups and 300 women, children aged 15 and younger, and men over the age of 65. CLA had not yet completed its identification process. Ya‘aqov Katz, ―Int‘l Community was Duped by Hamas‘s False Civilian Death Toll Figures, IDF Claims,‖ Jerusalem Post, February 16, 2009. ‗Cabinet Communique,‖ Israeli Ministry of Foreign Affairs, February 18, 2009, Open Source Center Document GMP22090218735001. ―President Abbas says: We are Moving in Steady Steps towards National Reconciliation,‖ WAFA, February 28, 2009, BBC Monitoring Middle East, March 1, 2009. See, http://www.peacenow.org/updates.asp?rid=0andcid=5991. Tovah Lazaroff, ―Peace Now: Government Planning Massive Settlement Expansion,‖ Jerusalem Post, March 3, 2009. ―Top PLO Negotiator Suspends Talks over Jerusalem Demolitions,‖ Ma‘an News Agency, March 4, 2009, Open Source Center Document GMP20090304762002 Isabel Kershner, ―Israeli Elections and Gaza Violence New U.S. Envoy‘s Peace Mission,‖ New York Times, January 30, 2009. Shim‘on Schiffer, ―Expose: Olmert‘s Legacy,‖ Yedi ‘ot Aharonot, ―January 29, 2009, Open Source Center Document GMP20090129754001, Richard Boudreaux, ―Olmert‘s Peace Bid puts Livni in a Bind,‖ Los Angeles Times, February 4, 2009. ―President Abbas Says: It is the Palestinian People who have Triumphed and Israel does not want Peace,‖ WAFA, January 27, 2009, Open Source Center Document GMP2009012775 1006. Ibid. For text of letters, see Israel‘s Ministry of Foreign Affairs at http://ww w.mfa.gov.il/MFA/Peace+Process/ Reference+Documents/Exchange+of+letters+Sharon-Bush+14-Apr-2004.htm. ―Clinton Meets Miliband, Mitchell Returns Soon to Region,‖ KUNA Online, February 3, 2009, Open Source Center Document GMP200902039666053.

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[17] Hilary Leila Krieger, ―Mitchell could Support PA Unity Gov‘t,‖ Jerusalem Post, February 19, 2009. [18] Paul Richter, ―In West Bank, Clinton Criticizes Israel,‖ Los Angeles Times, March 5, 2009. [19] Natasha Mozgovaya, ―Clinton Encourages Israel-Syria Peace Talks,‖ www.ha aretz.com, March 7, 2009. [20] Khaled Yacoub Oweis, ―U.S. Officials Find ‗Common Ground‘ in Syria,‖ Reuters, March 7, 2009. [21] ―Peace with Israel Possible, Says Syria‘s Assad,‖ Reuters, March 9, 2009. [22] For additional background, see William B. Quandt, Peace Process, American Diplomacy and the Arab-Israeli Conflict since 1967, Washington, DC, Brookings Institution Press, Revised Edition 2001; Charles Enderlin, Shattered Dreams: The Failure of the Peace Process in the Middle East, New York, Other Press, 2003; Anton La Guardia, War Without End: Israelis Palestinians and the Struggle for a Promised Land, New York, St. Martin‘s Griffin, Revised and Updated, 2003; Alan Dowty, Israel/Palestine, Cambridge, UK, Polity Press, 2005; and Dennis Ross, The Missing Peace: The Inside Story of the Fight for Middle East Peace, New York, Farrar, Straus and Giroux, 2004. [23] Anne Gearan, ―Rice Blasts Way Iran Treats Its Own People,‖ Associated Press, February 4, 2005. [24] Press Briefing, January 10, 2008, http://www.whitehouse.gov. [25] The Gulf Cooperation Council is comprised of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. [26] The Arab Maghreb Union is comprised of Algeria, Libya, Mauritania, Morocco, and Tunisia [27] For text of the President‘s speech describing his proposal, also known as ―the Clinton Plan‖ or ―Clinton Parameters,‖ see the Israel Policy Forum website at http://www.israelpolicyforum.org/display.cfm?rid=544. [28] Lee Hockstader, ―Jerusalem is ‗Indivisible,‘ Sharon Says; Camp David Concessions are Called ‗Null and Void,‘‖ Washington Post, February 8, 2001. [29] Jane Perlez, ―Bush Officials Pronounce Clinton Mideast Plan Dead,‖ New York Times, February 9, 2001. [30] Interview by Ari Shavit, Haaretz, April 13, 2001, Foreign Broadcast Information Service (FBIS) Document GMP2001 10413000070. [31] See http://www.whitehouse.gov for presidential statements cited in this report. [32] Newsweek interview, quoted by Ibrahim Barzak, ―Jewish Settlements Mortared in Gaza; Israel Leader Raps Arafat in Interview, Associated Press, December 9, 2001. [33] ―Israeli Cabinet Decision on Cutting Contacts with Arafat,‖ Government Press Office, December 13, 2001, FBIS Document GMP2001 11213000010. [34] For ―Arab Peace Initiative,‖ see http://www.al-bab.com/arab/docs/league/peace02.htm. [35] For text of the speech, see http://www.whitehouse.gov/news/releases/2002 /06/20020624-3.html. [36] ―Sharon, ‗Certain‘ of Passing ‗Painful Concessions‘ in Knesset,‖ Ma ‘ariv, April 15, 2003, FBIS Document GMP200304 1500009 1. [37] For text of Israel‘s reservations, see Israel‘s Response to the Road Map, online at http://www.knesset.gov.il/process/docs/Road Map_response_eng.htm.

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[38] For text, see the Geneva Initiative website at http://www.heskem.org.il. [39] For text, see ―Sharon Outlines Disengagement Plan from Palestinians in Herzliyya Speech,‖ Parts 1 and 2, Voice of Israel, December 18, 2003, Open Source Center Documents GMP20031218000215 and GMP200312180002167. [40] For text of letters, see Israel‘s Ministry of Foreign Affairs at http://www. mfa.gov.il/MFA/Peace+Process/Reference+Documents/Exchange+of+letters+SharonBush+14-Apr-2004.htm. [41] For text, see http://www.mfa.gov.il/MFA/Peace+Process/Reference+Documents /Letter+Weissglas-Rice+18-Apr2004.htm. [42] For text, see http://www.icj-cij.org. Note, Israel refers to the barrier as a ―fence‖ and the Palestinians and other critics refer to it as a ―wall.‖ Neutral observers often use the word ―barrier.‖ [43] Interview by Ari Shavit, ―The Big Freeze,‖ Haaretz, October 8, 2004, FBIS Document GMP2004 1008000026. [44] Interview by Golan Yokhpaz, IDF Radio, August 15, 2005, FBIS Document GMP200508 15621002. [45] This and subsequent Quartet statements cited may be found at the State Department‘s website: http://www.state.gov. [46] For Hamas Covenant text, see http://www.yale.edu/lawweb/avalon/mideast/hamas.htm. [47] ―UN: Statement by Middle East Quartet,‖ M2 Presswire, January 31, 2006 [48] For text of a later, final version of the National Accord Document (also known as the Palestinian Prisoners‘s Agreement), see Palestine Liberation Organization Negotiations Affairs Department website http://www.nad-plo.org/ inner.php?view=news-updatesjre. [49] See http://www.whitehouse.gov/news/releases/2006/05/20060523-9.html for text of joint news conference. [50] Gil Hoffman, ―Olmert Bids to Enlist Chirac Support for Realignment; PM tells British MPS: Israel Would Never Agree to Withdraw to Pre-1967 Borders,‖ Jerusalem Post, June 14, 2006. [51] ―Text of National Consensus Document signed by the Palestinian factions, except the Islamic Jihad Movement,‖ AlAyyam, Open Source Center Document GMP2006062 8253002. [52] For text of Foreign Ministry comments, see http://www.mfa.gov.il/mfa. [53] ―‗Unofficial‘ Text of Palestinian President‘s Speech,‖ Palestinian News Agency, September 22, 2006, BBC Monitoring Middle East. [54] For text Olmert‘s speech, see Israel‘s MFA at http://www.mfa.gov.il/MFA/ Government/ Speeches+by+Israeli+leaders/2006/PM+Olmert+reaches+out+to+Palestinians+at+BenGurion+memorial+27-Nov2006.htm. For what Olmert called the ―Saudi Peace Initiative, also called the ―Beirut Declaration‖ or ―Arab Peace Initiative,‖ see http://www.saudiembassy.net/ 2002News/Statements/StateDetail.asp?cIndex= 142. [55] On January 19, Israel transferred the funds to a special account in an Israeli bank to ensure that the money did not reach Hamas. [56] Cam Simpson, ―Dangerous Territory: With Aid, U.S. Widens Role in Palestinian Crisis; To Undercut Hamas And Iran, Bush Pushes $86 Million Plan‖ Wall Street Journal, January 12, 2007

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[57] Text of the Mecca Accord was published on http://www.middle-east-online.com February 9, 2007. [58] For ―Arab Peace Initiative,‖ see http://www.al-bab.com/arab/docs/league/peace02.htm. [59] It has been widely reported that Olmert met Saudi National Security Advisor Prince Bandar in September 2006 in Jordan. Barbara Slavin, ―Arabs try Outreach to Israel, U.S. Jews....‖ USA Today, February 12, 2007, quotes former Israeli Ambassador to the United States Dani Ayalon confirming the meeting. For Olmert‘s speech referring to the Saudi peace initiative, see http://www.mfa.gov.il/MFA/Government/Speeches+by+Israeli+leaders/2006/PM+Olm ert+reaches+out+to+Palestinians+at+Ben-Gurion+memorial+27-Nov-2006.htm. [60] Some commentators suggest that Hamas‘s acceptance of a state withing the 1967 borders constitutes ―implicit‖ recognition of Israel and that the demand for explicit recognition is ―unreasonable‖ due to Israel‘s continuing occupation and failure to define its borders. Daoud Kuttab, ―Obstacle or Opportunity? How the Palestinian Unity Government Offers a Path to Peace,‖ Washington Post, March 26, 2007. [61] ―U.S. to Cut Palestinian Aid Package,‖ Associated Press, March 22, 2007. [62] ―Israeli PM Offers Dialogue to Arabs,‖ Associated Press, April 2, 2007. [63] Program of Fayyad‘s Government, Ma‘an News Agency, July 27, 2007, BBC Monitoring Middle East, July 28, 2007. [64] Statement on ―This Week‖ television show, July 15, 2007, quoted in Robin Wright, ―U.S. Bet on Abbas for Middle East Peace Meets Skepticism,‖ Washington Post, July 16, 2007. [65] For President‘s speech, see http://www.whitehouse.gov/news/releases/2007/07 /20070716-7.html. [66] FM Livni‘s Press Conference with US Secretary of State Rice, (Israeli) Government Press Office, October 18, 2007, Open Source Center Document GMP20071018738002 [67] Noam Shelef, Peace Now, informed CRS on January 30, 2008, that there are 105 illegal outposts. [68] For text, see http://www.whitehouse.gov/news/releases/2007/11/print/20071127.html. For more on the conference, seeCRS Report RS22768, Israeli-Palestinian Peace Process: The Annapolis Conference, by Carol Migdalovitz. [69] Text of speech: ―PA President Delivers Address at Annapolis, Stresses Commitment to Peace,‖ Palestine Satellite Chanel Television, November 27, 2007, Open Source Center Document GMP20071127748002. [70] Text of speech: ―PM Olmert Says in Annapolis Israel Ready for ‗Painful Compromises‘ for Peace,‖ Israel Television Channel 1, November 27, 2007, Open Source Center Document GMP20071127736005. For text of President Bush‘s 2004 letter, see Israel‘s Ministry of Foreign Affairs at http://www.mfa.gov.il/MFA/Peace+Process/Ref erence+Documents/Exchange+of+letters+Sharon-Bush+14-Apr-2004.htm. [71] For text of President Bush‘s remarks, see http://www.whitehouse.gov/news/rele ases/2007/11/20071127-2.html. [72] ―James Blitz and Tobias Buck, ―Israelis Criticized Over Plan to Build on Occupied Land,‖ Financial Times, December 8, 2007. [73] Barak Ravid, ―PM: No West Bank Construction without my Prior Approval, www.haaretz.com, December 31, 2007. [74] Hadley‘s January 3 and 10, 2008, briefings are available at http://www.whitehouse.gov.

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[75] Steven Lee Myers, ―Bush Outlines Mideast Peace Plan,‖ New York Times, January 11, 2008 [76] Remarks by President Bush and Prime Minister Olmert in Joint Press Availability, January 9, 2008, http://www.whitehouse.gov. [77] Shahar Ilan, ―Olmert Rules Out Gaza Ground Operation,‖ Haaretz, January 15, 2008. [78] Joel Greenberg, ―Egypt Works to Restore Breached Gaza Border,‖ McClatchy-Tribune Service, January 27, 2008. [79] Isabel Kershner and Taghreed El-Khodary, ―Hamas Says Military Wing is Responsible for Bombing,‖ New York Times, February 6, 2008. [80] Barak Ravid and Shmuel Rosner, ―Olmert: Significant Progress Possible on Borders of Palestinian State,‖ Haaretz, February 13, 2008. [81] Akiva Eldar, ―Israel, PA Negotiators Oppose PM‘s Bid to Delay Talks on Jerusalem,‖ Haaretz, February 15, 2008. [82] David Landau and Yosi Verter, ―An Island of Political Stability,‖ www.haaretz.com, April 18, 2008. [83] ―PLO Executive Committee Denies Progress made in Negotiations with Israel,‖ WAFA, May 6, 2008, BBC Monitoring Middle East, May 7, 2008. [84] Herb Keinon, ―PM Touts Plan that Postpones J‘lem Talks,‖ Jerusalem Post, May 15, 2008. [85] Statements of Palestinian President Mahmud Abbas in Ramallah, Palestine Satellite Channel Television, June 4, 2008, Open Source Center Document GMP2008060475 1005, Richard Boudreaux, ―Abbas Willing to Negotiate with Political Rival Hamas,‖ Los Angeles Times, June 5, 2008. [86] ―US Still Pushing for Mideast Peace Deal: White House,‖ Agence France Presse, July 28, 2008. [87] Settlement Watch Team, ―Israel is Eliminating the Green Line and Continuing to Build in the Isolated Settlements,‖ August 2008, accessible via http://www.peacenow.org. [88] ―Rice Says Israelis, Palestinians Can Still Reach Peace Deal this Year,‖ Daily Star, July 26, 2008. [89] Aluf Benn, ―Olmert to PA: We‘ll Quit West Bank when you Retake Gaza,‖ www.haaretz.com, August 12, 2008. [90] ―Israel Must Withdraw to 1967 Borders for Peace,‖ Al-Jazeera TV, August 12, 2008, ―PA Presidential Spokesman Rejects Olmert Final Status Draft reported in Haaretz,‖ WAFA, August 12, 2008, Open Source Center Document, GMP200808/12/75 1004. [91] Interview with Al-Watan, August 20, 2008, Open Source Center Document GMP2000808082083 7003. [92] For text of Abd-al-Ra‘uf Arna‘ut interview with Walles, printed in Al-Ayyam on September 11, 2008, see ―Palestinian Paper Interviews US Consul General Jake Walles,‖ BBC Monitoring Middle East, September 13, 2008. [93] Herb Keinon and Shelly Paz, ―Kadima in Uproar over Talk of J‘lem,‖ Jerusalem Post, September 11, 2008. [94] Abd-al-Ra‘uf Arna‘ut, ―Livni Informed Abu-Ala that Negotiations will Continue,‖ AlAyyam, September 24, 2008, Open Source Center Document GMP20080924762003. [95] Barak Ravid, ―Livni Tells Kouchner: I Oppose Olmert‘s Peace Plan,‖ www.haaretz.com, October 6, 2008.

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[96] Abd-al-Ra‘uf Arna‘ut, ―President Abbas says: We are Ready to Call Simultaneous Legislative and Presidential Elections,‖ Al-Ayyam, October 20, 2008, Open Source Center Document GMP2008 1020762002 [97] Shlomo Avineri, ―Only the June 4, 1967 Lines,‖ www.haaretz.com, August 6, 2008. [98] See alsoCRS Report RL3 3487, Syria: Background and U.S. Relations, by Jeremy M. Sharp. [99] For text of speech, see ―Syria‘s Asad Addresses ‗New Middle East,‘ Arab ‗Failure‘ to Secure Peace,‖ Syrian Arab Television TV1, Open Source Center Document GMP200608156070001 [100] In interview by Hamdi Qandil on Dubai TV, August 23, 2006, Open Source Center Document GMP20060823650015. [101] ―Olmert Tells Israeli Paper: Golan ‗An Integral Part of the State of Israel‘,‖ Yedi ’ot Aharonot, September 26, 2006, citing a Mishpaha newspaper interview, Open Source Center Document GMP20060926746002. [102] Shmuel Rosner, ―Chirac: France, U.S. Agree There is No Point Talking to Syria,‖ Haaretz, November 29, 2006. [103] For text of Iraq Study Group report, see http://www.usip.org/isg/. [104] Gideon Alon, ―Olmert, Peretz Spar over Syrian Overtures,‖ www.haaretz.com/, December 18, 2006. [105] 105 Interview with Andrea Mitchell of NBC News, January 17, 2007 [106] 106 ―Israeli PM Discusses Interest in Arab Initiative, Syria Talks,‖ Al Arabiya TV, Dubai, July 10, 2007, BBC Monitoring Middle East, July 11, 2007. [107] Speech to People‘s Assembly, Syrian Arab Television, July 17, 2007, Open Source Center Document GMP20070717607001. [108] ―Report: New Satellite Photo Shows Construction at Syrian Site Bombed by Israel,‖ Associated Press, January 12, 2008. [109] William J. Broad, ―Syria Rebuilding on Site Destroyed by Israeli Bombs,‖ New York Times, January 12, 2008. [110] ―Assad Casts Doubt on Syrian Participation in Peace Summit,‖ Associated Press, October 11, 2007, citing an interview with Tunisian newspapers. [111] Herb Keinon and Yaakov Katz, ―Olmert Hints at Secret Syria Track,‖ Jerusalem Post, March 27, 2008, Mark Weiss, ―Barak: Renewing Peace Talks with Damascus is a Priority; Assad (sic) Accuses Israel of Foot-Dragging in Negotiations,‖ Jerusalem Post, March 30, 2008. [112] ―Al-Asad Reveals Turkish Mediation with Israel,‖ Al-Watan, April 24, 2008, Open Source Center Document GMP20080424090001, also interview with Asad by editors of Al-Watan, April 27, 2008, Open Source Center Document FEA2008042965 1667. [113] Jay Solomon, ―Syria calls for U.S. to Play a Direct Role in Peace Talks,‖ Wall Street Journal, June 2, 2008. [114] Cam Simpson, ― Israel, Syria in Indirect Peace Talks,‖ Wall Street Journal, May 22, 2008, ―US Welcomes Syrian- Israeli Talks but Stresses Palestinian Track,‖ Yahoo! News, May 21, 2008, ―Rice: Israeli-Palestinian Track Most Likely to Produce Results,‖ Associated Press, May 22, 2008. [115] ―Syria says No Direct Talks with Israel before 2009,‖ Times of Oman, June 4, 2008, citing Al-Khaleej Emirates daily. [116] ―Syria says Israel Terms Signal not Serious on Peace,‖ Reuters, June 5, 2008.

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[117] Barak Ravid, ―Assad: Direct Talks with Israel Only After Bush Leaves Office,‖ Haaretz, July 8, 2008. [118] ―Herb Keinon, ―Frustrated Israel watches Syria Break Out of Isolation,‖ Jerusalem Post, September 5, 2008. [119] Amir Rapaport, ―IB Estimate: Syria‘s Peace Intentions are Serious,‖ Ma ’ariv, October 23, 2008, BBC Monitoring Middle East, October 24, 2008. [120] Mary Fitzgerald, ―Syria to Decide on Talks with Tel Aviv after Israeli Poll,‖ Irish Times, February 3, 2009. [121] See CRS Report RL3 1078, The Shib'a Farms Dispute and Its Implications, by Alfred B. Prados122 For text of U.N. Security Council Resolution 1559, see http://www.un.org/Docs/sc/unsc_resolutions04.html. [122] For text of Olmert‘s speech, see http://www.pmo.gov.il/PMOEng/Communic ation/PMSpeaks/ speechknesset170706.htm [123] Text of U.N. Security Council Resolution 1701 is accessible online at http://www.un.org/Docs/sc/ unsc_resolutions06.htm. [124] For text of Olmert‘s statement, see Israeli Television Channel 1, August 14, 2006, Open Source Center Document GMP200608 14728001. [125] United Nations Security Council, Report of the Secretary General on the Implementation of Security Council Resolution 1701 (2006), S/2007/641, October 30, 2007, accessible via http://www.un.org/Docs/sc/sgrep07.htm. [126] ―Beirut Reiterates Rejection of Bilateral Talks over Shebaa,‖ Daily Star, June 19, 2008. [127] Khaled Yacoub Oweis, ―Syria and Lebanon to Work on Drawing Border,‖ Reuters, August 14, 2008. [128] For background see CRS Report RL33509 , Lebanon, by Christopher M. Blanchard and Jeremy M. Sharp. [129] Report of the Secretary-General on Implementation of Security Council Resolution 1701 (2006), S/2008/715, November 18, 2008 [130] For text, see http://www.state.gov/p/nea/rls/22579.htm. [131] For text, see http://www.state.gov/p/nea/rls/22602.htm. [132] For text, see http://www.state.gov/p/nea/rls/22676.htm. [133] For text, see http://www.state.gov/p/nea/rls/22678.htm. [134] For Protocol text, see http://www.state.gov/p/nea/rls/22680.htm. [135] For text, see http://www.state.gov/p/nea/rls/22694.htm. [136] For text, see http://www.state.gov/p/nea/rls/22696.htm. [137] For text, see http://www.state.gov/r/pa/prs/ps/2003/20062.htm. [138] For text, see http://www.israel-mfa.gov.il/MFA/Peace+Process/Reference+Docum ents/Agreed+documents+on+movement+and+access+from+and+to+Gaza+15-Nov2005.htm. [139] For text, see http://www.whitehouse.gov/news/releases/2007/11/20071127.html. [140] See alsoCRS Report RL32260, U.S. Foreign Assistance to the Middle East: Historical Background, Recent Trends, and the FY2009 Request, by Jeremy M. Sharp, CRS Report RS22967, U.S. Foreign Aid to the Palestinians, by Jim Zanotti, and CRS Report RL33222, U.S. Foreign Aid to Israel, by Jeremy M. Sharp. [141] For detail on aid to the Palestinians, seeCRS Report RS22967, U.S. Foreign Aid to the Palestinians, by Jim Zanotti.

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[142] See Statement of Administration Policy regarding H.R. 2082, issued December 11, 2008, http://www.whitehouse.gov/news/releases/2007/11/20071127-2.html. [143] Greg Miller, Paul Richter, ―U.S. Opens Dossier on Syrian Facility,‖ Los Angeles Times, April 25, 2008, ―Syrian Reactor Capacity was 1-2 Weapons/Year: CIA, Reuters, April 29, 2008. [144] Ibid., citing former weapons inspector David Albright. [145] ―Syria Lacks Skills, Fuel for Nuclear Facility: IAEA,‖ Reuters, June 17, 2008.

Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

In: Economic and Political Issues in the Middle East Editors: C. N. Parker and D. M. Warde

ISBN: 978-1-61209-381-9 © 2011 Nova Science Publishers, Inc.

Chapter 4

IRAN’S ECONOMIC CONDITIONS: U.S. POLICY ISSUES Shayerah Ilias† International Trade and Finance

ABSTRACT

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The Islamic Republic of Iran, a resource-rich and labor-rich country in the Middle East, is a central focus of U.S. national security policy. The United States asserts that Iran is a state sponsor of terrorism and that Iran‘s uranium enrichment activities are for the development of nuclear weapons. To the extent that U.S. sanctions and other efforts to change Iranian state policy target aspects of Iran‘s economy as a means of influence, it is important to evaluate Iran‘s economic structure, strengths, and vulnerabilities. Since 2000, Iran has enjoyed broad-based economic growth. However, strong economic performance has been hindered by high levels of inflation and unemployment and low levels of foreign investment. Some contend that President Ahmadinejad‘s expansionary monetary and fiscal policies have worsened unemployment, inflation, and poverty in Iran. Iran has long been subject to U.S. economic sanctions, and more recently, to United Nations sanctions, over its uranium enrichment program and purported support for terror activities. Such sanctions are believed by many analysts to contribute to Iran‘s growing international trade and financial isolation. Iran‘s economy is highly dependent on the production and export of crude oil to finance government spending, and consequently is vulnerable to fluctuations in international oil prices. Although Iran has vast petroleum reserves, the country lacks adequate refining capacity and is highly dependent on gasoline imports to meet domestic energy needs. To reduce this dependency, the country is seeking foreign investment to develop its petroleum sector. While some deals have been finalized, reputational and financial risks may have limited other foreign companies‘ willingness to finalize deals. While Iran-U.S. economic relations are limited, the United States has a key interest in Iran‘s relations with other countries. As some European countries have curbed trade and investment dealings with Iran, other countries, such as China and Russia, have 

†

Excerpted from CRS Report RL34525 dated January 15, 2009. E-mail: [email protected]

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Shayerah Ilias emerged as increasingly important economic partners. Iran also has focused more heavily on regional trade opportunities, such as with the United Arab Emirates. High oil prices have increased Iran‘s leverage in dealing with international issues, but the country‘s dependence on oil and other weak spots in the economy have to come to light by the 2008 international financial crisis, which may portend a slowing down of Iran‘s economy. Members of Congress are divided about the proper course of action in respect to Iran. Some advocate a hard line, while others contend that sanctions are ineffective at promoting policy change in Iran and hurt the U.S. economy. In the 110th Congress, several bills were introduced that reflect both perspectives. Policies toward Iran likely will remain a key issue for the 111th Congress. This report will be updated as events warrant.

INTRODUCTION The Islamic Republic of Iran is a central focus of U.S. national security policy. The United States has designated the Iranian government as a state sponsor of terrorism. The Administration‘s 2006 U.S. National Security Strategy argues that the United States ―may face no greater challenge from a single country than from Iran.‖ [1] The United States contends that Iran is a destabilizing force in the Middle East and expresses concern about its growing influence in the region and internationally. The Bush Administration has accused Iran of arming Shiite militias in Iraq, providing support to Hezbollah and Hamas, and inflaming sectarian strife in the Middle East. The Administration also has decried Iran‘s uranium enrichment activities, which it alleges are being used to develop nuclear weapons. This report provides a general overview of Iran‘s economy, addresses related U.S. policy concerns, and discusses policy options for Congress. The purpose of this report is two-fold. First, it provides insight into important macroeconomic trends, policy reforms and objectives, Copyright © 2011. Nova Science Publishers, Incorporated. All rights reserved.

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key economic sectors, international trade patterns, and sources of foreign exchange. Second, in the context of U.S. economic sanctions imposed for national security and foreign policy reasons, it evaluates Iran‘s economic structure, strengths, and vulnerabilities and discusses issues and options for Congress. Iran boasts the word‘s third largest petroleum reserves, following Saudi Arabia and Canada, and the second largest gas reserves, after Russia. Iran also has the Middle East and North Africa region‘s second largest economy, after Saudi Arabia, and the second largest population, after Egypt (see Table 1). Nevertheless, Iran faces a number of significant economic challenges. Internal challenges include dependence on oil export revenues to finance government spending and vulnerability to oil price fluctuations; dependence on gasoline imports to meet domestic energy needs; high inflation, unemployment levels, and poverty levels; reported domestic economic mismanagement; and widespread economic inefficiency. External challenges include U.S. and United Nations (U.N.) sanctions and other forms of U.S.-led financial pressure and the fallout from the recent global economic turndown. This report will be updated as warranted by events.

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Table 1. Iran Country Overview Indicator

Description

Land Area

1.6 million square kilometers (slightly larger tha

Population Median Age

65.9 million (CIA) 26.4 years (CIA, July 2008 estimate)

Head of State

Mahmoud Ahmadinejad, elected as President in August 2005

Capital Life Expectancy at Birth

Tehran 70.9 years (CIA, 2008 estimate)

Gross Domestic Product (GDP) GDP Real Growth Rate

$768 billion (purchasing power parity) (EIU FY2007); $724 billion (real GDP translated into U.S. dollars using PPP excha 2005) (EIU, FY2007 estimate) 7.8% (EIU, FY2007 estimate)

GDP Per Capita

$10,781 (EIU, FY2007 estimate)

GDP Composition at Factor Cost (Current Prices) Unemployment Rate

Oil and gas, 27%; industry, 17%; services, 46%; agriculture, 10% (IMF, 2008)

Population Below Poverty Line Inflation Rate (Consumer Prices) Exports

18% (CIA, 2007 estimate)

Export Commodities

Petroleum, chemical and petrochemical products, fruits and nuts, carpets (CIA)

Imports

$55 billion (IMF, FY2007)

Import Commodities

Industrial raw materials and intermediate goods, capital goods, foodstuff and other cons

12%, reported by Iranian government (CIA, 2007 estimate)

17.1% (EIU, FY2007) $91 billion (IMF, FY2007)

Sources: Central Intelligence Agency (CIA) Factbook; IMF, Direction of Trade Statistics. Note: The Iranian fiscal year runs from March 21 st to March 20th.

HISTORICAL CONTEXT The 1979 Islamic revolution changed Iran‘s modern political and economic history. Ayatollah Ruhollah Khomeini and his supporters transformed Iran into an Islamic state with a public sector-dominated economy that was increasingly internationally isolated. With the Iran-Iraq war (19801988), Iran faced negative rates of real economic growth, declines in oil production and revenue, and high levels of inflation. This represented a reversal of economic prosperity in 1960s and 1970s, during which Iran‘s economy experienced real economic growth rates nearing 10%, one of the world‘s highest, along with growth in per capita income and low inflation levels [3]. During the 1990s, Iran strived to rebuild war-torn local production, attract international investment, enhance foreign relations, liberalize trade, and, more recently, redistribute wealth under a series of a five-year economic plans. Post-war economic growth included recovery in oil output, but the country faced a severe economic downturn in the latter part of the decade due to a drop in international oil prices [4].

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Iran is the second largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC). The country‘s oil and gas reserves rank among the world‘s largest. Iran‘s economy is largely dependent on oil and is highly susceptible to oil price shocks. Since the 1979 U.S. embassy hostage crisis in Tehran, Iran has been subject to various U.S. economic sanctions. Such actions have been motivated over time by concerns regarding Iran‘s nuclear program and support for terrorist organizations. More recently, the United States increasingly has focused on targeted financial measures to isolate Iran from the U.S. financial and commercial system. Sanctions have been imposed in order to change the Iranian government‘s policies with respect to its nuclear program and support to terrorist organizations. To that end, the United States has imposed sanctions to curtail the development of Iran‘s petroleum sector and constrain Iran‘s financial resources in a way that motivates policy change in Iran. The United States also has applied diplomatic pressure on foreign countries and companies to limit business with Iran [5]. In addition to the United States, some European Union states and other countries have imposed sanctions on Iran in line with moves by the United Nations (U.N.). The United States also has pushed for stronger international sanctions against Iran in the U.N. Most recently, in March 2008, the United Nations Security Council (UNSC) passed a third round of sanctions against Iran through Resolution 1803, calling for the inspection of suspicious international shipping to and from Iran that are suspected of carrying prohibited goods. It encourages greater monitoring of named Iranian financial institutions, travel bans for named Iranians, and freezes of additional assets related to Iran‘s nuclear program. In June 2008, the five permanent members of the UNSC (Britain, China, France, Russia, and the United States) and Germany offered to suspend further sanctions against Iran if Iran agreed to halt its uranium enrichment program and to begin negotiations on constraints of its nuclear activity [6]. The six countries considered Iran‘s response unclear, and in August 2008, they agreed to pursue a fourth round of U.N. sanctions against Iran [7]. Iran has opposed U.S. and U.N. sanctions vehemently. The country has long maintained that the purpose of its uranium enrichment program is to produce fuel for nuclear power reactors, rather than fissile material for nuclear weapons. The government asserts its right to develop nuclear energy for peaceful purposes. Iran increasingly has questioned the justification of the sanctions in light of some recent positive reports on its nuclear activities. A November 2007 U.S. National Intelligence Estimate (NIE) assesses that Iran stopped its nuclear activities for weapons proliferation in 2003 [8]. Iran and the International Atomic Energy Agency (IAEA) agreed in August 2007 on a work program that would clarify the outstanding questions regarding Tehran‘s nuclear program. Iran has clarified some questions, but a May 2008 report by the IAEA raised major new questions about Iran‘s nuclear intentions [9].

OVERVIEW OF IRAN’S ECONOMY Since FY2000, Iran‘s economy has experienced real economic growth rates of about 6.4% on average annually [10]. The annual change in real GDP reached a high of 7.8% in FY2007 (see Table 2). Recent economic growth has been driven by government spending on priority sectors, expansionary monetary and fiscal economic policies, increased growth in credit, and private consumption. Despite high international oil prices, the contribution of the

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oil and gas sector to economic growth has been more modest; real oil and gas GDP growth was estimated to be 1% in FY2007. The oil economy has been faced with low levels of production and inadequate investment [11]. U.S. and UN sanctions levied against Iran, along with the poor domestic business environment, may contribute to low levels of investment. Iran‘s economic growth is expected to slow in the coming months, owing to the decline in international oil prices in late 2008, domestic economic mismanagement, and limited oil revenue savings to weather the recent global economic turndown [12]. Table 2. Iran’s Average Annual Real GDP Growth: 2000-2009 Fiscal Year 2000

Average Annual Growth (%) 5.1

2001

3.7

2002

7.5

2003

7.1

2004

5.1

2005

4.7

2006

5.8

2007

7.8

2008 (estimate)

6.5

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2009 (forecast) 3.5 Source: Economic Intelligence Unit (derived from World Bank, World Development Indicators).

Iran‘s economic growth has been hampered by consistently double-digit rates of inflation. Although high inflation is widespread among the oil-exporting countries in the Middle East and Central Asia, Iran has one of the highest [13]. Iran‘s average Consumer Price Index (CPI) inflation reached 17.1% in FY2007 and is projected to grow to 28.0% for FY2008 [14]. By some estimates, Iran‘s inflation level is over 30% presently [15]. Iranians struggle with the rising cost of basic foods, such as rice, chicken, and eggs, and housing prices, [16] which have eroded real wages. The poor are hit hardest by inflation. It is the poor, mainly from rural areas, who supported President Ahmadinejad in the 2005 presidential election. Support for Ahmadinejad weakened marginally during the March 14, 2008 parliamentary elections, despite Iran‘s economic difficulties. Domestic factors contributing to the rise in inflation include expansionary government economic policies and growing consumption demands. External factors include international sanctions against Iran and rising international food and energy import prices [17]. Inflation levels have been associated with Ahmadinejad‘s efforts to curb banking interest rates for loans to sub-inflation levels. The Central Bank has opposed these hikes. Inflation levels are expected to ease in the coming months due to the decline in international prices for oil and other commodities. The unemployment rate remains high, reaching 12.1% in FY2007. [18] Some observers contend that the unemployment rate is higher than figures reported by the Iranian government. At least one-fifth of Iranians lived below the poverty line in 2002 [19]. Iran has a

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young population [20] and each year, about 750,000 Iranians enter the labor market for the first time, placing pressure on the government to generate new jobs [21]. The emigration of young skilled and educated people continues to pose a problem for Iran. The IMF reports that Iran has the highest ―brain drain‖ rate in the world [22].

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ECONOMIC POLICY AND REFORM EFFORTS Over the past few decades, Iran has engaged in a series of five-year economic plans in order to shift its state-dominated economy into an economy that is market-oriented, private sector-led, and economically diversified. Reform efforts have experienced resistance from various elements of Iran‘s political establishment. Significant strides toward trade liberalization, economic diversification, and privatization took place under the Khatemi administration (1997-2005). The government introduced some structural reforms such as tax policy changes and adoption of new foreign investment laws to promote Iran‘s global market integration and attract investment. Iran shifted to a unified managed float exchange rate system in March 2002 [23]. At various times previously, Iran has had different combinations of exchange rates, including official, export, parallel market, and Tehran stock market versions. The exchange rate reform is considered to have improved Iran‘s trading environment and to have enhanced public sector transparency modestly [24]. President Ahmadinejad has taken a more populist approach with his economic policies, with promises of ―bringing the oil money to people‘s tables‖ when he took office in 2005. Some critics maintain that policies under President Ahmadinejad have been a major contributor to budget deficits and are ineffective tools for combating inflation, unemployment, and poverty [25]. In line with Ahmadinejad‘s populist agenda, fiscal policy has been expansionary. The government provides extensive public subsidies on gasoline, food, and housing. Energy subsidies alone represent about 12% of Iran‘s GDP. Some observers estimate total subsidies to reach over 25% of GDP. When including implicit subsidies, the government‘s spending on subsidies may be even higher. In addition to subsidies, President Ahmadinejad has provided cash handouts to the poor. Subsidies and cash handouts are considered by many to be untargeted and ineffective at helping the poor. The IMF has encouraged Iran to reduce its subsidies [26]. Monetary policy also has been expansionary under Ahmadinejad. The government has provided low-interest loans for agriculture, tourism, and industry and has instituted loan forgiveness policies. Other activities include the creation of a number of social programs to assist farmer and rural residents [27]. Ahmadinejad‘s cabinet established the $1.3 billion Imam Reza Mehr Fund (Imam Reza Compassion Fund) to assist youth with marriage, housing, and education in 2006 [28]. As in other Middle Eastern countries, the rising cost of marriage is financially prohibitive to many young Iranians. Interest-free loans are available to youth for marriage through the fund. Some economists contend that Ahmadinejad‘s efforts to lower the interest rate have led to excessive liquidity and inflation [29]. The government has used oil export revenues from the Oil Stabilization Fund (OSF) to support expansionary fiscal and monetary policies. The OSF was created by Iran‘s Central Bank, the Bank Markazi, in 2001 to store surplus oil revenue and to smooth economic vulnerabilities associated with oil price fluctuations [30] Iran has been drawing down on its

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OSF to finance discretionary spending, such as for public subsidies, cash handouts to the poor, and low-interest loans. Of primary concern to the United States and the international community is the purported use of oil export revenues to finance Iran‘s nuclear program and alleged support for terrorist groups. Economic concerns continued to erode President Ahmadinejad‘s political support base in the weeks before the March 2008 parliamentary elections [31] Ahmadinejad‘s party appeared to emerge from the elections with significant continued support, but some allege that this is because many reformist candidates were disqualified from running. Others say that Ahmadinejad‘s faction successfully painted Iran‘s economic difficulties as caused by U.S. pressure. Presidential elections are planned for March 2009, and while Ahmadinejad is favored to win, his position is weakening, in part because of economic concerns [32]. Analysts debate the extent to which Iran‘s economic policies are a result of poor decisions by the Iranian government and sub-optimal choices taken by the government in response to U.S. and international sanctions. Some economists believe that the sanctions augment the government‘s tendency toward state-led rather than private sector-oriented market policies [33].

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IRAN AND THE RECENT GLOBAL ECONOMIC TURNDOWN The recent global economic turndown has placed downward pressure on international oil prices. Given that oil exports account for the bulk of Iran‘s exports and government revenue, the economic downturn is expected to lead to slower economic growth, with annual growth in GDP expected to decline from an estimated 6.5% in FY2008 to a forecasted 3.5% in FY2009 [34]. The economic downturn also may lead to higher levels of unemployment and a reduction in foreign exchange reserves for Iran. On the upside, lower oil prices may ease inflationary pressures. In a reversal of previous public stances, in December 2008, Ahmadinejad admitted for the first time that the decline in international oil prices will have a negative effect on Iran‘s economy [35]. While estimates vary about the size of the Oil Stabilization Fund (OSF), many observers express concern that there are no longer sufficient funds in the OSF to cushion against the global economic turndown [36] Ahmadinejad has been drawing down on the OSF to fund his expansionary economic policies and, reportedly, to fund Iran‘s uranium enrichment program and terror support. In light of the recent fluctuations in oil prices, the government may revise its budget estimates for next year. Previously, the government planned to base the budget on an oil price of $50 to $60 per barrel, but now may use an oil price estimate of $37.50 per barrel [37]. Ahmadinejad has proposed a plan to eliminate energy subsidies and to provide monthly allowances to the poor instead. Critics contend that the plan would push inflation higher and is an effort to boost Ahmadinejad‘s election-year support [38]. There are also concerns that elimination of government subsidies may lead to social instability. Iran‘s isolation from the financial world due to U.S. and international sanctions has provided some insulation for Iranian banks and the Tehran Stock Exchange (TSE) from the global financial crisis. However, between October and December of 2008, the TSE fell by nearly 20%, with investor confidence shaken by the global economic turndown and the impact of declining oil prices on Iran‘s economy [39]. Moreover, as world credit markets dry up, Iran has faced decreased options in circumventing U.S. sanctions and accessing foreign

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investment [40] Iran‘s weakened economic position may reduce its leverage against the U.S. and other foreign countries over its uranium enrichment program and reported terror financing.

ECONOMIC STAKEHOLDERS Iran‘s economy is heavily dominated by the state, which is the recipient of revenues from crude oil exports, and quasi-state actors, such as the bonyads and the commercial entities of the Islamic Revolutionary Guard Corp (IRGC). Private sector activity is limited, although the government is engaged in some privatization efforts.

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Bonyads Sometimes referred to as ―Islamic congolomerates,‖ bonyads (Persian for ―foundation‖) are semiprivate charitable Islamic foundations or trusts that are believed to wield enormous political and economic power in Iran. They were among the institutions used by the regime to help nationalize Iran‘s economy after the 1979 revolution. Bonyads are not subject to the Iranian government‘s checks and balances. Bonyads report directly to the Supreme Leader and are not subject to parliamentary supervision. They do not fall under Iran‘s General Accounting Law and, consequently, are not subject to financial audits. Because bonyads are not required to disclose their financial activities, it is not known exactly the magnitude of their wealth. The largest Iranian charitable trust is the Foundation of the Oppressed and War Veterans (Bonyad e-Mostazafan va Janbazan, MJF). With more than 200,000 employees and 350 subsidiaries, the MJF has an estimated value of more than $3 billion, at least 10% of Iran‘s gross domestic budget (GDP). The MJF provides financial assistance, medical care, and recreational opportunities to Iran‘s poor and individuals wounded or disabled from the IranIraq war. Through its company affiliates, the MJF is involved in both Iran‘s domestic economy and foreign economies. The MJF‘s domestic economic scope is expansive, with affiliates involved in economic areas such as agriculture, construction, industries, mining, transportation, commerce, and tourism. Since 1991, the MJF has invested in energy, business, engineering, and agricultural activities in Europe, Russia, Asia, the Middle East, and Africa. Some allege that the MJF is used for Iranian intelligence activities for buying dual-use products for proliferation of weapons of mass destruction (WMDs) [41]. Many believe that bonyads enjoy a significant advantage over private companies. Prior to the unification of Iran‘s exchange rate system, the bonyads were able to access foreign exchange at deep discounts compared to private enterprises. Presently, bonyad officials have longstanding connections with politicians, and frequently get special access to credit at stateowned banks [42]. In addition, bonyads get privileges on taxation and import duties. Some critics contend that economic and political reform in Iran will not be significant unless bonyads are reformed. Some also contend that they contribute to political corruption and limit the funneling of oil wealth to the poor. Bonyads also may limit privatization, because shares for many of Iran‘s national companies undergoing privatization are given to bonyads, rather than wholly private enterprises.

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Islamic Revolutionary Guard Corps The Islamic Revolutionary Guard Corps (IRGC) was founded in 1979 by the Ayatollah Khomeini and is a branch of the Iranian government‘s military. The IRGC is comprised of five branches: the Grounds Force, Air Force, Navy, Basij militia, and Qods Force special operations [43]. The Islamic Revolutionary Guard Corps increasingly is becoming an important player in the Iranian economy. The IRGC‘s initial economic involvement consisted of postwar reconstruction activities, largely infrastructure projects. More recently, the IRGC has become involved in commercial activity in the construction, oil and gas, and telecommunications sector [44] Elements of the Iranian private sector have expressed displeasure with the IRGC. Through its powerful connections, the IRGC frequently acquires business contracts for new projects at the expense of private sector businesses. The IRGC also serves as a leading investment tool for many of Iran‘s leaders. Some Iranians express concern that the IRGC is involved in Iran‘s underground economy. The IRGC has significant control over Iran‘s borders and airports. The IRGC is allegedly involved in smuggling alcohol and other low-level contraband into Iran. Some report that the IRGC smuggles gasoline, which is heavily subsidized in Iran, to other countries for profit [45]. Some analysts believe that the Revolutionary Guard benefits from Iran‘s economic isolation. With foreign businesses unwilling or unable to enter into deals, the Revolutionary Guard faces less competition for acquiring new contracts. However, because the IRGC frequently does not have the technical expertise that many international companies do, the IRGC sometimes subcontracts to international companies, making a profit as an intermediary in the transaction [46]. The United States contends that the IRGC is involved in proliferation of weapons of mass destruction (WMDs). Under Executive Order (E.O.) 13382, the United States can sanction entities for proliferation concerns. The sanctions prohibit all transactions between U.S. persons and the sanctioned entity and freeze any assets that the sanctioned entity has in the United States [47]. On October 25, 2007, under E.O. 13382, the U.S. Department of State designated the IRGC for proliferation concerns. The U.S. embargo on the IRGC represented the first time that the United States has sanctioned a foreign country‘s military. Also on the same day and under the same executive order, the U.S. Treasury identified nine companies either owned or controlled by the IRGC and five individuals associated with the IRGC for proliferation concerns [48]. These companies all are reportedly tied to Iran‘s energy sector [49]. They are listed below: Companies: 

 

Khatam al-Anbya Construction Headquarters: Main engineering headquarters of the IRGC; secured deals of at least $7 billion in oil, gas, transportation, and other sectors [50]; owned or controlled by the IRGC Oriental Oil Kish: Drilling company; owned or controlled by the IRGC Ghorb Nooh: Owned or controlled by the IRGC Sahel Consultant Engineering: Owned or controlled by the IRGC

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Sepasad Engineering Company: Owned or controlled by the IRGC Omran Sahel: Owned or controlled by the IRGC Hara Company: Engineering firm associated with Khatam al-Anbya; owned or controlled by the IRGC Gharagahe Sazandegi Ghaem: Business services company owned or controlledby the IRGC

Individuals:     

General Hosein Salimi: Commander of the Air Force, IRGC Brigadier General Morteza Rezaie: Deputy Commander, IRGC Vice Admiral Ali Akhbar Ahmadian: Former Chief of the IRGC Joint Staff Brigadier General Mohammad Hejazi: Former Commander of Bassij resistance force Brigadier General Qasem Soleimani: Commander of the Qods Force

In addition to WMD proliferation concerns, the United States asserts that the IRGC is involved in terrorist activities. E.O. 13224 permits the President to freeze the assets of terrorists and their supporters [51]. On October 25, 2007, the United States sanctioned the IRGC-Qods Force under E.O. 133224. The United States asserts that the Qods Force provides to Hezbollah‘s military and terrorist activities, with assistance ranging between $100 to $200 million a year [52].

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Private Sector Prior to the 1979 revolution, Iran boasted a vibrant, significant private sector. However, under the leadership of the Ayatollah Khomeini, the bulk of private sector companies, including commercial banks, were taken over by state and quasi-state institutions. Foreign participation in Iran‘s economy was prohibited. Currently, wholly private enterprises are present in agriculture, trade, small-scale manufacturing, and mining, but play a minimal role in large-scale economic activity [53]. In an effort toward more private sector development, Iran began a major privatization initiative in July 2006. It allowed issuances of up to 80% of shares in strategic industries through the stock market, including downstream oil sector businesses, banks, insurance, utilities, and transportation [54]. Iran is also working to privatize state-run oil and gas companies. Iran‘s private sector competes with the businesses operated by the bonyads and the IRGC. For example, Iranian officials have encouraged foreign companies to enter into the Iranian market. However, many business contracts have been won by quasi-state actors, such as the bonyads and commercial entities of the IRGC. In addition, the private sector is critical of the government‘s use of assets in the OSF to fund state-run companies at the expense of loans to private businesses [55]. Some observers are critical of the Iranian government‘s continued strong involvement in the country‘s economy. Some Iranians believe that the government needs to invest oil export revenues in Iran‘s private sector rather than spending revenues on imports [56] and socially minded programs.

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Historically, Iran has been a society of trade merchants, the bazaari class. As manufacturing in Iran is limited, merchants import goods, mark up the goods for profit, and then sell. In order to be economically viable, the bazaaris need low employment costs, low rents, free trade, and low regulation. The bazaaris tend to be skeptical of a large government role in the economy. They are supportive of Iranian trade with foreign countries. However, they tend to be critical of foreign investment because it would open up their companies to foreign competition [57].

ECONOMIC SECTORS Iran‘s economy has a number of key sectors. In FY2007, oil and gas represented about 27% of the country‘s GDP. Industry, which includes petrochemicals, steel, textile, and automotive manufacturing, accounted for 17% of the GDP. The services sector, including financial services, represented 46% of Iran‘s economy. Agriculture constituted about 10% of Iran‘s economy [58]. Agriculture continues to be one of the economy‘s largest employers, representing one-fifth of all jobs based on a 1991 census [59]. Some analysts have expressed concern that excessive focus on the oil and gas sector is crowding out investment and expansion opportunities in other sectors and opportunities for economic diversification [60].

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Oil and Natural Gas Holding an estimated 10% of global proven oil reserves, Iran boasts the world‘s third largest proven petroleum reserves following Saudi Arabia and Canada. Most of Iran‘s crude oil reserves are in the southwestern region near the Iraqi border. Among the Organization of the Petroleum Exporting Countries (OPEC) members, Iran is the second largest oil producer following Saudi Arabia. Presently, Iran produces about 4 million barrels of crude oil per day (mbd), approximately 5% of total global production. While oil export revenues have spiked in recent years due to a surge in oil prices, Iran‘s crude oil output has remained essentially flat. The government has set a goal of 5 mbd, which is still below the 6 mbd pre-revolution capacity. Iran‘ oil production levels are limited by a number of factors. The oil industry faces a high rate of natural decline of mature oil fields and low oil recovery rates. It is believed that millions of barrels of oil are lost annually because of damage to reservoirs and these natural declines. Iran also has been plagued by aging infrastructure and old technology. Structural upgrades and access to new technologies, such as natural gas injections and other enhanced oil recovery efforts, have been limited by a lack of investment, due in part to U.S. sanctions [61]. The United States is restricted from oil development investments in Iran, but other countries, until recently, have actively invested in Iran‘s oil sector development. With an estimated 15% of the world‘s gas reserves, Iran has the second largest natural gas reserves globally, following Russia [62]. Despite its vast gas resources, Iran has been unable to become a major international gas exporter. In fact, Iran was a net importer of natural gas as late as 2005. Natural gas production could be used for domestic consumption, exports to European and Asian markets, and development of Iran‘s petrochemicals industry [63]. Iran has been seeking international investment to help build its natural gas sector.

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However, U.S. sanctions have limited Iran‘s access to technologies from abroad that are necessary for developing liquified natural gas plants. The intellectual property for these technologies belong to a small network of U.S. and Japanese companies. Providing such technologies to Iran would violate the U.S. trade ban on Iran [64]. The oil and gas sector is heavily state-dominated. Iran is engaging in efforts to privatize nearly 50 state-run oil and gas companies, estimated to be worth $90 billion, by 2014 through the Tehran Stock Exchange. Both domestic and foreign investors would be able to buy shares. Privatization of these energy companies may make it easier for investors to circumvent U.S. sanctions, which complicate investors‘ ability to engage in business transactions with Iran directly [65].

Agriculture Iran is a major world provider source of caviar and pistachio nuts, a significant non-oil export for Iran. The country‘s climate and terrain also support tobacco, tea, wheat and barley, among other food commodities. Iran‘s agriculture production is vulnerable to periodic droughts, including a severe drought in 2008. In addition to climate change, the agricultural sector faced setbacks in production during the 1979 revolution and the war with Iraq [66] Overfishing and environmental degradation also threaten the agriculture sector. Iran typically has used oil export revenues to pay for agricultural imports. However, rising international food commodity prices combined with a large population increase have placed pressure on Iran‘s economy, despite high international oil prices. Other Middle Eastern countries are experiencing similar economic strains [67].

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Manufacturing Iran is working to build up various industries within its manufacturing sector, including steel, automotives, food products, and petrochemicals. There is some concern that Iran‘s manufacturing sector has declined because oil export revenues have increased Iran‘s exchange rate, making the manufacturing sector less competitive [68]. Manufacturing activity reportedly has been impeded by international sanctions. Iranian manufacturing units rely on imported parts and services from Europe. Access to imported intermediate goods has been complicated because a number of European banks have scaled down financial transactions with Iranian businesses [69].

Steel Iran is the largest producer of steel in the Middle East [70]. In 2006, Iran ranked as the th 20 largest producer of crude steel globally. Despite Iran‘s high production levels, the country is a net importer of steel [71]. There has been a ramp-up of growth in demand for steel in the Middle East, fueled by the need for investments in energy project infrastructure and expansion of construction activity.

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Automotives Iran is the 15th largest motor vehicle producer in the world and the largest automaker among the Middle Eastern countries. Iran produces both light and heavy vehicles [72]. Its two biggest automakers are Iran Khodro and Sapia [73]. Auto plants frequently have outdated technology and parts must be imported through third countries. Cars frequently are not fuelefficient, contributing to pollution [74] Despite Iran‘s high level of automotive production, domestic demand for motor vehicles exceeds supply. Iran imports a variety of vehicles, including basic models, luxury vehicles, and vehicles for construction and mining. Iran reduced the tariff rate on auto imports in 2006. Iran recently began joint ventures with foreign companies for auto production, including Peugeot and Citroen (France), Volkswagen (Germany), Nissan and Toyota (Japan), Kia Motors (South Korea), Proton (Malaysia), and Chery (China) [75]. Foreign companies have entered the Iranian auto market with some caution in light of concerns about U.S. reaction and reputational risks.

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Food Products Additionally, there has been a growth in agriculture-related manufacturing, such as rice milling and manufacturing of canned food and concentrates, fruit juices, and confectionary. Foreign companies, such as Nestle, Coca Cola, and Pepsi have signed deals for production with local Iranian businesses [76]. Under U.S. sanctions regulations, foreign subsidiaries of American companies are able to trade or engage in business in Iran. Petrochemicals Iran is the second largest manufacturer of petrochemicals in the Middle East, following Saudi Arabia. About half of Iran‘s petrochemical product sales are for its domestic market [77]. In an attempt to diversify its exports, Iran also is building up its petrochemicals industry [78]. The industry reportedly faces some challenges from state intervention and price-fixing. Additionally, international sanctions have reduced commercial banks‘ willingness to finance international deals to build the petrochemical sector [79].

Financial Sector Iran‘s financial sector has been heavily dominated by large, public banks since the nationalization of the banking system after the 1979 revolution. Over the past couple of decades, Iran has engaged in some privatization and liberalization of its financial sector. In 2001, Iran‘s Central Bank approved licenses for three full functioning private banks. Efforts toward privatization have been thwarted frequently by the Guardian Council. The government has direct control over lending and investment activities of commercial banks. The Bank Markazi, Iran‘s Central Bank, is not able to conduct a ―proactive‖ monetary policy and has no control over the government‘s fiscal policy. In addition, the Central Bank is limited in its ability to issue direct instruments to combat inflationary pressures. The Central Bank must obtain approval from the Majlis in order to issue participation papers [80]. State-owned banks are considered by many to be poorly functioning as financial intermediaries. Private banks are hampered by extensive regulations and the government‘s populist policies, including controls on rates of return and subsidized credit for specific

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regions. In May 2007, President Ahmadinejad capped lending rates to 12% for state-owned banks and 13% for commercial banks, despite strong opposition from the Central Bank. Setting interest rates below the rate of inflation reportedly has placed many commercial banks under financial duress [81]. In addition, most of the financial intermediaries‘ loan portfolios are comprised of low-return loans to state-owned enterprises and quasi-government agencies, such as the bonyads. Some believe that the financial system has stifled domestic business and has lowered Iran‘s attractiveness to foreign businesses.

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Tehran Stock Exchange In 1967, Iran began operating the Tehran Stock Exchange (TSE). With initially six companies, the TSE now lists over 300 companies. Capitalization through the TSE is permitted for the automotive, mining, petrochemical, and financial sectors. Since 2005, foreign investors have been able to participate in the TSE. Foreign investors are permitted to hold a maximum of 10% of shares of each company listed and are not allowed to withdraw their capital for three years after purchases. However, foreign activity in the TSE is low. Aside from concerns about the international tensions associated with Iran‘s nuclear standoff, low foreign activity may also reflect concerns about liquidity, transparency, and the poor legal environment protecting foreign holdings [82]. The TSE index performed strongly between 2000 and 2004, but declined following President Ahmadinejad‘s election in 2005. During the 2007, the TSE market stabilized, but was still 20% lower than before Ahmadinejad came into power [83]. At the end of 2007, TSE market capitalization stood at $46 billion [84]. It is hoped by the Ahmadinejad government that privatization plans will help to revive the stock market. Because the TSE is not extensively integrated into the world market, it has been somewhat insulated from the global financial crisis. However, between October and December of 2008, the TSE fell by nearly 20%, with investor confidence shaken by the global economic turndown and the impact of declining oil prices on Iran‘s economy [85]. Financial Sanctions The U.S. Department of Treasury recently has employed targeted financial measures against Iran. The United States is attempting to isolate Iran from the international financial and commercial system in an effort to promote policy change in Iran regarding its nuclear program and purported terror financing. The United States also hopes that financial isolation will limit Iran‘s resources for its nuclear program and its alleged support for terrorist organizations. In recent congressional testimony, the Treasury Deputy Assistant Secretary for Terrorist Financing and Financial Crimes stated, ―Iran utilizes the international financial system as a vehicle to fund these terrorist organizations... the Iranian regime operates as the central banker of terrorism, spending hundreds of millions of dollars each year to fund terrorism.‖ [86] Several major Iranian banks are under U.S. and U.N. sanctions. Under E.O. 13224, [87] the Treasury has designated several Iranian entities for supporting terrorism. On October 25, 2007, the Treasury designated Bank Saderat, a major Iranian state-owned financial institution, for terrorism support. Iranian authorities contend that two external audits of Bank Saderat conducted in Lebanon and London found no evidence of such allegations [88]. On January 9, 2007, the Treasury sanctioned Bank Sepah, another major Iranian financial enterprise, under E.O. 13382 [89] for assisting with Iran‘s missile program [90] U.N. Security

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Council Resolution 1747 named Bank Sepah and Bank Sepah International as financial institutions involved in financing nuclear or ballistic missile activities. Subsequently, on October 25, 2007, under E.O. 13382, the Treasury Department sanctioned Bank Melli and Bank Mellat, other major Iranian financial institutes, as WMD proliferators or supporters [91]. In June 2008, the European Union also decided to sanction Bank Melli. In a signal to Arab countries, the United States sanctioned the Bahraini Future Bank B.S.C. in March 2008 under E.O. 13382 for reportedly assisting in Iran‘s nuclear and missile programs. The United States contends that Future Bank B.S.C. is controlled by the embargoed Bank Melli [92]. In a move to further restrict Iran‘s access to the U.S. financial system, the Treasury revoked the ―U-turn‖ license for U.S. financial institutions on November 6, 2008 [93]. With respect to Iran, ―U-turn‖ fund transfers are financial transactions that pass through the U.S. financial system only en route from one offshore non-Iranian financial institution for another, conducted for the direct or indirect benefit of the Iranian government, banks, or individuals. Previously, U.S. financial institutions were allowed to process such financial transactions. The United States and some European countries assert that certain Iranian banks and their branches are attempting to circumvent international financial sanctions in order to engage in proliferation-related activity and terrorist financing. Iranian government officials have denied these claims [94]. Financial sanctions reportedly have affected the profitability of Iranian banks and damaged Iran‘s credit ratings. Financial intermediaries have faced challenges financing development projects, such as building oil infrastructure [95]. Iran is taking steps to protect its foreign assets from future international sanctions. For instance, Iran reportedly has started shifting billions of dollars from European banks to Iranian and Asian banks and purchasing gold and equities. However, some economists express concern that Asian banks may not be reliable because of their close relationship to Europe‘s economy [96].

Money Laundering Iran‘s financial system may be vulnerable to money laundering. Since 2002, the Central Bank of Iran has engaged in efforts to combat money laundering. In January 2008, Iran passed its first anti-money laundering law, which criminalized money laundering. Critics contend that Iran‘s money laundering framework is not adequate to combat the terrorist financing through Iran‘s financial system. There is international concern that these vulnerabilities pose a threat to the international financial system. On March 3, 2008, the U.S. Treasury‘s Financial Crime Enforcement Network (FinCEN) issued a statement emphasizing concern about ongoing deficiencies in Iran‘s efforts to combat money laundering and the financing of terrorism through its financial system. The U.S. Treasury advisory stated that, using state-owned banks, Iran ―disguises its involvement in proliferation and terrorism activities through an array of deceptive practices specifically designed to evade detection.‖ Of particular concern to the U.S. Treasury is that Iran‘s central bank and commercial banks have requested their names to be removed from international transactions in order to make it more difficult to track their involvement. The Treasury advisory noted 59 major Iranian banks or their branches in international financial cities that pose threats, including Iran‘s central bank. None of the banks listed currently face U.N. or U.S. sanctions [97]. The advisory encouraged all financial institutions to consider the risks associated with doing with the specified Iranian financial institutions

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[98]. Additionally, the Financial Action Task Force (FATF), a Paris-based ―international financial watchdog,‖ called on its 34 member states to encourage banks to monitor their financial interactions with Iran. The FATF alleges that Iran has not taken adequate actions to combat money laundering and terror financing [99]. Iranian officials assert that the Bank Markazi complies with international best practices and that it vigilantly regulates domestic financial institutions.

Informal Finance Sector Many Iranian businesses and individuals also rely on hawala, an informal trust-based money transfer system that exists in the Middle East and other Muslim countries. Hawala transactions are based on an honor system, with no promissory instruments exchanged between the parties and no records of the transactions. Some analysts consider the hawala system as particularly susceptible to terrorist financial transactions. Since the imposition of recent U.S. and U.N. financial sanctions on Iran, the use of hawala by Iranians reportedly has increased. It is considered by many Iranians to be a more cost-effective way to transfer money in light of the added expenses incurred through working through the formal financial system in light of the sanctions. According to a Iranian merchant, ―If we wanted to send money through the banking system it would cost a small fortune, so we move money to dealers and they send the money through Dubai to China.‖ While some assert that the use of hawala shows that Iran is able to circumvent international sanctions successfully, others suggest that the increased use of hawala is a sign of the sanctions‘ effectiveness in making it more difficult for Iran to finance transactions [100].

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INTERNATIONAL TRADE International trade contributes significantly to Iran‘s economy and has increased dramatically over the past few years. Between 2004 to 2007, Iran‘s total trade in goods (exports plus imports) nearly doubled, reaching about $147 billion in 2007. Iran enjoys a growing and positive trade balance in goods, benefitting from high international oil prices. This trade surplus registered at about $36 billion in 2007. Exports totaled about $91 billion, while imports reached about $55 billion that same year (see Table 3). Some analysts point out that Iran‘s trade with the world may actually be higher due to transshipment or black market trade. Overall, Iran‘s external sector position has strengthened in recent years. The current account balance reached an estimated $29 million in 2007, about 10% of Iran‘s GDP at market price [101]. The current account surplus is expected to decline in 2009 with the drop in international oil prices.

Major Goods Traded Oil and gas exports dominate Iran‘s export revenues, constituting about 80% of total exports and are the most important source of foreign exchange earnings for the country. Other major export commodities are petrochemicals, carpets, and fresh and dried fruits. Top destinations for Iran‘s non-oil exports, including natural gas liquids, are the United Arab Emirates (UAE), Iraq, China, Japan, and India. Major imports for Iran include gasoline and

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other refined petroleum products, industrial raw materials and intermediate goods used as manufacturing inputs, capital goods, food products, and other consumer goods. Table 3. Iran Merchandise Trade, FY2004-FY2007 (millions of U.S. dollars) Merchandise

2004

2005

2006

2007a

Exports

44,364

64,366

75,537

91,289

Oil and gas Non-oil and gas

36,827 7,537

53,820 10,546

62,458 13,079

76,858 14,431

Imports Gasoline b

38,199 2,639

43,058 4,190

49,292 5,745

55,352 6,135

Trade Balance

6,165

21,281

26,245

35,938

Total Trade

63

451

829

641

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Sources: IMF, ―Islamic Republic of Iran: 2008 Article IV Consultation,‖ August 2008, IMF Country Report No. 08/284. IMF, ―Islamic Republic of Iran: 2006Article IV Consultation,‖ March 2007, IMF Country Report No. 07/100. a. All data for 2007 are estimated. b . Gasoline imports data, based on the ―2006 Article IV Consultation,‖ are preliminary for 2005 and projected for 2006 and 2007. The ―2008 Article IV Consultation‖ does provide an update on gasoline imports data.

Importance of Oil Exports to Iran’s Economy Despite low production levels, Iran remains the fourth largest exporter of crude oil worldwide, after Saudi Arabia, Russia, and Norway [102]. Net crude and product exports in 2006 totaled 2.5 million barrels per day and $54 billion revenues. Top export markets for Iran are Japan, China, India, South Korea, and Italy. More than 40% of the world‘s oil traded goes through the Strait of Hormuz, a channel along Iran‘s border. The Strait of Hormuz is considered a global ―chokepoint‖ because of its importance to global energy security. It is a narrow channel with a width of only 21 miles at its widest point through which large volumes of oil are shipped [103]. Oil revenue accounts for the majority of export earnings and represents the bulk of government revenue (about 40%). Iran‘s dependence on oil export revenues makes the country highly susceptible to the volatility of international oil prices. The quadrupling of global oil prices since 2002 has given Iran enormous economic and political leverage, cushioning the extent to which Iran‘s economy has been affected by international sanctions and domestic policy mismanagement. However, the recent decline in oil prices may highlight weaknesses in Iran‘s economy. There is debate about the extent to which the recent decline in oil prices will affect Iran‘s economy. Oil price declines would reduce government revenue and spending and potentially increase Iran‘s vulnerability to sanctions. Oil price drops also would affect the private sector, as Iran imports a significant portion of its capital and machinery goods from abroad. A fall in oil prices and subsequent economic downturn may increase political dissent among Iranians, already facing high unemployment and inflation levels.

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Iran’s Dependence on Gasoline Imports Despite Iran‘s vast oil reserves, the country must import close to half of all refined petroleum products to meet domestic consumption needs. Iranian gasoline imports were projected to total $5.7 billion in FY2006 and $6.1 billion in FY2007 [104]. Extensive government subsidies on gasoline have contributed to high gasoline consumption rates. Many analysts contend that high subsidies do not give Iranians an incentive to conserve. In addition, there has been an increase in vehicle sales, particularly of fuel-inefficient older models. Import levels are also high because Iran has limited domestic refinery capacity to produce light fuels [105]. However, gasoline‘s share of imports has fallen recently, from 18% in FY2005 to 6% during the first eleven months of FY2007, according to Iran‘s Customs Administration. In June 2007, the government implemented a gasoline rationing system to reduce gasoline consumption. This policy was extremely unpopular and led to public riots, but has led to a drop in gasoline consumption. Oil consumption also is declining as consumers are moving more toward natural gas use. Major gasoline suppliers to Iran historically have been India, Turkmenistan, Azerbaijan, the Netherlands, France, Singapore, and the United Arab Emirates. Iran also imports gasoline from multinational companies (MNCs), particularly Europe-based wholesalers. Based on data from 2005 through 2006, Turkmenistan was Iran‘s only supplier of natural gas [106]. In 2006, Vitol, a MNC based in Switzerland, supplied Iran with 60% of its total gasoline cargo imports. In December 2007, Vitol reportedly declined to renew long-term contracts with Iran, but still provides gasoline to Iran on the spot market. Major gasoline suppliers to Iran include BP, Royal Dutch/Shell (Netherlands), Total (France), Lukoil (Russia), and Sinopec (China). In addition, Venezuela supplies small quantities of gasoline from time to time in a show of political solidarity with Iran. Iran and Venezuela have sought to counter U.S. global influence and strengthen their own international standing and reputation through strategic alliances [107]. Iran would be threatened if it was cut off from imports of gasoline, which allows Iran to meet domestic energy consumption demands. This vulnerability was highlighted in December 2007, when Turkmenistan halted natural gas supplies to Iran in a pricing dispute. Millions of Iranians suffered from the bitter cold with lack of gasoline for heating during one of the coldest winters in recent Iranian history. Turkmenistan has since resumed supplying gasoline to Iran.

Key Trading Partners In 2007, Iran‘s top overall trading partner was China. Iran‘s next overall largest trading partner is Japan, followed by Italy, South Korea, and Germany. Significant export markets for Iran are China, Japan, Turkey, and Italy. Major merchandise suppliers for Iran include Germany, China, the United Arab Emirates, and South Korea (see Table 4). Iran‘s trading relations have changed over time as international concern over Iran‘s nuclear program has affected economic activity. Historically, Iran has had strong trade ties with Germany. In 2007, Iran‘s exports to Germany increased by 50%, while imports from Germany declined by 4%. Despite the increase in exports, Iran‘s total trade with Germany

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dropped by 0.3% in 2007 [108]. Along with Germany, other European countries also have scaled down trade with Iran lately. Table 4. Major Export Markets and Sources of Imports for Iran, FY2007 (millions of U.S. dollars) Country

Total Trade

Exports

Imports

Trade Balance

China

20,135

12,188

8,017

4,101

Japan

13,064

11,599

1,465

10,134

South Korea

8,421

5,139

3,282

1,857

Italy

8,039

5,215

2,824

2,391

Turkey

7,539

6,013

1,526

4,487

Germany

6,066

621

5,445

-4,824

UAE

5,915

747

5,168

-4,421

France

5,334

3,069

2,265

804

Russia

2

282

0

Source: IMF, Direction of Trade Statistics.

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Iran‘s trade has shifted from Western countries to the developing world. Asian countries, particularly China and Japan; Russia and other Central Asian countries; and Middle Eastern countries, especially the United Arab Emirates, have emerged as growing and important trading partners for Iran. Figure 1 shows the shift in Iran‘s exports to trading partners is shown in from FY2000 to FY2007, while Figure 2 shows the change in Iran‘s import relationships during the same period.

Source: IMF, Direction of Trade Statistics. Figure 1. Iran‘s Exports to Select Countries, FY2000-FY2007.

Facing challenges in trading with Western countries, Iran has sought to strengthen ties with Asian countries, most notably China and Japan. Between 2000 and 2007, total trade between Iran and China grew more than nine-fold, reaching about $20 million in 2007. China was Iran‘s biggest exporter in 2007, followed by Japan and Turkey. Iran benefits from low-

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cost imports from China. Major Chinese exports to Iran include mechanical and electrical equipment and arms. Iran‘s growing trade relationship with China also may be rooted in strategic reasons, such as China‘s position as one of five permanent UNSC members [109].

Source: IMF, Direction of Trade Statistics.

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Figure 2. Iran‘s Imports From Select Countries, FY2000-FY2007.

Russia is becoming an important trading partner for Iran. While Iran-Russia trade is low compared to Iran‘s trade with other countries, this relationship has grown significantly. Iranian imports from Russia more than tripled from 2000 to 2007 and registered at about $3 million in 2007. In addition, several countries in central Asia have declared their interest in boosting economic engagement with Iran, including Tajikistan [110]. Iran, Turkey, and Azerbaijan have held discussions on building a joint railway through the three countries in order to enhance relations, trade, and travel [111]. Iran also has pursued increased integration with its neighbors in the Middle East. Merchandise trade with the Middle East has grown. Arab nations may be weary of Iran‘s nuclear ambitions, but they appear to value trade and investment relations with Iran. Many are hoping that positive economic engagement with Iran will mitigate international tensions over Iran‘s nuclear ambitions.

United Arab Emirates and Transshipment Trade The UAE is a major trading partner for Iran, with trade largely dominated by UAE exports to Iran. According to the UAE Ministry of Economy, total non-oil trade between UAE and Iran was upwards of $6 billion in 2006. The bulk of merchandise supplied to Iran by the UAE is believed to be products imported into the UAE from foreign markets, including the United States, European Union, China, and India, and subsequently repackaged for shipment to Iran. Iran represents about 14% of the UAE‘s total exports, including re-exports. According to the Dubai Chamber of Commerce and Industry, re-exports accounted for about 60% of the UAE‘s $6.8 billion trade with Iran in 2006. The rest of the trade came from the UAE‘s free trade zones. Iran‘s foreign investments in Dubai are more difficult to verify, but may have neared $300 billion, about a quarter of Iran‘s total foreign investments [112]. The UAE thrives as a central re-exporting and distribution center in the Persian Gulf because of its low tax rates, free trade zones, lower delivery times, enhanced handling and service capacity, and a perception of lax export controls. Dubai, in particular, is Iran‘s economic lifeline to the rest of the world. Through Dubai, Iran is able to import goods that the

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country cannot import directly due to international and U.S. sanctions. Although U.S. businesses are outlawed from operating in Iran, many reportedly can circumvent U.S. sanctions by sending their investments through Dubai. The United States increasingly has pressured the UAE to make its export controls more stringent. Generally speaking, the UAE has resisted such pressure. In recent months, the UAE appears to be taking actions to regulate trade and investment relations with Iran in a more stringent manner. In September 2007, the UAE passed a law permitting it to place restrictions on dual-use technologies, chemical and biological weaponry, and military equipment. The UAE recently used the new law for the first time to impound a vessel at Jebel Ali that was delivering merchandise to be transshipped to Iran [113]. About 40 Iranian companies were closed in 2007 based on UAE efforts to reduce trade in goods with potential ―dual use‖ [114]. Financial institutions in the UAE reportedly are restricting Iran‘s access to credit, making it harder for Iranian businesses to trade goods with the UAE. Some UAE banks reportedly have frozen the assets of Iranian firms and have reduced opening letters of credits to Iranian businesses [115]. UAE-based banks may be wary of reputational and financial risks associated with such transactions. Consequently, some Iranian businesses have had to shift to other regional banks or have had to engage in cash-based transactions, raising the costs of goods on the end-user [116] Dubai continues to be an important transshipment hub for Iran, but some parts of the Iranian business community are concerned about the potential implications of a more stringent UAE approach to commercial ties with Iran. There is a possibility that trade diversion to Iran may take place through other countries if the UAE is perceived as a hostile business environment [117]. Ahmadinejad asserts that foreign interference would not affect expanding economic relations between Iran and the UAE, Iran‘s most important trading partner. While bilateral trade between the United States and the UAE is significant, the UAE‘s trade with Iran is far greater [118]. Both Iran and UAE officials maintain that they would protect their relations from foreign pressure [119].

U.S.-Iranian Trade U.S. trade with Iran is limited, receding drastically with the 1987 U.S. ban on imports from Iran and the 1995 ban on U.S. exports to and investments in Iran. Before 1995, major U.S. exports to Iran included machinery and industrial equipment. U.S. exports virtually came to a standstill with the 1995 embargo on U.S. trade and new investment in Iran. Sanctions were relaxed to a certain extent in 2000, with the election of President Khatami in Iran. While U.S. trade with Iran is low compared to U.S. trade with other countries, there has been notable growth in U.S.-Iranian trade. In 2007, U.S. exports to Iran totaled $145 million, close to double 2006 export levels and more than eight times greater than 2000 export levels (see Table 5). Currently, the primary U.S. exports to Iran are pharmaceuticals, tobacco products, wood pulp, and optical and medical instruments.

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Shayerah Ilias Table 5. U.S.-Iranian Trade, FY2000-FY2007 (millions of U.S. dollars) Year

U.S. Exports

U.S. Imports

Balance

2000

17

169

-152

2001

7

143

-136

2002

32

156

-124

2003

99

161

-62

2004

85

152

-67

2005

96

175

-79

2006

86

157

-79

173

-28

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2007 145 Source: U.S. Census Bureau, Foreign Trade Statistics.

The top U.S. imports from Iran are textile and floor coverings, art and antiques, fish and seafood (caviar), prepared meat and fish, and edible nuts and foods (pistachios). There is evidence that Iran is able to obtain embargoed U.S. goods through the reexport trade, mainly through Dubai [120]. In general, entities targeted by U.S. sanctions do little business with the United States. Consequently, the United States must depend on other countries to reduce trade and investment with Iran in an effort to change Iran‘s policies. In December 2005, President Bush remarked, ―We are relying on others because we have sanctioned ourselves out of influence with Iran.‖ [121]. According to U.S. Secretary of State Condoleezza Rice, the targeted financial sanctions are a ―powerful deterrent to every international bank and company that thinks of doing business with the Iranian government.‖ [122]. Such sanctions would have little effect on U.S.-Iran trade since such trade is already limited. However, the action would send a strong signal to foreign countries and may hurt Iran‘s trade with major trading partners [123].

International Sanctions and International Trade Since 2006, European Union countries, including France, Germany, and Britain, have curtailed export credits to companies doing business in Iran [124]. For example, in 2007, German export credits backing trade with Iran totaled about $730 million, about half the value of German export credits in 2006 and one-fifth that in 2004 [125]. Germany does not actively dissuade companies from doing business in Iran, but it is conducting extra scrutiny of export authorizations requests and evaluating the financial risks of doing business with Iran more closely [126]. Some large European banks have reduced businesses with sanctioned Iranian bodies. For instance, Germany‘s Commerzbank and Deutsche Bank, have been reducing or stopping business with Iran. The United Kingdom‘s HSBC and Standard Chartered have also reduced business with Iran [127]. Many European banks that have curtailed business with Iran are leaving offices open on a minimal basis in case there is a change in the international climate towards Iran [128].

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The merchant class has particularly been hurt by the international sanctions. Iranian businessmen reportedly have increased difficulty opening bank accounts abroad and getting foreign banks to honor letters of credit. According to Iranian officials, over half of the banks in Dubai no longer provide credit to businesses based in Iran [129]. As Iranian businesses experience setbacks in obtaining trade financing from international banking partners, they may turn to lesser known banks or to other banking partners not susceptible to international pressure, but potentially raising the cost of business. In particular, the Islamic Republic has turned toward banks in Gulf Cooperation Council (GCC) countries. Sanctions against Iran‘s shipping industry also may pose challenges for Iran‘s trade with the rest of the world. U.S. sanctions imposed on the shipping company Islamic Republic of Iran Shipping Lines (IRISL) and its affiliates likely will have limited affect on Iranian trade, as the IRISL and its subsidiaries do little business in U.S. waters, the bulk being in China and other Asian countries. U.N. sanctions, which allow for the inspection of Iranian vessels suspected of carrying embargoed goods, may have more impact on Iran‘s international trade. To avoid being stopped, Iranian vessels may choose to sell under foreign flags, which are subjected to a 10% import duty by the Iranian government. While the Transportation Minister exempted Iranian vessels sailing under foreign flags from the import tax, the provision has yet to be implemented. Consequently, if the U.N. sanctions are followed closely, they may ramp up the cost of business for Iranian shipping companies and raise the price of imports for Iranian consumers [130].

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Trade Liberalization In 1995, Iran became a WTO observer state and, since then, has repeatedly put forth applications to become a permanent WTO member. Accession to the WTO is a stated priority of the Iranian government. Iran cites the more favorable treatment that WTO members give to one another and competition from Asian countries in textiles and manufactures as important challenges to Iranian exports [131]. The United States repeatedly blocked Iran‘s bids to join the WTO over concerns about Iran‘s nuclear program and support for terrorist activities. On the other hand, many European Union countries and developing countries have supported Iran‘s accession. Iran and many other countries maintain that WTO membership should not be based on political reasons, but rather, on economic and business grounds [132]. In a significant policy shift toward Iran in May 2005, the United States agreed to stop blocking Iran‘s attempts to join the WTO as part of economic incentives to Iran to resolve the nuclear program issue. However, the most recent negotiations for accession have ceased because of political reasons and Iran continues to not be a member of the WTO [133]. The WTO accession process is lengthy and some Iranians have expressed concern that domestic momentum for the reforms necessary for accession has waned. Iran, along with Russia, now remain the two largest economies outside of the WTO. Iran and the Gulf Cooperation Council (GCC) countries [134] reportedly have agreed to engage in trade negotiations. Such talks are notable given the history of tensions between the Sunni-based GCC countries and the Shiadominated Islamic Republic. A trade agreement may help mitigate the trade impact of international sanctions [135].

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INTERNATIONAL FINANCIAL FLOWS

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Foreign Exchange Reserves Iran‘s foreign exchange reserves, which include the OSF, tend to follow international oil prices. Based on IMF estimates, Iran‘s international reserves grew from $60.5 billion in FY2006 (10.2 months of imports) to $81.7 billion in FY2007 (11.5 months of imports) [136]. Owing to the recent drop in oil prices, Iran‘s international reserves may shrink with declines in oil income. There is concern that domestic economic mismanagement has reduced funds available through the OSF to smooth economic vulnerabilities facing Iran during the current global economic and financial crisis. The composition of Iran‘s foreign reserves has changed lately. In December 2007, Iran stopped accepting payments in U.S. dollars for oil export purchases by foreign countries and is shifting to other currencies, such as the euro and the yen. Iran also called upon other OPEC members to shift away from the dollar in favor of other currencies during a November 2007 OPEC summit. Aside from Venezuela, all other member states opposed the switch [137]. The Central Bank also is reducing the proportion of dollars in its foreign reserves and diversifying to other currencies [138]. Iran reportedly still has a solid external reserves position. Iran claims that this move away from dollars is in response to the recent slide of the U.S. dollar, and cited the dollar as an unreliable currency. Others contend that the shift away from the dollar is a retaliatory measure against the United States. Iran‘s currency diversification also may be an effort to seek independence from the dollar in light of punitive U.S. measures against Iran, which have contributed to Iran‘s isolation from the international financial system. This may mitigate U.S. ability to pressure other countries to follow along with sanctions against Iran [139]. For the United States, these recent events may raise questions about the long-term viability of the U.S. dollar as the global oil currency and have potential implications for the U.S. economy. U.S. massive current account deficits are financed by foreign countries‘ purchase of U.S. dollar denominated assets.

Foreign Investment in Iran’s Economy As the most populous country in the Middle East and with vast natural resources, Iran should be a significant market for foreign businesses. However, foreign direct investment (FDI) in Iran historically has been low. In 2007, the flow of FDI into Iran stood at $754 million, compared to FDI inflows of $24.3 billion to Saudi Arabia, $22.0 billion to Turkey, and $11.6 billion to Egypt. While low, FDI inflows to Iran have fluctuated in recent years. Iran‘s FDI in Iran was more than double 2006 inflows of $317 million, but down from 2005 inflows of $917 million [140]. A stringent domestic regulatory environment and government reluctance to allow foreign investment have contributed to low levels of FDI. For instance, in the energy sector, foreign investment is believed to be limited due to Iran‘s buy-back system. Under this system, international oil companies that contract with an Iranian affiliate pay a fee—such as an ―entitlement to oil or gas from development operation.‖ In 2006, buybacks were projected to

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reach $500 million [141]. Despite some widespread resistance within the Iranian parliament (the Majlis) and other parts of government, Iran is slowly letting investors into the country. Table 6. Recent International Energy Deals Negotiated by Iran Country

Switzerland

Swiss energy company EGL signed a 25-year LNG export deal with the National Iranian Gas Export Company (NIGC) in March 2007, reportedly valued at €18 billion. Switzerland will buy 5.5 billion cubic meters of Iranian natural gas each year, beginning in 2011. This would be Europe‘s second largest gas deal. [152] There is some skepticism that Iran will not be able to supply gas to Switzerland for the foreseeable future because no pipeline connects Iran to Europe at present. The State Department is evaluating the deal for possible violations of the Iran Sanctions Act.

Austria

Austrian partially state-owned energy company OMV signed letters of intent with Iran in April 2007 Iran to supply Europe with gas, transactions reportedly valued at $23 billion. The State Department is evaluating the deal for possible violations of the Iran Sanctions Act.

Russia

In February 2008, Russian state gas company Gazprom announced a deal to establish a joint venture company to develop the offshore Iranian South Pars gas field. Iran would benefit from a build-up of its frastructure. [153]

China

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Notes

Pakistan

Turkey

Germany

Malaysia Bahrain

A China National Offshore Oil Corporation (CNOOC) investment deal, reportedly valued at $16 billion, to develop Iran‘s North Pars gas field and to build a liquid natural gas (LNG) plant, was supposed to be signed on February 27, 2008 but has been delayed. Some analysts believe that China has been hesitant to finalize the deal because of international reaction to Iran‘s nuclear program and the tightening of United Nations sanctions. The state-operated National Iranian Oil Company (NIOC) and CNOOC signed a memorandum of understanding in December 2006 for the project, under which CNOOC would purchase 10 million metric tons per year of LNG for 25 years [154]. The United States has criticized China‘s pursuit of the deal with Iran. China has also looked into alternate suppliers, such as Qatar and Australia [155]. NIGC is expected to finalize a natural gas export deal with Pakistan in April 2008, reportedly valued at $7.4 billion. Exports are set to begin in 2011. The gas would be transported through a ―Peace Pipeline.‖ The plan initially also included exporting gas to India, but negotiations have stalled over pricing. The United States has strongly opposed the pipeline and pressured India and Pakistan to halt the project. Iran is discussing gas production and export deals with Turkey. Under the plans, Turkey would assist in developing Iran‘s South Pars field in exchange for cash or natural gas. Gas would be shipped from Iran to Turkey and then to other parts of the world, including Europe, via a new pipeline that Turkey plans to build [156] In November 2008, the German company Steiner recently announced plans to build three LNG plants in Iran, reportedly valued at $147 million.157 While there has been some international criticism of this decision, German authorities point out that the deal did not violate export controls of sensitive goods [158]. Iranian officials assert that it will continue to develop Iran‘s gas fields, even with foreigners pulling out investment. In December 2008, Iran signed gas deals reportedly valued at $14 billion with Malaysia‘s SKS Group.The deal included a contract to build an LNG plant [159]. In December 2008, Iran and Bahrain drafted an agreement on the delivery of 1 billion cubic feet per day of natural to Bahrain [160].

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However, international sanctions and political uncertainty have clouded Iran‘s economy and have made foreign business and investors wary about economic involvement in Iran.U.N. and some U.S. sanctions are targeted toward obstructing Iran‘s development of its oil and gas sectors in order to constrain Iran‘s resources for uranium enrichment and alleged terrorist financing [142]. Foreign companies have had difficulty obtaining financing due to U.S. Treasury Department pressure on international banks to cut off ties with Iran [143]. Foreign companies also have limited investment in order to avoid U.S. opposition and to maintain good relations with the United States. International investors reportedly have withdrawn from development projects in the country, such as in the oil and gas, shipping, and automotive industries [144]. Iran faces a problem of significant domestic capital flight abroad, particularly to the UAE. International energy companies that have decided to suspend development projects in Iran include British Petroleum, Total, Royal Dutch Shell, Repsol YPF, StatoilHydro, and Eni. Some companies have decided to continue current projects, but to not engage in any future projects with Iran for the time being [145]. As some European companies have scaled down energy sector development projects, other European partners are stepping in (see Table 6 for selected recent deals negotiated by Iran). For instance, Iran signed gas deals in 2007 with Switzerland and Austria, deals that were strongly opposed by the United States. The State Department is evaluating the deals for possible violations of the Iran Sanctions Act [146]. In addition, Germany recently announced plans to build three LNG plans in Iran. With Western involvement in Iran‘s energy sector tenuous, Iran has been turning toward Asian countries, such as China and Pakistan; Russia and Central Asian countries; and regional partners, such as Bahrain and Turkey. While new agreements have been negotiated, their successful completion has been slow. Many speculate that the deals are not finalized because of international concerns over Iran‘s nuclear enrichment program and the specter of sanctions [147] According to a GAO report, State and Treasury officials assert that U.S. sanctions have contributed to a delay in foreign investment in Iran‘s hydrocarbon sector [148]. The Iranian government contends that sanctions and international pressure have not slowed down foreign investment in Iran‘s gas sector. Others point out that LNG contracts with Asian and Eastern European countries may not be able to deliver the same quality as Western contracts. For instance, despite the possible termination of Shells‘ LNG project with Iran, Iran appears to be ―keep[ing] open the option of enlisting Shell‘s technical and marketing know-how and financial input for an LNG project linked to a future phase of South Pars‖ [149]. Iran also is engaging in efforts to privatize nearly 50 state-run oil and gas companies, estimated to be worth $90 billion, by 2014 through the Tehran Stock Exchange. Both domestic and foreign investors would be able to buy shares. Privatization of these energy companies may make it easier for investors to circumvent U.S. sanctions, which complicate investors‘ ability to engage in business transactions with Iran directly [150]. In the United States, there has been a growing grassroots movement to divest from Iran. Divestment is a decision to not hold stock in a company or bank that does business with Iran. There is a call to remove current stock from such companies. States such as Louisiana and California recently have passed measures to divest from Iran [151].

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International Loans and Assistance

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World Bank Iran receives loans from the World Bank. As of November 30, 2008, the net principle amount of World Bank loans totaled Iran $3.4 billion, of which $2.6 billion had been disbursed [161]. The World Bank currently has nine active portfolios in Iran, focused on reconstruction efforts. The World Bank‘s activity in Iran restarted in 2000, following a seven year halt. World Bank loans to Iran come only from the International Bank for Reconstruction and Development (IBRD), the Bank‘s market-rate lending facility. Iran is unable to borrow from the Bank‘s International Development Agency (IDA), a concessional lending and grantmaking fund, because of its per capita GDP. The United States has not made any contributions to the IBRD, which lends to Iran, since 1996. Some lawmakers call for reducing U.S. contributions to the IDA in protest of IBRD lending to Iran. However, some question the merits of penalizing other countries that receive loans from the IDA. In addition, the World Bank‘s International Finance Corporation (IFC) recently invested in Iran, providing a $5 million joint venture among a Iranian private bank, a French bank, and the IFC. In addition, Iran has joined the World Bank‘s Multilateral Investment Guarantee Agency (MIGA), which offers political risk insurance to foreign and domestic investors in Iran [162]. Bilateral Official Development Assistance In terms of bilateral official development assistance (ODA), major donor countries to Iran are Germany, France, the Netherlands, Norway, and Japan. On the whole, the United States does not provide foreign assistance, but does provide some humanitarian assistance, to Iran. For instance, USAID has provided disaster relief assistance following the earthquake that struck near the Iranian city of Bam on December 26, 2003. Total ODA given by countries of the Organization for Economic Cooperation and Development (OECD) to Iran amounted to $71 million in 2006 (see Table 7). Iran has the lowest foreign debt ratio of any country in the Middle East and reportedly maintains solid external reserves. During the last oil windfall, Iran paid off a significant portion of its international debt. Members of Congress appear to be divided about the United States‘ course of action with respect to Iran. Some contend that the United States should pursue harsher measures against Iran, given the gravity of the real and potential threats posed by Iran‘s uranium enrichment program and terrorism financing. Others suggest that perhaps the United States should consider more positive engagement with Iran through rebuilding diplomatic ties and pursuing economic engagement with Iran, such as through Iran‘s accession to the World Trade Organization. They suggest that the Iranian state would be receptive to sincere positive engagement on the part of the United States. In a move to expand economic and diplomatic pressure on Iran, some lawmakers have advocated targeting Iran‘s dependency on imports of refined petroleum products. Some lawmakers have advocated directly banning international exports of fuel products to Iran.

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Shayerah Ilias Table 7. Net ODA to Iran from OECD DAC Members, 2001-2006 (millions of U.S. dollars) Donor Austria Germany France Japan

2001 3.5 32.6 6.8 34.4

2002 3.4 31.8 7.9 17.5

2003 5.7 38.8 9.5 11.3

2004 6.4 41.2 15.7 19.8

2005 4.4 40.6 14.8 -2.5 a

2006 3.4 38.4 15.4 -7.3 a

Netherlands

3.8

3.8

7.7

11.1

6.8

1.0

Norway

3.7

5.3

9.7

11.5

4.3

2.6

United States

—

0.2

0.5

4.8

3.8

2.3

Total DAC Countries b

90.8

81.5

102.1

138.9

78.2

70.8

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Source: OECD, ―Geographical Distribution of Financial Flows to Developing Countries,‖ 2007 and 2008 editions. a. Negative grants may be due to the return to the owner of unspent balances that were previously disbursed as grants. b . OECD DAC members for which data is reported for are Australia, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States.

For instance, H.Con.Res. 362, which was introduced in the 110th Congress, called on the President to prohibit the export to Iran of all refined petroleum products [163]. Others encourage eliminating U.S. support for foreign companies that supply gasoline to Iran. In November and December of 2008, two groups of Members of Congress sent letters to the Export-Import Bank advocating that the bank ends loan guarantees to companies doing key business with Iran. Since the letter, India‘s Reliance Industries has announced that it will terminate gas sales to Iran once the current contract expires. Supporters of such punitive options assert that they will place pressure on the Iranian government, given Iran‘s lack of refining capacity and dependence on gasoline imports. Others express concern that such action would adversely affect global energy supplies and ramp up prices for U.S. consumers [164]. Some critics also maintain that such an action would target the Iranian populace, more so than the regime.

CONGRESSIONAL ISSUES AND OPTIONS There is debate about whether or not the United States should pursue more sanctions against Iran unilaterally or through U.N. action. Some lawmakers assert that U.S. unilateral efforts to pressure Iran may detract from building multilateral consensus to widen punitive measures against Iran through the United Nations. Some maintain that unilateral efforts also might reduce Iran‘s willingness to cooperate with the United Nations. Additionally, foreign countries, such as the Persian Gulf states, may not be as responsive to unilateral action by the United States as they would be to multilateral action, given the growing trade ties between the Gulf states and Iran. For instance, Arab diplomats note that while they would respect U.N. sanctions against business with Iran, it is difficult to comply with unilateral U.S. sanctions in light of growing trade relations with Iran [165].

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Others note that pursuing multilateral action can be a lengthy process and that it is difficult to find consensus among foreign countries with various competing interests, such as promoting international security and promoting economic growth through trade with Iran. The United Nations successfully passed the third round of sanctions against Iran only after watering them down to satisfy Chinese and Indian concerns. As industrializing countries with increasing energy demands and insufficient supplies, China and India view Iran as a critical energy supplier for their needs. Such short-term national interest priorities may override international long-term security concerns about Iranian alleged terrorist financing or nuclear technology development.Still, many lawmakers consider the recently-passed third U.N. resolution a good first step and support pushing for more punitive action through the UNSC. Others suggest that to the extent to which China and India engage in economic transactions with Iran may be muted somewhat by the two countries‘ ties with the United States.

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Unilateral and Multilateral Approaches to Sanctions Analysts debate the impact of sanctions on Iran‘s economy. International tensions associated with Iran‘s nuclear program and alleged financing for terrorist organizations undoubtedly have complicated Iran‘s business environment. Some analysts point to Iran‘s low levels of foreign investment, difficulties obtaining trade finance, and challenges in developing its oil and gas sectors as evidence of the impact of sanctions. On the other hand, according to a GAO report, ―Iran‘s global trade ties and leading role in energy production make it difficult for the United States to isolate Iran and pressure it to reduce proliferation activities and support for terrorism.‖ The Peterson Institute for International Economics (IIE) writes that sanctions increasingly have been unsuccessful as globalization has allowed embargoed countries to find other suppliers and export destinations for trade and investment [166]. Sanctions may not raise the costs to the point that they are crippling to the Iranian‘s trade and financial interactions with the rest of the world. Iran reportedly is able to circumvent the trade ban by transshipment of U.S. exports through other countries, such as the UAE. In addition to transshipment, analysts also note that international sanctions may simply divert Iran‘s trade to other countries that do not enforce sanctions against Iran. In addition to the impact of sanctions on Iran‘s economy, some lawmakers question the effectiveness of sanctions, noting that despite thirty years of sanctions, the United States has not been able to significantly shift the Iranian government‘s policies. Previous studies have found that sanctions have little impact on government policy. Rather, they tend to hurt the population of a country. In congressional testimony, one observer stated, ―In a broader sense, sanctions often end up hurting ordinary people while having little impact on the government leaders we are trying to influence.‖ [167]. The recent enforcement of targeted financial measures appears to signal an effort to avoid the drawbacks of past broader trade sanctions efforts and to concentrate pressure on key negative actors. Despite the narrow focus of targeted financial sanctions, the effects of these sanctions may spill over to the broader Iranian populace. There is uncertainty about how sanctions affect the elite, and how elite views may spillover into government policy [168]. Congress may choose to follow with GAO‘s assessment and require the U.S. Treasury and State to collect data to assess the economic impact of sanctions on Iran. According to a

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recent GAO report, U.S. economic sanctions on Iran have had affected Iran, but the extent of these effects on Iran‘s economy and behavior are difficult to gauge. The GAO notes that assessment of the impact of sanctions is challenging because of a lack of data collection by the U.S. government and baseline information for comparability [169].

Impact of Sanctions on Iran’s Economy and Policy In addition to considering the impact of sanctions on Iran‘s economy, Congress may opt to evaluate how sanctions affect the U.S. economy. U.S. sanctions curtail U.S. economic activity, imposing costs on American workers and businesses and reducing U.S. exports [170] U.S. businesses have expressed concerns about U.S. measures against companies that are unable to control re-exports of high-technology goods to Iran and other targeted countries. Others have noted that U.S. policies in Iran may deprive the United States of significant business opportunities in Iran. Europe, China, India, and Russia are stepping in and taking advantage of Iran‘s sizeable market and untapped potential. Proponents of sanctions suggest contend that the security, repututational, and financial risks associated with doing business with Iran outweigh the economic benefits. Some lawmakers question the sincerity of the Administration‘s willingness to apply economic pressure on Iran in a way that harms U.S. commercial interests. They note that the United States has yet to sanction any U.S. multinational corporations that do not comply with sanctions laws.

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Impact of Sanctions on U.S. Economy In the 110th Congress, several bills were passed in the House related to Iran. Housepassed bills encouraged tighter sanctions against Iran, but noted that such action does not indicate congressional support for U.S. military action against Iran. The following were some of the major pieces of legislation proposed by lawmakers: 





H.R. 957, ―To amend the Iran Sanctions Act of 1996 to expand and clarify the entities against which sanctions would be imposed,‖ would stiffen existingsanctions against Iran. The bill was passed by the House on July 31, 2007 and referred to Senate committee on August 3, 2007. H.R. 2347, ―Iran Sanctions Enabling Act of 2007,‖ and the correspondingSenate version of the bill (S. 1430) would encourage divestment from companies that conduct business with Iran. The Administration has opposed H.R. 2347 on the grounds that it may interfere with Administration‘s foreign policy efforts. The bill would allow for sanctions against countries such as China, Russia, and France for conducting business with Iran [171]. H.R. 2347 was passed by the House on July 31, 2007 and referred to Senate committee on August 3, 2007. H.R. 1400, ―The Iran Counter-Proliferation Act of 2007,‖ and its companion bill, S. 970, would expand economic sanctions against Iran and remove the presidential waiver in the Iran-Libya Sanctions Act. H.R. 1400 was passed by the House on September 25, 2007 and referred to Senate committee on September 26, 2007.

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

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H.R. 2798 is a more narrowly targeted measure against Iran. It would prohibit any assistance by the Overseas Private Investment Corporation (OPIC) to individuals who have finance or investment ties to countries that are state sponsors of terror. The bill would target Iran, North Korea, and Sudan. The bill was passed by the House on July 23, 2007 and was ordered to be reported out to the Senate Committee on Foreign Relations and placed on the Senate Legislative Calendar on March 4, 2008. H.R. 1357, ―To require divestiture of current investments in Iran, to prohibit future investments in Iran, and to require disclosure to investors of information relating to such investments,‖ was referred to House subcommittee on June 5, 2007. H.R. 7112, ―Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2008,‖ widens current sanctions to U.S. firms with foreign subsidiaries doing business in Iran; encourages businesses to divest from Iran; and imposes penalties on countries that are involved in transhipment, re-exportation, or diversion of sensitive goods to Iran. H.R. 7112 was passed by the House on September 26, 2008 and referred to House committees. The related Senate measure, S. 3445, was introduced on September 26, 2008.

U.S. policy toward Iran likely will remain an important issue for the 111th Congress.

REFERENCES “The National Security Strategy of the United States of America—2006,” March 2006. Economic data for this report are drawn from data from the International Monetary Fund (IMF). As a member of theIMF, Iran reports on its economy to the IMF. The economic data are limited in their means of independent verification by the IMF. In addition, this report relies on data from the Economist Intelligence Unit (EIU) and Global Insights, international economic research and forecasting agencies. U.S. government sources of data include the CentralIntelligence Agency for general economic indicators and the Census Bureau for trade data. [3] Abdelali Jbili, Vitali Kramarenko, and José Bailén, ―Islamic Republic of Iran: Managing the Transition to a MarketEconomy,‖ IMF, 2007, pp.1-5. [4] Ibid. [5] For more information on U.S. sanctions against Iran, see CRS Report RL32048, Iran: U.S. Concerns and PolicyResponses, by Kenneth Katzman. [6] ―U.S. Pushes for Tighter United Nations Sanctions Against Iran,‖ The Oil Daily, August 7, 2008. [7] Jonathan S. Landay, ―U.S., 5 other nations to seek tougher sanctions against Iran,‖ The Anniston Star, August 5, 2008. [8] NIE, ―Iran: Nuclear Intentions and Capabilities,‖ November 2007, accessible at http://www.dni.gov/press_releases/20071203_release.pdf. [9] IAEA, ―Implementation of the NPT Safeguards Agreement and relevant provisions of Security Council 1737 (2006),1747 (2007) and 1803 (2008) in the Islamic Republic of Iran,‖ Report by the Director General, May 26, 2008, http://www.iaea.org/P ublications/Documents/Board/2008/gov2008-15.pdf. [10] Iran‘s fiscal year runs from March 21st to March 20th.

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[1] [2]

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[11] Ibid. [12] Global Insight, ―Iran Country Report,‖ updated December 16, 2008. [13] IMF, ―Regional Economic Outlook: Middle East and Central Asia,‖ World Economic and Financial Surveys, October 2008, p. 41. [14] EIU Country Data. [15] ―Oil falls pile pressure on Tehran,‖ Middle East Economic Digest, December 5, 2008. [16] Anne Penketh, ―Iran enters new year in sombre mood as economic crisis bites,‖ The Independent, March 24, 2008. [17] Ibid, p. 21. [18] IMF, ―Islamic Republic of Iran: 2008 Article IV Consultation ,‖ IMF Country Report No. 08/284, August 2008. [19] EIU, ―Iran: Country Profile 2007,‖ p. 33. [20] About 30% of the population estimated to be under age 15 and less than 5% above age 64 in 2004. [21] EIU, ―Iran: Country Profile 2007,‖ p. 33. [22] Anne Penketh, ―Iran enters new year in sombre mood as economic crisis bites,‖ The Independent, March 24, 2008. [23] Abdelali Jbili, Vitali Kramarenko, and José Bailénm, ―Islamic Republic of Iran: Managing the Transition to a Market Economy,‖ IMF, 2007. [24] EIU, ―Iran rank: Macroeconomic risk,‖ January 22, 2008. [25] Fredrik Dahl, ―Iranians worry about high food prices before vote,‖ Reuters, March 6, 2008. [26] IMF Country Report No. 07/100, ―Islamic Republic of Iran: 2006 Article IV Consultation-Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Islamic Republic of Iran,‖ March 2007, http://www.imf.org/external/pubs/ft/scr/2007/cr07100.pdf. [27] Gareth Smyth, ―Middle East: Iran cuts farm lending rate in populist ‗social justice‘ move,‖ Financial Times, November 15, 2005. Najmeh Bozorgmehr and Roula Khalaf, ―World News—Iran: Bank chief takes a realistic tack,‖ Financial Times, March 6, 2008. [28] Najmeh Bozorgmehr and Gareth Smyth, ―Coping with the rising cost of marriage, Iranian-style: The new president isto set up a fund to deal with rising expectations of the good life,‖ Financial Times, November 8, 2005. [29] EIU, ―Iran: Monetary shrinkage,‖ April 1, 2008. [30] ―Iran: Ahmadi-Nejad populism damages economy,‖ Oxford Analytica, February 19, 2008. [31] EIU, ―Business outlook: Iran,‖ March 1, 2008. [32] Oxford Analytica, ―Prospects 2009: Iran faces economic crisis,‖ November 14, 2008. [33] Gareth Smyth, ―Sanctions fail to fuel dissent on Iran‘s streets,‖ Financial Times, July 24, 2007. [34] Economic Intelligence Unit (derived from World Bank, World Development Indicators) [35] ―President Makes Damaging Admission on State of Iran‘s Economy,‖ Global Insight, December 5, 2008. [36] Oxford Analytica, ―Prospects 2009: Iran faces economic crisis,‖ November 18, 2008. [37] ―Iran: Oil Minister Says Iran to Base Budget on Oil Price of $37.50,‖ Thai News Service, January 5, 2009.

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.

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[38] Nazila Fathi, ―Iranian President Proposes Ending Energy Subsidies,‖ The New York Times, December 31, 2008. [39] Global Insight Daily Analysis, ―Iran‘s Bourse Pummelled by Worrying Economic News,‖ December 16, 2008. [40] ―Tehran suffers as finance dries up,‖ Middle East Economic Digest, November 1,4 2008. [41] ―Iran: Mostzafan va Janzaban Supports Veterans, Covert Activities,‖ Open Source Center report, May 2, 2006. [42] EIU, ―Iran risk: Legal and regulatory risk,‖ January 22, 2008. [43] For more information on the IRGC, see Kenneth Katzman, ―The Warriors of Islam: Iran‘s Revolutionary Guard,‖ Westlaw Press, 1993. [44] Ali Alfoneh, ―How Intertwined Are the Revolutionary Guards in Iran‘s Economy?,‖ American Enterprise Institute, October 22, 2007. [45] Ibid. [46] Ibid. [47] E.O. 13382, ―Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters,‖ June 28, 2005. [48] Treasury press release, ―Statement by Secretary Paulson on Iran Designations,‖ October 25, 2007, http://www.treas.gov/press/releases/hp645.htm.Treasury press release, ―Factsheet: Designation of Iranian Entities and Individuals for Proliferation Activities and Support for Terrorism,‖ October 25, 2007, http://www.treas.gov/press/releases /hp644.htm. [49] ―U.S. dilemma: Targeting Iran‘s oil industry could hurt Iran more,‖ International Herald Tribune, November 5, 2007. [50] Treasury press release, ―Factsheet: Designation of Iranian Entities and Individuals for Proliferation Activities and Support for Terrorism,‖ October 25, 2007, http://www. treas.gov/press/releases/hp644.htm. [51] E.O. 13224, ―Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism,‖ September 23, 2001. [52] Treasury press release, ―Factsheet: Designation of Iranian Entities and Individuals for Proliferation Activities and Support for Terrorism,‖ October 25, 2007, http://www.treas .gov/press/releases/hp644.htm. [53] IMF, ―Islamic Republic of Iran: 2006 Article IV Consultation ,‖ IMF Country Report No. 07/100, March 2007, p. 12. [54] Ibid. [55] Global Insight, ―Iran Country Analysis,‖ updated July 10, 2008. [56] Ibid. [57] Kenneth Katzman, Specialist in Middle Eastern Affairs, Congressional Research Service, Joint Economic Committee Hearing on Iran, July 25, 2006. [58] IMF, ―Islamic Republic of Iran: 2008 Article IV Consultation ,‖ IMF Country Report No. 08/284, August 2008. Economic sectors‘ contribution to Iran‘s GDP is at factor cost with current prices. [59] EIU, ―Country Profile 2007: Iran,‖ 2007, p. 27. [60] Ibid, pp. 26-27. [61] EIA, ―Country Analysis Briefs: Iran,‖ October 2007. [62] Energy Information Administration, ―Country Analysis Briefs: Iran,‖ October 2007.

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[63] EIU, ―Country Profile 2007: Iran,‖ 2007, p. 42. [64] Samuel Ciszuk, ―Tightened Iran Sanctions Introduced by UN Security Council in Anticipation of IAEA Report,‖ February 22, 2008. [65] ―Tehran opens energy sector to overseas investment,‖ Middle East Economic Digest, February 8, 2008. [66] EIU, ―Country Profile 2007: Iran,‖ 2007, pp. 35-36. [67] Javier Blas, ―Mideast reels as hunger outgrows oil earnings,‖ Financial Times, May 7, 2008. [68] ―Economy and Dutch Disease,‖ Iran Daily, Islamic Republic News Agency, April 24, 2007. Lionel Beehner, ―What Sanctions Mean for Iran‘s Economy,‖ Council on Foreign Relations, May 5, 2006. [69] Global Insights, ―Iran Country Analysis,‖ updated July 10, 2008. [70] EIU, ―Country Profile 2007: Iran,‖ 2007, p. 45. [71] World Steel Association, ―World Steel in Figures 2008, 2nd Edition,‖ 2008 http://www.worldsteel.org/. [72] International Organization of Motor Vehicles (OICA), ―World Motor Vehicle Production by Country and Type: 2006-2007,‖ http://oica.net/category/productionstatistics/. [73] Eric Ellis, ―Made in Iran,‖ Fortune Magazine, September 12, 2006. [74] Ibid. [75] EIU, ―Country Profile 2007: Iran,‖ 2007, p. 45. Prime Vista Research and Consulting, ―Automotive Industry and Marketing of Iran 2007,‖ June 2007. [76] EIU, ―Country Profile 2007: Iran,‖ 2007, p. 46. [77] Global Insights, ―Iran Country Analysis,‖ updated July 10, 2008. [78] EIU, ―Country Profile 2007: Iran,‖ 2007, p. 44. [79] ―Iran Petrochemicals Report Q1 2008,‖ Business Monitor International, February 20, 2008. [80] EIU, ―Iran economy: Quick View—Monetary strife—Country Briefing,‖ ViewsWire, April 21, 2008. [81] Ibid. [82] Ibid. [83] EIU, ―Iran risk: Financial risk,‖ April 23, 2008. [84] Global Insight, ―Iran Country Analysis,‖ updated July 10, 2008. [85] Global Insight Daily Analysis, ―Iran‘s Bourse Pummelled by Worrying Economic News,‖ December 16, 2008. [86] Daniel Glaser, Testimony before the House Committee on Foreign Affairs Subcommittee on the Middle East and South Asia and the Subcommittee on Terrorism, Nonproliferation, and Trade, April 17, 2008, HP-933. [87] E.O. 13224, ―Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, orSupport Terrorism,‖ September 23, 2001. [88] IMF, ―Islamic Republic of Iran: 2006 Article IV Consultation ,‖ IMF Country Report No. 07/100, March 2007, p. 17. [89] E.O. 13382, ―Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters,‖ June 28, 2005. [90] Treasury press release, ―Iran‘s Bank Sepah Designated By Treasury,‖ January 9, 2007, http://www.treas.gov/press/releases/hp219.htm.

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[91] Treasury press release, ―Statement by Secretary Paulson on Iran Designations,‖ October 25, 2007, http://www.treas.gov/press/releases/hp645.htm. Treasury press release, ―Factsheet: Designation of Iranian Entities and Individuals for Proliferation Activities and Support for Terrorism,‖ October 25, 2007, http://www.treas.gov/press/r eleases/hp644.htm. [92] Treasury press release, ―Treasury Designates Iran-Controlled Bank for Proliferation: Future Bank Controlled by Iran‘s Bank Melli,‖ March 12, 2008, http://www.tre as.gov/press/releases/hp869.htm. [93] Treasury press release, ―Fact Sheet: Treasury Strengthens Preventative Measures Against Iran,‖ November 6, 2008,http://www.treas.gov/press/releases/hp1258.htm. [94] ―Iran: Iran Dismisses US Allegations against Banks as Ridiculous,‖ Thai News Service, August 18, 2008. [95] ―Investment shortfall ‗threatens Iran oil output,‖ AFX Asia, July 9, 2007. [96] Steven Lee Myers and Nazila Fathi, ―European Leaders Back Bush on Iran,‖ The New York Times, June 11, 2008. [97] Robin Wright, ―Iran a Nuclear Threat, Bush Insists; Experts Say President Is Wrong and Is Escalating Tensions,‖The Washington Post, March 22, 2008. [98] Daniel Dombey and Stephani Kirchgaessner, ―Steer clear of Iran central bank, says US,‖ Financial Times, March 21, 2008. Jeannine Aversa, ―Treasury warns banks that Iran is engaging in deceptive practices to skirt sanctions,‖Associated Press, March 20, 2008. [99] Jeannine Aversa, ―Treasury warns banks that Iran is engaging in deceptive practices to skirt sanctions,‖ AssociatedPress, March 20, 2008. [100] Anna Fifield, ―No problem,‖ Financial Times, April 14, 2008. [101] IMF, ―Islamic Republic of Iran: 2008 Article IV Consultation,‖ August 2008, IMF Country Report No. 08/284. [102] Ibid. [103] Energy Information Administration (EIA), ―World Transit Oil Chokepoints,‖ January 2008. [104] IMF, ―Islamic Republic of Iran: 2006 Article IV Consultation ,‖ IMF Country Report No. 07/100, March 2007, p. 29. [105] Energy Information Administration (EIA), ―Country Analysis Briefs: Iran,‖ October 2007. [106] Telephone conversation with EIA official, April 29, 2008. [107] EIA, ―Country Analysis Briefs: Iran,‖ October 2007. Power and Interest News Report (PINR), ―Iran Looks for Allies through Asian and Latin American Partnerships,‖ May 27, 2007. [108] International Monetary Fund (IMF), Direction of Trade Statistics. [109] Global Insight, ―Iran Country Report,‖ updated July 10, 2008. [110] ―Tajik speaker says Tajikistan keen on active cooperation with Iran,‖ ASIA-Plus Information Agency, March 27,2008. [111] ―Iran, Azerbaijan, Turkey to build joint railway,‖ BBC Monitoring Caucasus, March 27, 2008. [112] Ibid. [113] Barbara Surk, ―Dubai at center of US efforts to pressure Iran, ―Associated Press Newswires, October 26, 2007.

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[114] ―UAE/Iran: Trade squeeze, or business as usual?‖, EIU—Business Middle East, January 16, 2008. [115] Global Insight, Country Intelligence—Analysis, ―U.A.E. Banks Latest to Restrict Iran‘s Access to Credit,‖ October 28, 2008. [116] Ibid. [117] Ibid. [118] Oxford Analytica, ―United Arab Emirates: Dubai/Iran trade defies US moves,‖ April 29, 2008. [119] ―Iran president says no third party can harm Iran-UAE ties,‖ BBC Monitoring Middle East, February 18, 2008. [120] GAO-08-58, ―Iran Sanctions: Impact in Furthering U.S. Objectives Is Unclear and Should Be Reviewed,‖ p. 18, December 2007. [121] Daniel Dombey and Stephanie Kirchgaessner, ―Fresh ways of turning the screw on Iran,‖ Financial Times, October22, 2007. [122] ―Iran sanctions put west‘s unity at risk,‖ Financial Times, October 26, 2007. [123] Glenn R. Simpson, ―Democrats Urge Sanctions on Iran‘s Central Bank,‖ The Wall Street Journal, March 5, 2008. [124] Danielle Pletka, ―Congress‘s Ill-Timed Iran Bills,‖ Washington Post, August 28, 2007. [125] Ibid. [126] Bertrand Benoit, ―Berlin hardens trade stance with Iran,‖ Financial Times, February 11, 2008. [127] ―German imports from Iran up despite nuclear row-paper,‖ Reuters News, January 8, 2008. [128] Samuel Ciszuk, ―UN Security Council Tightens Iran Sanctions, Complicating Oil and Gas Developments and Trade,‖ Global Insight Daily Analysis, March 4, 2008. [129] Anna Fifield, ―No problem,‖ Financial Times, April 14, 2008. [130] Global Insight, Country Intelligence—Analysis, ―Iran: U.S. and UN Sanctions Hit Iran‘s Shipping Industry,‖ April 29, 2008. [131] IMF, ―Islamic Republic of Iran: 2006 Article IV Consultation ,‖ IMF Country Report No. 07/100, March 2007, p.18. [132] Fiona Fleck, ―Iraq Is Granted Observer Status at the WTO,‖ The New York Times, February 12, 2004. [133] IMF, ―Islamic Republic of Iran: 2006 Article IV Consultation ,‖ IMF Country Report No. 07/100, March 2007, p. [134] GCC members are Saudi Arabia, Kuwait, the United Arab Emirates, Oman, Qatar, and Bahrain. [135] Simeon Kerr and Najmeh Bozorgmehr, ―Gulf states plan trade talks with Iran,‖ Financial Times, September 17, 2007. [136] IMF, ―Islamic Republic of Iran: 2006 Article IV Consultation ,‖ IMF Country Report No. 08/284, August 2008. [137] ―Iran stops accepting U.S. dollars for oil,‖ RIA Novosti, December 8, 2007. [138] Najmeh Bozorgmehr and Roula Khalaf, ―World News—Iran: Bank chief takes a realistic tack,‖ Financial Times, March 6, 2008. [139] ―Iranian oil no longer available for U.S. dollars,‖ RIA Novosti, December 11, 2007. [140] United Nations Conference on Trade and Development (UNCTAD), Foreign Direct Investment online database.

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[141] IMF, ―Islamic Republic of Iran: 2006 Article IV Consultation ,‖ IMF Country Report No. 07/100, March 2007, p. 29. [142] See CRS Report RS20871, The Iran Sanctions Act (ISA), by Kenneth Katzman. [143] ―Iran economy: Oil breakthrough?,‖ Economist Intelligence Unit, December 10, 2007. [144] Global Insight, ―Iran Country Report,‖ updated July 10, 2008. [145] BMI Industry Insights, ―StatoilHydro Pulling Out of Iran, But Pulling In The Profits,‖ August 1, 2008. [146] Eli Lake, ―State Department Looks to Sanction Law,‖ The New York Sun, March 21, 2008. [147] ―Iran: Sanctions and threats damage economy,‖ Oxford Analytica, June 15, 2007. [148] GAO-08-58, ―Iran Sanctions: Impact in Furthering U.S. Objectives Is Unclear and Should Be Reviewed,‖ p. 18,December 2007. [149] EIU, ―Iran economy: Au revoir LNG?—Country Briefing,‖ ViewsWire, May 12, 2008. [150] ―Tehran opens energy sector to overseas investment,‖ Middle East Economic Digest, February 8, 2008. [151] ―Divesting from Iran: State-by-State Update,‖ Israel Project news release, accessed via US Fed News, February 21, 2008. [152] Benjamin Weinthal, ―Switzerland to sign second-largest Iran gas deal today,‖ The Jerusalem Post, March 17, 2008. [153] ―Gazprom announces gas deals with Iran and Nigeria,‖ Energy Economist, March 1, 2008. [154] ―Chinese delegation to sign major gas deal soon: source,‖ Platts Commodity News, March 5, 2008. [155] David Winning and Renya Peng, ―Update: CNOOC, Iran to Ink Deal for 10 Mln Tons LNG-Sources,‖ Dow Jones Newswires, January 21, 2008. [156] ―Iran, Turkey to Discuss Gas Projects,‖ Turkish Daily News, May 5, 2008. ―IranTurkey Deals Could Prove Key to Europe‘s Gas Import Plans,‖ International Oil Daily, December 1, 2008. [157] Rikard Jozwiak, ―EU exports to Iran rise,‖ European Voice, July 8, 2008. [158] ―EU exports to Iran rising despite sanctions,‖ Reuters EU Highlights, August 6, 2008. [159] ―Iran/Turkey: Iran, Turkey Plan to Set up Gas Company,‖ Thai News Service, December 29, 2008. [160] Oxford Analytica, ―Gas deal points to Bahraini confidence,‖ Global Strategic Analysis, Monday 8, 2008. [161] World Bank data accessed August 20, 2008. [162] For more information on World Bank lending to Iran, see CRS Report RS22704, The World Bank and Iran, by Martin A. Weiss and Jonathan E. Sanford. [163] H.Con.Res. 362, ―Expressing the sense of Congress regarding the threat posed to international peace, stability in the Middle East, and the vital national security interests of the United States by Iran‘s pursuit of nuclear weapons and regional hegemony, and for other purposes,‖ May 22, 2008. [164] Jad Mouawad, ―Iran feels West‘s grip; Energy troubles carry risks of protests,‖ International Herald Tribune, February 13, 2007. [165] Jay Solomon, ―U.S. Sanctions Bahrain Bank Over Iran,‖ The Wall Street Journal, March 13, 2008.

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[166] Jeffrey J. Schott, ―The Iran and Libya Sanctions Act of 1996: Results to Date,‖ Peterson Institute of International Economics, Testimony before the Committee on International Relations, U.S. House of Representatives, July 23, 1997. [167] William A. Reinsch, President of National Foreign Trade Council and Co-Chairman of USA*Engage, Testimony before the U.S. Senate Committee on Finance, Regarding S. 970, The Iran Counter-Proliferation Act of 2007,‖ April 8, 2008. [168] ―Iran: Sanctions and threats damage economy,‖ Oxford Analytica, June 15, 2007. [169] GAO-08-58, ―Iran Sanctions: Impact in Furthering U.S. Objectives Is Unclear and Should Be Reviewed,‖ p. 18,December 2007. [170] Jeffrey J. Schott, ―The Iran and Libya Sanctions Act of 1996: Results to Date,‖ Peterson Institute for International Economics, Testimony before the Committee on International Relations, U.S. House of Representatives, July 23, 1997. [171] Adam Graham-Silverman, ―Despite Flurry of Action in House, Congress Unlikely to Act Against Iran,‖ Congressional Quarterly Today, September 12, 2007.

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In: Economic and Political Issues in the Middle East Editors: C. N. Parker and D. M. Warde

ISBN: 978-1-61209-381-9 © 2011 Nova Science Publishers, Inc.

Chapter 5

U.S. FOREIGN AID TO THE PALESTINIANS Jim Zanotti† ABSTRACT

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In March 2009, the Obama Administration pledged $900 million in U.S. assistance to the Palestinians to address both post-conflict humanitarian needs in the Gaza Strip and reform, security, and development priorities in the West Bank. Most of the pledged amount remains subject to congressional appropriation. In April 2009, the Obama Administration issued an FY2009 supplemental budget request that included $815 million in proposed appropriations— $665 million in bilateral assistance and $150 million in contributions to international organizations from the Migration and Refugee Assistance account—to benefit the Palestinians. The request also proposed a provision that some might say could apply different conditions than those applied by previous FY2008 and FY2009 appropriations legislation to possible U.S. assistance to a Palestinian power-sharing government that includes Hamas. Since the signing of the Oslo Accord in 1993 and the establishment of limited Palestinian self- rule in the West Bank and Gaza Strip in 1994, the U.S. government has committed more than $2 billion in bilateral economic assistance to the Palestinians. In the last half of the 1990s, U.S. foreign aid to the Palestinians averaged approximately $75 million per year. That average has increased during this decade, but the outbreak and continuation of the second Palestinian intifada (or ―uprising‖) and Hamas‘s heightened role in Palestinian politics have made it more difficult to implement effective and lasting aid projects that also serve U.S. interests. U.S. aid to the Palestinians has fluctuated considerably over the past three years, largely due to Hamas‘s changing role within the Palestinian Authority (PA). After Hamas led the PA government for over a year, its forcible takeover of the Gaza Strip in June 2007 led to the creation of a nonHamas government in the West Bank—resulting in different models of governance for the two Palestinian territories. Since then, the U.S. has dramatically boosted aid levels to bolster the PA in the West Bank and President Mahmoud Abbas vis-à-vis Hamas. Because of congressional concerns that, among other things, U.S. funds might be diverted to Palestinian terrorist groups, much of this aid is subject to a host of vetting and 

†

This report is excerpted from CRS Report RS22967 dated April 29, 2009. E-mail: [email protected]

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Jim Zanotti oversight requirements and legislative restrictions. For FY2009, $275 million in bilateral assistance—which includes projects funded through the U.S. Agency for International Development; direct budgetary assistance to the PA; and training, non-lethal equipment, and facilities for PA civil security forces—have already been appropriated for the Palestinians, and the State Department has already contributed $98.5 million to the U.N. Relief and Works Agency for Palestine Refugees in the Near East (UNRWA). Some of these funds have gone toward emergency humanitarian needs in Gaza created by the 2008-2009 Israel-Hamas conflict. Experts advise that PA stability appears to hinge on improved security, economic development, Israeli cooperation, and the continuation of high levels of foreign assistance. The possibility of a consensus or unity government to address the problem of divided rule among Palestinians could lead to a full or partial U.S. aid cutoff if Hamas is included in the government and does not change its stance toward Israel. Even if the immediate objectives of U.S. assistance programs for the Palestinians are met, lack of progress toward a politically legitimate and peaceful two-state solution could undermine the utility of U.S. aid in helping the Palestinians become more cohesive, stable, and selfreliant over the long term.

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INTRODUCTION In March 2009, the Obama Administration pledged $900 million in U.S. assistance to the Palestinians to address both post-conflict humanitarian needs in Gaza and reform, security, and development priorities in the West Bank. Most of the pledged amount remains subject to congressional appropriation. In April 2009, the Obama Administration issued an FY2009 supplemental budget request that included $815 million in proposed appropriations toward the amount pledged in March. The request also proposed a provision that some might say could apply different conditions than those applied by previous FY2008 and FY2009 appropriations legislation to possible U.S. assistance to a Palestinian power-sharing government that includes Hamas. For a fuller description of the pledge and budget request, see ―The $900 Million U.S. Pledge and the International Donors‘ Effort‖ below. Since the signing of the Oslo Accord in 1993 and the establishment of limited Palestinian self- rule in the West Bank and Gaza Strip in 1994, the U.S. government has committed more than $2 billion in bilateral economic assistance to the Palestinians. The assistance has focused on the further development of the Palestinian economic, social services, and civil society sectors; and on strengthening the processes, governance, and security-providing capacities of PA institutions, through partnerships with U.S. and Palestinian organizations. Nevertheless, significant legislative conditions, limitations, and restrictions remain attached to certain aid given to Palestinians [1]. During the 1990s, U.S. foreign aid to the Palestinians averaged approximately $75 million per year. That average has increased during this decade, but the outbreak and continuation of the second Palestinian intifada (or ―uprising‖) and Hamas‘s heightened role in Palestinian politics have made it more difficult to implement effective and lasting aid projects that serve U.S. interests. Contributions from the United States to the U.N. Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) (which have been made since the time of UNRWA‘s inception in 1950) have continued.

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OVERVIEW AND RECENT DEVELOPMENTS The level of U.S. assistance to the Palestinians—among the largest per capita recipients of foreign aid worldwide [2]—has fluctuated considerably since it was initiated following the establishment of limited Palestinian self-rule in the mid-1990s. Fluctuations have been particularly significant over the past three years—due mainly to the on-again, off-again role of Hamas within the Palestinian Authority (PA). Hamas is designated as a Foreign Terrorist Organization (FTO) by the U.S. State Department. After the 2006 Hamas victory in Palestinian Legislative Council elections, U.S. assistance to the Palestinians was restructured and reduced. The United States halted direct foreign aid to the PA but continued providing humanitarian and project assistance to the Palestinian people through international and nongovernmental organizations (NGOs). The ban on direct assistance continued during the brief tenure of a Hamas-led unity government (February to June 2007). During that time, U.S. policymakers demanded unsuccessfully that Hamas renounce, among other things, violence and its commitment to the destruction of the state of Israel. Subsequent events, however, altered the situation dramatically. In June 2007, Hamas forcibly took control of the Gaza Strip. PA President Mahmoud Abbas (head of the Fatah party), calling the move a ―coup,‖ dissolved the unity government and tasked the politically independent technocrat Salam Fayyad to serve as prime minister and organize a new PA ―caretaker‖ government in the West Bank. Within days, the United States lifted its economic and political embargo on the PA. The Bush Administration and Congress then boosted U.S. aid levels in hopes of fostering an economic and security climate conducive to Palestinian statehood. The revival of IsraeliPalestinian negotiations for a final-status agreement in conjunction with the Annapolis Conference of November 2007 provided further impetus for U.S. economic support of the institutional and societal building blocks deemed crucial for Palestinian self-governance. The Obama Administration has thus far advocated a similar approach. Following the outbreak of the 2008-2009 Gaza conflict between Israel and Hamas, the United States provided approximately $65 million in emergency U.S. humanitarian assistance for Palestinians in the Gaza Strip. These funds were channeled through the U.S. Agency for International Development (USAID) and through international organizations such as UNRWA and the International Committee of the Red Cross. For a fuller description of these emergency contributions, please see CRS Report R40 101, Israel and Hamas: Conflict in Gaza (2008-2009), coordinated by Jim Zanotti. In March 2009, the Obama Administration pledged $900 million in U.S. assistance to the Palestinians to address both post-conflict humanitarian needs in Gaza and reform and development priorities in the West Bank. Most of the pledged amount remains subject to congressional appropriation. In April 2009, the Obama Administration issued an FY2009 supplemental budget request that included $815 million in proposed appropriations toward the amount pledged in March. The request also proposed a provision that some might say could apply different conditions than those applied by previous FY2008 and FY2009 appropriations legislation to possible U.S. assistance to a Palestinian power-sharing government that includes Hamas. For a fuller description of the pledge and budget request, see ―The $900 Million U.S. Pledge and the International Donors‘ Effort‖ below. International efforts to contribute to the post-conflict reconstruction of Gaza have begun (see ―International Pledges and the Gaza Reconstruction Effort‖ and Table 5 below), and U.S. policymakers have

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expressed interest in participating. Questions remain, however, over how reconstruction assistance given through the PA or other entities or mechanisms can be effective given that Hamas still controls Gaza. Some recommend that the United States and other actors— particularly Europeans and Gulf Arab states—coordinate their efforts informally, if not directly, with Hamas. Others reject this recommendation as one that would possibly strengthen Hamas through de facto recognition of it as having a legitimate governing role in Gaza.

TYPES OF U.S. BILATERAL AID TO THE PALESTINIANS

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Table 1. U.S. Bilateral Assistance to the Palestinians, FY2004-FY2009 (regular and supplemental appropriations; current year $ in millions) Account

FY2004

FY2005

FY2006

FY2007

FY2008 FY2009a

ESF

74.5

224.4

148.5

50.0

389.5

225.0

P.L. 480 Title II (Food Aid)

-

6.0

4.4

19.488

-

-

INCLEb

-

-

-

-

25.0

50.0

Transition Aid

-

-

0.343

-

-

-

Total

74.5

230.4

153.243

69.488

414.5

275.0

Sources: U.S. Department of State, USAID. Notes: All amounts are approximate; for purposes of this table and this report, ―bilateral assistance‖ does not include U.S. contributions to UNRWA or other international organizations from the Migration and Refugee Assistance (MRA) or Emergency Refugee and Migration Assistance (ERMA) accounts, regardless of how the term is defined in legislation. a Funding for FY2009 to date has come from the Supplemental Appropriations Act, 2008 (P.L. 110-252) and the Omnibus Appropriations Act, 2009 (P.L. 111-8). Between the end of FY2008 and the enactment of P.L. 111-8 on March 11, 2009, The Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009 (P.L. 110-329)—extended for an additional five days on March 6, 2009—appropriated funds for all U.S. projects and activities, including aid to the Palestinians, at the rate and in the manner for which they were provided in the Consolidated Appropriations Act, 2008 (P.L. 110-161). b Does not include $86.362 million reprogrammed into the INCLE account by President Bush in January 2007 (see ―Direct Assistance to the Palestinian Authority‖ below).

Project Assistance through USAID Types of Funding Programs Most aid to the Palestinians is appropriated through the Economic Support Fund (ESF) account and provided by USAID to U.S.-based non-governmental organizations operating in the West Bank and the Gaza Strip [3]. Funds are allocated in this program for projects in sectors such as humanitarian assistance, economic development, democratic reform, improving water access and other infrastructure, health care, education, and vocational

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training (currently most, if not all, funds for the Gaza Strip are dedicated to humanitarian assistance and economic recovery needs).

Vetting Requirements and Procedures USAID‘s West Bank and Gaza program is subject to a vetting process and to yearly audits intended to ensure that funds are not diverted to Hamas or other organizations classified as terrorist groups by the U.S. government [4] This vetting process has become more rigorous in recent years in response to reports that U.S. economic assistance was indirectly supporting Palestinian terrorist groups, and following an internal audit in which USAID concluded it could not ―reasonably ensure‖ that its money would not wind up in terrorist hands [5]. A February 2009 statement from USAID described its revamped vetting procedures as follows:

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All NGOs applying for grants from USAID are required to certify, before award of the grant will be made, that they do not provide material support to terrorists.... Before making an award of either a contract or a grant to a local NGO, the USAID West Bank/Gaza Mission checks the organization and its principal officers, directors and other key personnel against lists maintained by the Office of Foreign Assets Control (OFAC) within the U.S. Department of Treasury. The Mission also checks these organizations and individuals through law enforcement and intelligence community systems accessed by USAID‘s Office of Security. At present, the Mission collects additional information up front in addition to the individual‘s full [four-part] name, such as a government issued photo-ID number and the individual‘s date and place of birth.... [USAID‘s] West Bank/Gaza program possess[es] the most comprehensive partner vetting system for foreign assistance throughout the U.S. Government. [6]

Other sources corroborate the assertion made in USAID‘s statement that its West Bank and Gaza program is one of the most, if not the most, rigorously vetted USAID programs worldwide [7].

Direct Assistance to the Palestinian Authority According to annual foreign operations appropriations laws, congressionally approved funds for the West Bank and Gaza Strip cannot be given directly to the PA unless the President submits a waiver to Congress stating that doing so is in the interest of national security [8]. Current law also places conditions on aid to any power-sharing PA government ―of which Hamas is a member‖ (for further discussion, see ―Hamas‘s Role in a ―Unity Government‖—Different Approach to Aid Conditions?‖ and ―Hamas and a ―Unity Government‖?‖ below) [9]. Recent instances in which the United States has provided direct assistance to or for the benefit of the PA as a result of special presidential action include the following: 

In January 2007, President Bush reprogrammed $86.362 million in prior-year funding into the International Narcotics Control and Law Enforcement (INCLE) account to support PA civil security forces loyal to President Abbas (see ―Assistance for PA Civil Security Forces‖ below) [10] Chairwoman Nita M. Lowey of the House

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





Appropriations Subcommittee for State, Foreign Operations, and Related Programs put a hold on the funds in February 2007, reportedly seeking assurances that they would only be used for non-lethal assistance [11]. Obligation of the funds for nonlethal purposes eventually began in June 2007, the month that the Hamas-led unity government was dissolved and the new Fayyad PA government was formed [12]. In June 2007, President Bush issued a waiver to provide an additional $18 million in direct assistance to the PA to be used for a variety of purposes, including democracy assistance and security assistance [13]. In February 2008, President Bush issued a waiver to provide $150 million in budgetary assistance to the PA from the ESF account to ―avert a serious and immediate financial crisis.‖ [14] Chairwoman Lowey again declared a hold, requesting greater details about the funds‘ allocation [15]. The funds were disbursed to the PA after the State Department delivered a certification (dated March 14, 2008) directly to Chairwoman Lowey stating that the PA had established a single treasury account and a single civil service payroll roster [16]. .• Another $150 million in budgetary assistance from the ESF account was provided to the PA in October 2008 via presidential waiver [17].

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Assistance for PA Civil Security Forces As mentioned above, aid has been given to train, reform, advise, house and provide nonlethal equipment for PA security forces loyal to President Abbas in an effort both to counter militants from organizations such as Hamas, Palestinian Islamic Jihad, and the Al Aqsa Martyrs‘ Brigades, and to establish the rule of law for an expected Palestinian state. This assistance, which was projected by the Bush Administration to last at least through 2011, has come from the INCLE account—to which a total of $161.3 million has been appropriated or reprogrammed since 2007. Since Hamas gained control of the Gaza Strip, Lt. Gen. Keith Dayton, the U.S. Security Coordinator (USSC) for Israel and the Palestinian Authority, has helped with the ―gendarmerie- style‖ training of roughly 400 Presidential Guardsmen and 1,700 National Security Forces troops at the International Police Training Center near Amman, Jordan.18 Most reports agree that law and order have improved where these PA forces have been deployed, but uncertainty remains (particularly among some Israeli officials) over the willingness and ability of the forces to incapacitate militants. Some Palestinians and outside observers assert that the effectiveness and credibility of PA operations are undermined by Israeli restrictions—including curfews, checkpoints, no-go zones, and limitations on international arms and equipment transfers—as well as by Israel‘s own security operations in the West Bank and its recent military campaign in Gaza [19]. Israel claims that its continuing operations are necessary in order to reduce the threat of terrorism emanating from the West Bank. These operations underscore the fact that the Israeli-Palestinian agreements that authorized the creation of Palestinian security forces in the 1990s in areas of limited Palestinian self-rule contained clauses that preserved Israel‘s prerogative to conduct operations in those areas for purposes of its own security. The FY2009 supplemental appropriations request includes $109 million for the INCLE account to continue security assistance to the PA in the West Bank (the USSC-assisted

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mission) as well as to provide ―law enforcement-related training and [non-lethal] equipment to enhance border integrity along the Gaza border‖ (see Table 4) [20]. The amount that the Obama Administration might propose to allocate separately among the USSC-assisted West Bank mission and Gaza border security remains unknown. Hamas‘s control over Gaza might prevent U.S.-funded border security train-and-equip programs from being based there, and it is unclear whether such programs might take place elsewhere and how they might be coordinated with border security assistance provided to Egypt (see footnote 20).

U.S. CONTRIBUTIONS TO UNRWA

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Overview The United States is the largest single-state donor to UNRWA, which provides food, shelter, medical care, and education for many of the original refugees from the 1947-1949 Arab-Israeli war and their families—now comprising approximately 4.6 million Palestinians in Jordan, Syria, Lebanon, the West Bank, and Gaza [21]. U.S. contributions to UNRWA— separate from U.S. bilateral aid to the West Bank and Gaza—come from the Migration and Refugee Assistance (MRA) account and the Emergency Refugee and Migration Assistance (ERMA) account. Since UNRWA‘s inception in 1950, the United States has provided the agency with nearly $3.5 billion in contributions (see Table 2 below). According to the State Department‘s Bureau of Population, Refugees, and Migration (PRM), U.S. contributions to UNRWA for FY2008 totaled approximately $184.7 million [22]. Thus far in FY2009, there have been two U.S. contributions to UNRWA: a December 30, 2008 MRA contribution of $85 million toward UNRWA‘s 2009 appeals, and a January 27, 2009 ERMA contribution of $13.5 million to address post-conflict humanitarian needs in Gaza (part of a $20.3 million ERMA contribution to various international organizations) [23] It is not clear whether the tensions that arose between Israel and UNRWA during the 20082009 Gaza conflict over casualties among UNRWA staff and Palestinian civilians and damage to U.N.-marked property that resulted from Israeli military operations will have a significant and/or lasting effect on UNRWA‘s future operations in Gaza [24]. Israeli officials explained the relevant incidents as accidental or as occurring in response to fire from Palestinian militants at or adjacent to U.N.- marked grounds. The Obama Administration‘s March 2 pledge of $900 million (see ―The $900 Million U.S. Pledge and the International Donors‘ Effort‖ below) and its April supplemental budget request, which have called for additional FY2009 appropriations to the accounts from which UNRWA contributions are made, could meet with increased scrutiny if there is a perception that resources from UNRWA or other international organizations are used (with or without organizational complicity) to strengthen Hamas or to frustrate Israeli objectives. In February 2009, not long after the cessation of major hostilities in Gaza, Hamas confiscated shipments of UNRWA humanitarian supplies at gunpoint on two separate occasions. UNRWA responded by suspending the shipment of additional goods into Gaza until the supplies were returned. Hamas eventually did return the supplies, and UNRWA resumed aid shipments.

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Jim Zanotti Table 2. Historical U.S. Government Contributions to UNRWA (in $ millions) Fiscal Year(s)

Amount

Fiscal Year(s)

Amount

1950-1989

1,473.3

2000

89.0

1990

57.0

2001

123.0

1991

75.6

2002

119.3

1992

69.0

2003

134.0

1993

73.8

2004

127.4

1994

78.2

2005

108.0

1995

74.8

2006

137.0

1996

77.0

2007

154.2

1997

79.2

2008

184.7

1998

78.3

2009a

98.5

1999

80.5

TOTAL

3,491.8 a

Source: U.S. Department of State Notes: All amounts are approximate. . To date.

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Issues for Congress – Vetting and Oversight Some observers, including a former general counsel for UNRWA, have criticized UNRWA for, among other things, insufficient or flawed vetting procedures and engaging in political advocacy [25]. UNRWA and its supporters, however, maintain that UNRWA officials are fulfilling their mandated roles as well as can be expected under challenging circumstances (i.e., UNRWA‘s lack of an independent policing capability and other operational limitations, political pressures, security concerns) [26]. In testimony before the House Appropriations Subcommittee on State, Foreign Operations and Related Programs on April 23, 2009, Secretary of State Hillary Rodham Clinton spoke for the Obama Administration regarding U.S. oversight of contributions to UNRWA: We have made it clear to UNRWA, the United Nations Relief And Works Agency, that we intend to carefully track any aid that they receive. They have taken additional steps, partly at our urging, to make their process more transparent, consistent with both United Nations commitments and U.S. legislation. They conduct background checks on employees. They share staff lists with us and with Israel. They prohibit staff participation in political activities. They launch investigations upon receiving information from Israel, us, or anyone else about any staff member engaging in inappropriate or illicit activities. They are actually investigating staff members right now who were elected in internal elections within Gaza. And we have pressed them very hard because they have to earn our confidence in this [27]

The primary concern raised by some Members of Congress is that U.S. contributions to UNRWA might be used to support terrorists. Section 301(c) of the 1961 Foreign Assistance Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

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Act (P.L. 87- 195), as amended, says that ―No contributions by the United States shall be made to [UNRWA] except on the condition that [UNRWA] take[s] all possible measures to assure that no part of the United States contribution shall be used to furnish assistance to any refugee who is receiving military training as a member of the so-called Palestine Liberation Army or any other guerrilla type organization or who has engaged in any act of terrorism.‖ A November 2003 report from the General Accounting Office described UNRWA's efforts in implementing the Section 30 1(c) requirement and the State Department's actions in attempting to facilitate and strengthen these efforts [28]. To date, no arm of the U.S. government has found UNRWA to be in noncompliance with Section 30 1(c). Nevertheless, critiques of UNRWA‘s operations are routinely raised, and some Members of Congress have supported legislation or resolutions aimed at increasing oversight of the agency, strengthening its vetting procedures, and/or capping U.S. contributions. During the 111th Congress, Representative Ileana Ros-Lehtinen, the Ranking Minority Member on the House Committee for Foreign Affairs, has sponsored H.R. 557 (United Nations Transparency, Accountability, and Reform Act of 2009), which includes a section entitled ―Withholding of United States Contributions to UNRWA,‖ with over 80 co-sponsors; and Representative Steven Rothman has sponsored H.Con.Res. [29] (―Expressing the sense of Congress that the United Nations should take immediate steps to improve the transparency and accountability of the United Nations Relief and Works Agency for Palestinian Refugees (UNRWA) in the Near East to ensure that it is not providing funding, employment, or other support to terrorists‖) with over 25 cosponsors.29 Both H.R. 557 and H.Con.Res. 29 were referred to the House Committee on Foreign Affairs in January 2009.

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THE $900 MILLION U.S. PLEDGE AND THE INTERNATIONAL DONORS’ EFFORT The U.S. Pledge and Proposed FY2009 Supplemental Appropriations Overview An international donors‘ conference intended to gather support for the Palestinians in the aftermath of the Gaza conflict took place in Sharm al-Sheikh, Egypt on March 2, 2009. At the conference, Secretary of State Hillary Rodham Clinton pledged $900 million in U.S. assistance to the Palestinians—$300 million for post-conflict humanitarian purposes in Gaza and $600 million to forward PA security, institutional reform, and economic development goals in the West Bank.[30] Most of the pledged amount remains subject to congressional appropriation (see Table 3 below). The FY2009 supplemental budget request proposes $815 million in appropriations toward the March 2 pledge—$665 million in bilateral assistance (from the ESF and INCLE accounts) and $150 million in contributions to international organizations (mostly to UNRWA) from the MRA account [31]. A spending plan for proposed FY2009 supplemental funding appears below as Table 4. The Israeli daily Ha ‘aretz reported that Secretary Clinton warned PA President Mahmoud Abbas during their March 4 meeting in Ramallah that U.S. pledges would likely be withdrawn if a PA consensus or unity government including Hamas did not meet the conditions that the international Quartet (the United States, the United Nations, the European

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Union, and Russia) has prescribed for cooperation with a PA government—recognition of Israel‘s right to exist, renunciation of violence, and acceptance of previous Israeli-Palestinian agreements (the ―Quartet principles‖) [32] Many observers believe that either Hamas‘s positions on the Quartet principles or its control over Gaza would have to change before the United States might consider dedicating substantial resources toward the reconstruction of buildings and infrastructure in Gaza. Table 3. Actual and Requested Appropriations Toward $900 Million U.S. Pledge to Palestinians (in $ millions) Legislative Authority

ESF

MRA/ERMA

INCLE

Total

Pre-111th Congress Legislation

-

20.3a

-

20.3

FY2009 Omnibus (P.L. 111-8)

75.0

35.0

-

110.0

Administration Request for FY2009 Supplemental (Pending

556.0

150.0

109.0

815.0

Appropriation) Total

631.0

205.3

109.0

945.3

Sources: U.S. Department of State, Office of Management and Budget. Notes: All amounts are approximate; the amounts listed do not necessarily reflect all amounts appropriated for aid to the Palestinians under the respective legislative appropriating authorities— they are limited to the amounts specifically connected to the $900 million pledge. a. See ―U.S. Contributions to UNRWA‖ above. See also Presidential Determination 2009-15, available at http://www.whitehouse.gov/blog_post/relief_for_gaza/.

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Hamas’s Role in a ―Unity Government‖— Different Approach to Aid Conditions? The FY2009 supplemental appropriations request includes a provision that would allow aid to be provided to a power-sharing PA government of which Hamas is a member (see ―Hamas and a ―Unity Government‖?‖ below) if the President certifies that such a government has accepted and is complying with the principles found in Sections 620K(b)(1)(A) and (B) of the Foreign Assistance Act of 1961, as amended by the Palestinian Anti-Terrorism Act of 2006 (P.L. 109- 446). These ―Section 620K principles‖—related to the Quartet principles— refer to (1) a public acknowledgment of the Jewish state of Israel‘s right to exist and (2) commitment and adherence to previous international agreements (including the PerformanceBased Roadmap to a Permanent Two-State Solution to the Israeli-Palestinian Conflict, commonly known simply as the ―Roadmap‖) [33]. Each of the provisions regarding a potential power-sharing PA government under FY2008 appropriations legislation (P.L. 110-161 and P.L. 110-252) and the Omnibus Appropriations Act, 2009 (P.L. 111-8) has only remained effective during the particular cycle to which it has pertained, and only with respect to the funds appropriated. In the form in which it has been drafted, the proposed provision for the supplemental appears to follow this pattern. Thus, if included in the same form in enacted legislation, it would not appear to change any underlying, permanent legislation that pertains to funding authorization, but may only affect appropriations for the cycle to which it pertains.

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Table 4. Spending Plan for $815 Million in Proposed FY2009 Supplemental Funding Amount Economic Support Fund ($556 million total) $200 million

Purpose

Direct budgetary assistance to Palestinian Authority (PA) in West Bank (helping to discharge PA debt obligations, which are primarily incurred in order to pay the salaries of PA employees) Assistance for Gaza (through USAID)a

$156 million

 $61 million – immediate humanitarian and food relief (through well- established international organizations)  $54 million – restore essential services and create jobs  $20 million – household-level economic recovery (i.e., agriculture and livestock) and microenterprise  $15 million – replenish funds expended on humanitarian assistance during war in Gaza  $6 million – small-scale community improvement and rebuilding projects (working with non-Hamas municipalities and communities) Assistance for the West Bank (through USAID)

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$195 million

 $93 million – institutional capacity building, education, and social services  $60 million – promote economic growth  $30 million – support governance and rule of law  $12 million – humanitarian assistance

$5 million Security and administrative costs Migration & Refugee Assistance($150 million total) Emergency humanitarian assistance for West Bank and $125 million Gaza (mostly to UNRWA) Assistance to Palestinian refugees in Lebanon $25 million (mostly to UNRWA) Training and non-lethal equipment assistance to PA International Narcotics security forces in the West Bank, supporting efforts by the Control and Law U.S. Security Coordinator/Deputy Envoy for Security, Lt. Enforcement Gen. Keith Dayton; and training and non-lethal equipment ($109 million) assistance to enhance the integrity of the Gaza border

Source: FY2009 Supplemental Appropriations Request, Office of Management and Budget; FY2009 Supplemental Justification, U.S. Department of State and U.S. Agency for International Development. Notes: All amounts are approximate.a. See footnote 3.

This is in keeping with the general legislative proposition that conditions explicitly attached to yearly appropriations generally do not last beyond the relevant appropriations cycles, unlike stand-alone legislation that does. The proposed provision does, however, appear to differ in at least one respect from the analogous provisions regarding power sharing from the FY2008 appropriations cycle and in the FY2009 omnibus (P.L. 111-8). According to P.L. 111-8, Section 7040(f)(1), a presidential certification permitting aid to a power-sharing government would appear to require Hamas as an organization, not simply the power-sharing government itself, to accept the Section 620K

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Jim Zanotti

principles [34]. Language within the FY2009 supplemental request explaining the proposed provision to designate a PA power-sharing government (instead of Hamas) as the Palestinian party subject to the presidential certification clause states, ―It is expected that such a powersharing government would speak authoritatively for the entire Palestinian Authority government, including its ministries, agencies and instrumentalities‖[35]. Some analysts might say that the provision proposed for the supplemental could make the conditions under which a power-sharing PA government might receive U.S. assistance less stringent than the conditions attached to the FY2008 legislation and the FY2009 omnibus that focused on Hamas‘s behavior. Some might maintain, though, that by placing the legislative focus on the behavior of the PA government, the proposed supplemental provision might bring the conditions on aid to the PA more in line with the focus found in the Palestinian Anti-Terrorism Act of 2006 (P.L. 109-446) and in executive branch policy (under both the Bush and Obama Administrations) that has existed since Hamas‘s entry into government in 2006. National Security Council spokesman Benjamin Chang has said that the proposed provision ―is consistent with our policy. It would prohibit assistance to a government that does not accept the Quartet principles but would preserve the president‘s flexibility to provide such assistance if that government were to accept and comply with the Quartet principles.‖36 The exact correspondence of the proposed provision (if enacted), when taken in concert with P.L. 109-446 and other existing legislation, with the Quartet principles could be subject to interpretation.37 Such an interpretation could hang on the definition of such terms as ―powersharing government of which Hamas is a member‖ and ―Hamas-controlled Palestinian Authority.‖ If the President does not certify that a power-sharing PA government including Hamas has accepted and is complying with the Section 620K principles, the proposed FY2009 supplemental provision would appear to permit the President to provide aid to either the PA president or judiciary—by means of a Section 620K(e) waiver on national security grounds— if they are not members of or controlled by Hamas or another foreign terrorist organization.38 A similar waiver authority allowed the Bush Administration to provide aid to PA President Mahmoud Abbas and his own security forces during the time of the Hamas-controlled government in 2006-2007.

Congressional Consideration of Proposed FY2009 Supplemental It is not known whether prospects for congressional approval of the proposed $815 million FY2009 supplemental aid package for the Palestinians might be affected by the stated opposition of some Members to the $900 million pledge and the apparent desire of some Members to attach conditions to aid or to increase the scrutiny of such aid during consideration of the Omnibus Appropriations Act, 2009 (P.L 111-8).39 Debate over the supplemental could intensify if the proposed provision regarding power sharing (see ―Hamas‘s Role in a ―Unity Government‖— Different Approach to Aid Conditions?‖ above) is perceived to represent or foreshadow a significant change in U.S. policy with respect to Hamas and the concept of Palestinian unity (see ―Hamas and a ―Unity Government‖?‖ below). House committee hearings held in April that featured Secretary of State Clinton as a witness afforded some Members the opportunity to comment on the proposed provision

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regarding conditions on aid to a potential power-sharing government that includes Hamas. At the April 23 hearing before the House Appropriations Subcommittee on State, Foreign Operations and Related Programs, Chairwoman Nita Lowey said, ―I believe it's not enough for Abu Mazen [Mahmoud Abbas‘s nickname] or Salam Fayyad to accept the [Quartet] principles. It must be all the ministers, including any minister appointed by Hamas, that comply with these principles.‖ Representative Adam Schiff stated, ―It seems to me unworkable to have Hamas organizing terrorist attacks against Israel at the same time it has the power to appoint ministers to a coalition government.‖ Representative Mark Kirk told Secretary Clinton, ―I would just urge that you‘re picking up some pretty strong bipartisan concern here, which means that an amendment is coming. So I—I would urge you to beat a strategic retreat on this point and then use the Congress as the bad guy.‖ [40] Secretary Clinton defended the Administration‘s proposed provision as follows:

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this is a critically important time in the Middle East, and we don't know what will come from these ongoing [Palestinian unity] talks in Cairo. But if what emerges from these talks is a unity government that abides by the Quartet principles, we do want to have the authority to deal with that government in the peace process or negotiations that might possibly develop. Before providing any such waiver, the administration will consider all the relevant facts, including who these people were, what their role in the government was, to make sure this meets our standards and our national interest [41]

To defend the hypothetical notion of tolerating the possibility of Hamas members serving in a PA government whose leaders would accept the Quartet conditions and/or the Section 620K conditions, Clinton pointed out that ―we are currently funding the Lebanese government, which has Hezbollah in it‖ because of a U.S. interest in supporting a government working to prevent the ―further incursion of extremism.‖ [42] She also drew comparisons between the Israeli-Palestinian peace process and the peace process in Northern Ireland during the 1990s (with which she was acquainted as First Lady).

International Pledges and the Gaza Reconstruction Effort According to the State Department, total pledges of over $4.6 billion (including the U.S. pledge of $900 million) were made at the March 2 conference in Egypt. Notable pledges are set forth below in Table 5. Questions abound regarding the pledges. To what extent will they be fulfilled—and when, where, to whom, and how? To what extent might donor assistance be used for actual bricks-and-mortar reconstruction in Gaza? Gulf Arab states have reportedly discussed using international organizations or a Gulf Cooperation Council/Islamic Development Bank mechanism as an alternative to routing Gaza reconstruction assistance through the Palestinian Authority.43 Even if the funding question is addressed, a remaining obstacle to reconstruction is the Israeli government‘s refusal to allow more than a minimal amount of construction materials to pass through the Gaza border crossings it controls.

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Jim Zanotti Table 5. Notable Pledges of Assistance from March 2 Conference in Egypt (in $ millions) Donor

Amount

Donor

Amount

United States

900.0

Org. of Islamic Conf.

100.0

European Commission

554.4

Arab Monetary Fund

10.0

24 EU Member States

854.7

OPEC Fund for Int‘l Dev.

5.5

Saudi Arabia

1,000.0

World Bank

55.0

Qatar

250.0

Japan

200.0

Kuwait

200.0

South Korea

15.0

United Arab Emirates

174.0

Australia

12.9

Bahrain

23.0

Brazil

10.0

Algeria

200.0

China

2.2

Morocco

15.0

Singapore

1.0

Tunisia

1.3

India

1.0

Lebanon

1.0

Malaysia

0.1

Turkey

93.0

TOTAL

4,679.1

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Source: U.S. Department of State. Notes: All amounts are approximate.

The PA‘s goal is to raise $2.8 billion, including $1.3 billion in Gaza reconstruction assistance.44 Given its lack of control over Gaza, the PA has proposed using banks in Gaza and NGOs such as CHF International (Cooperative Housing Foundation) to implement reconstruction, but its main accomplishment to date has been to distribute $20 million through the United Nations Development Programme (UNDP) in emergency cash assistance to families whose homes were destroyed or damaged.45 To the extent that the PA is unable to meet its reconstruction goals, there are concerns that Hamas and Iran might try to fill the void of reconstruction assistance (despite the Israeli embargo on construction materials) and strengthen their support base among the Gazan population. Hamas has reportedly handed out as much as $60 million to families who lost homes, businesses, or family members during the conflict,46 and, according to a Bloomberg report, Iran has established a ―Gaza Reconstruction Headquarters‖ in Tehran that it claims will build 1,000 homes, 10 schools, five mosques and 500 shops.47 Time will likely tell whether the proposed reconstruction plans of the PA, Hamas, Iran, and Gulf Arab states might actually materialize or merely result in a domestic and regional competition for patronage through cash handouts and public relations [48].

FACTORS IN DETERMINING FUTURE AID Effectiveness of U.S. Assistance in Strengthening the PA in the West Bank Instability in the Palestinian territories is, paradoxically, both a major reason for the increases in U.S. assistance over the past two years and a factor that could lead some to

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oppose maintaining or boosting current aid levels. After Hamas‘s takeover of the Gaza Strip and dismissal from the PA in June 2007, the United States made assisting the PA with economic development and civil security—aimed at bolstering the standing of President Abbas and the Fayyad government—a higher priority. Yet, if the PA in Ramallah is unable, at a minimum, to achieve and maintain popular legitimacy and competent control in the West Bank, U.S. reluctance to provide resources and training might increase, given concerns that aid could be used against Israel or Palestinian civilians, either by falling into the hands of Hamas or otherwise. Some observers argue that U.S. assistance does not enhance the legitimacy of Abbas and the PA, but rather detracts from it by leading some Palestinians to conclude that the PA is too beholden to the United States [49]. This debate has intensified and has become more complicated in the wake of the 2008-2009 Gaza conflict, as questions have been raised about how to undertake the task of post-conflict reconstruction with a Hamas ―government‖ in control of Gaza.

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Economic Development and International Donor Assistance The appointment in June 2007 of Salam Fayyad, a former World Bank and International Monetary Fund official, as PA prime minister raised hopes for Palestinian reform and economic growth that have been realized in part. Fayyad produced a Palestinian Reform and Development Plan for 2008-2010 (PRDP) that helped garner major international donor assistance pledges and promises of investment, respectively, at conferences in Paris (December 2007) and in Bethlehem and Nablus (May and November 2008) that Quartet envoy and former British prime minister Tony Blair helped organize. International pledges of support, however, have proven insufficient to cover the PA‘s monthly budgetary expenses, occasionally requiring last-minute efforts by Fayyad and Blair to obtain outside assistance.50 Concerns over meeting expenses appear likely to continue unless the March 2009 pledges in Egypt result in substantially heightened contributions to the PA treasury. The ultimate success of Fayyad‘s PRDP appears to hinge on two factors: keeping the public sector solvent enough to sustain long-term private sector development, and getting Israeli restrictions loosened or lifted on the movement of goods and people both within and out of the West Bank and Gaza [51].

Hamas and a ―Unity Government‖? If efforts at unifying Palestinians in the West Bank and Gaza under President Abbas‘s leadership—either through elections or political achievements that increase his legitimacy— appear unlikely to succeed, cohesion might be promoted through a consensus or unity PA government that is acceptable to both Abbas‘s Fatah faction and Hamas. Egyptian-facilitated efforts to reach agreement on such a government—which remain ongoing—have been unsuccessful since the collapse of the last one following Hamas‘s takeover of Gaza in June 2007. Reportedly, the unity negotiations have been complicated by differing factional views on various questions. These questions include how to integrate PA and Hamas security operations, when and how to conduct Palestinian presidential and legislative elections (which,

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under current Palestinian law, are scheduled to take place no later than January 2010), and whom to appoint to government positions [52] A consensus or unity government may or may not significantly depart from the capacity-building objectives set by the Fayyad government that are used as a major justification for current U.S. aid levels. The continuation of U.S.sponsored PA security reform efforts (see ―Assistance for PA Civil Security Forces‖ above), which are aimed at consolidating all Palestinian forces under a single, civilian-led chain of command, could be particularly difficult for Hamas and its militia to accept. Regardless of the objectives of a consensus or unity PA government, were it to include Hamas without Hamas‘s acceptance of the Section 620K principles (recognition of ―the Jewish state of Israel‘s right to exist‖ and acceptance of previous Israeli-Palestinian agreements), current law would apparently require the United States to cease direct aid to the PA (see ―Hamas‘s Role in a ―Unity Government‖—Different Approach to Aid Conditions?‖ above), [53] and there could be calls for cessation or for limits on other economic assistance to the West Bank and Gaza. Future debates might focus on whether to relax or to tighten these restrictions, on which Palestinian party should be answerable for accepting and complying with the Section 620K conditions, and on whether the President might be granted discretion to waive aid restrictions relating to a unity government under certain conditions and/or for specific purposes. For discussion of a proposal from the FY2009 supplemental appropriations request possibly pertaining to these issues, see ―Hamas‘s Role in a ―Unity Government‖— Different Approach to Aid Conditions?‖ above. Assuming that the United States chooses not to engage with and/or contribute to a PA government that includes Hamas, future debates might take place over the degree to which the United States should actively dissuade others in the international community— particularly European and Arab actors—from engagement and contributions [54].

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Questions Regarding a Two-State Solution Even assuming that the immediate objectives of U.S. assistance to the Palestinians— relieving humanitarian needs in Gaza and improving security and facilitating development in the West Bank—are met, a failure to achieve progress toward a politically legitimate and peaceful two- state solution could undermine the utility of U.S. aid in helping the Palestinians become more cohesive, stable, and self-reliant over the long term. The Obama Administration has emphasized the United States‘s continued commitment to a two-state solution, and has appointed former Senator George Mitchell as its Special Envoy for Middle East Peace. Nevertheless, many factors may complicate prospects for a negotiated two-state solution in the near term. One is discord within and among Palestinian factions—reflected geographically by divided rule in the West Bank and Gaza. Another is the April 2009 accession of a right-wing Israeli government under Prime Minister Benjamin Netanyahu that has thus far refused to endorse the concept of an independent Palestinian state. Yet another is the physical entrenchment of Israeli settlers in the West Bank and of obstacles to Palestinian movement within the West Bank and in and out of both the West Bank and Gaza, together with its political and socioeconomic consequences. A fourth is the possibility of unpredictable events—such as a major terrorist attack, a surprise election outcome, or an outbreak of war— occurring in the Palestinian territories, Israel, or elsewhere in the region [55].

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[2] [3]

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[4]

[5]

[6] [7]

The FY2009 Supplemental Justification, Department of State and U.S. See the Omnibus Appropriations Act, 2009 (P.L. 111-8), Division H, Title VII, Secs. 70367040. These conditions include a restriction on aid to Hamas (including Hamas affiliates and any government of which Hamas is a member) or to a Palestinian state unless commitments toward peaceful coexistence with Israel are made and other requirements met by certain Palestinian parties. See U.N. Development Programme 2007/08 Human Development Report 18: Flows of Aid, Private Capital and Debt at http://hdrstats.undp.org/indicators/171.html. Agency for International Development, p. 46, states that ―Implementation of programs in Gaza is dependent on the establishment of a durable ceasefire, the creation of an operating environment in which Hamas does not interfere with USG-funded programs and activities, and the ability to move essential materials and commodities into Gaza. We will work with the Palestinian Authority and our implementing partners to follow established safeguards that will ensure that our funding is only used where, and for whom, it is intended.‖ P.L. 111-8, Division H, Title VII, Sec. 7039(b) sets forth the legal requirements for vetting: ―Prior to the obligation of funds appropriated by this Act under the heading ‗Economic Support Fund‘ for assistance for the West Bank and Gaza, the Secretary of State shall take all appropriate steps to ensure that such assistance is not provided to or through any individual, private or government entity, or educational institution that the Secretary knows or has reason to believe advocates, plans, sponsors, engages in, or has engaged in, terrorist activity nor, with respect to private entities or educational institutions, those that have as a principal officer of the entity's governing board or governing board of trustees any individual that has been determined to be involved in, or advocating terrorist activity or determined to be a member of a designated foreign terrorist organization. The Secretary of State shall, as appropriate, establish procedures specifying the steps to be taken in carrying out this subsection and shall terminate assistance to any individual, entity, or educational institution which she has determined to be involved in or advocating terrorist activity.‖ ―Audit: Terrorists Got U.S. Aid; Agency's Screening Called Inadequate,‖ Chicago Tribune, November 16, 2007. In February 2008, then USAID Administrator and Director of U.S. Foreign Assistance Henrietta Fore said, in testimony before the House Appropriations Subcommittee on State, Foreign Operations, and Related Programs, that Congress‘s ―strong support and vigilance‖ was encouraging the adoption of more rigorous vetting measures. Testimony of Henrietta Fore, USAID Administrator and Director of U.S. Foreign Assistance, House Appropriations Subcommittee on State, Foreign Operations, and Related Programs Holds Hearing on the Fiscal 2009 Budget for the U.S. Agency for International Development, February 27, 2008. Statement issued by USAID to CRS on February 5, 2009. See Walter Pincus, ―Plan for Terror Screening of Aid Groups Cut Drastically,‖ Washington Post, August 30, 2007; Federal Register, vol. 2, no. 36, pp. 39042-39044. The statement issued by USAID to CRS on February 5, 2009 directly challenged a recent article‘s allegation that USAID had not yet implemented its new ―partner vetting system‖ (PVS) in West Bank/Gaza. See Matthew Levitt, ―How Not to Fund Hamas:

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[8]

[9] [10]

[11] [12] [13] [14] [15]

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[16]

[17] [18]

[19] [20]

[21]

[22]

Jim Zanotti Scrutinize Those Who Receive U.S. Aid,‖ New York Daily News, February 4, 2009. The USAID statement asserted that the article‘s author was probably confusing the already rolled-out West Bank/Gaza pilot PVS with the PVS that was awaiting final approval to be rolled out for USAID‘s other worldwide program. See P.L. 111-8, Division H, Title VII, Sec. 7040 (―Limitation on Assistance for the Palestinian Authority‖). This law also expressly prohibits using funds transferred to the PA to pay salaries of PA employees in the Gaza Strip unless the ―Section 620K principles‖ (see ―Hamas‘s Role in a ―Unity Government‖—Different Approach to Aid Conditions?‖) are met. Ibid. See Presidential Determination No. 2007-11. Under Chapter 8 of Part I (Section 481) of the 1961 Foreign Assistance Act (as amended): ―Notwithstanding any other provision of law, the President is authorized to furnish assistance to any country or international organization, on such terms and conditions as he may determine, for the control of narcotic and psychotropic drugs and other controlled substances, or for other anticrime purposes.‖ See ―Splits Between U.S. and Europe Over Aid for Palestinians,‖ International Herald Tribune, February 22, 2007. CRS conversation with U.S. Department of State official, September 16, 2008. See Presidential Determination No. 2007-20. See Presidential Determination No. 2008-12. ―Appropriator Wants Palestinian Authority Aid on Hold Until Accountability in Place,‖ CQToday, March 4, 2008. The certification was required by the 2008 foreign operations appropriations bill. See Consolidated Appropriations Act, 2008 (P.L. 110-161), Division J, Title III, Economic Support Fund. See Presidential Determination No. 2009-02. See Adam Entous, ―Palestinian Forces Return from U.S.-Funded Training, Reuters, May 28, 2008; ―500 Palestinian Security Force Members Head to Jordan for U.S.Funded Training,‖ Reuters, September 18, 2008. See International Crisis Group, Ruling Palestine II: The West Bank Model? Middle East Report No. 79, July 17, 2008. The supplemental request also seeks $50 million in Nonproliferation, Anti-Terrorism, Demining and Related Programs (NADR) funding for Egypt to secure its border with the Gaza Strip from smuggling. Office of Management and Budget, FY2009 Supplemental Appropriations Request, April 9, 2009, p. 88. For further information on UNRWA, see CRS Report RS2 1668, United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), by Rhoda Margesson. According to PRM, U.S. contributions in 2008 constituted approximately 17.8% of the UNRWA General Fund budget and a major share (up to 25%) of other UNRWA funds benefitting Palestinian refugees in Lebanon, the West Bank, and Gaza. Aggregate contributions from the European Commission and European states (including both EU members and non-members) and regions constitute approximately 60% of all UNRWA contributions, according to UNRWA‘s 2006-2007 financial statement. See UNRWA Financial Report and Audited Financial Statements (for the Biennium Ended 31

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[23] [24]

[25]

[26]

[27] [28]

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[29]

[30]

[31]

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December 2007) and Report of the Board of Auditors, U.N. General Assembly Official Records (63rd Session, Supplement No. 5C), 2008. See Presidential Determination 2009-15, available at http://www.whitehouse.gov/blog _post/relief_for_gaza/. For further information on U.S. humanitarian assistance in relation to the Gaza conflict and on Israel-UNRWA tensions during the Gaza conflict, see CRS Report R40101, Israel and Hamas: Conflict in Gaza (2008-2009), coordinated by Jim Zanotti. See James G. Lindsay, Fixing UNRWA: Repairing the UN’s Troubled System of Aid to Palestinian Refugees, Washington Institute of Near East Policy Policy Focus #91, January 2009. See also James Phillips, ―The Gaza Aid Package: Time to Rethink U.S. Foreign Assistance to the Palestinians,‖ The Heritage Foundation WebMemo No. 2333, March 9, 2009. A direct written rebuttal by Israeli academic Maya Rosenfeld to the former UNRWA general counsel‘s critiques is carried by UNRWA‘s website at http://www.un.org/unrw a/allegations/Rejoinder2Lindsay_jan09.pdf. UNRWA also maintains a ―Setting the Record Straight‖ section on its website to address common critiques leveled at the agency, available at http://www.un.org/unrwa/allegations/index.html. See also Summary of remarks by James G. Lindsay and Andrew Whitley, UNRWA Nears Sixty: Part of the Solution or Part of the Problem? Washington Institute for Near East Policy PolicyWatch #147 1, February 6, 2009. Transcript of House Appropriations Subcommittee on State, Foreign Operations and Related Programs hearing: ―Supplemental Request,‖ April 23, 2009. See U.S. General Accounting Office, Department of State and United Nations Relief and Works Agency Actions to Implement Section 301(c) of the Foreign Assistance Act of 1961, November 6, 2003, available at http://www.gao.gov/new.items/d04276r.pdf. See also the following article by five Members of Congress: Ileana Ros-Lehtinen, John A. Boehner, Eric Cantor, Mike Pence, and Thaddeus McCotter, ―Ros-Lehtinen et al.: Cut Off Relief Agency,‖ Washington Times, March 26, 2009. See U.S. Department of State Press Release: ―United States Assistance to the Palestinians,‖ March 2, 2009, available at http://www.state.gov/r/p/prs/ps/200 9/03/119925.htm. FY2009 Supplemental Appropriations Request, op. cit., pp. 81-83, available at http://www.whitehouse.gov/omb/assets/budget_amendments /supplemental_04_09_09.pdf. The supplemental request also seeks $50 million in Nonproliferation, Anti-Terrorism, Demining and Related Programs (NADR) funding for Egypt to secure its border with the Gaza Strip from smuggling, as mentioned in footnote 20 (this $50 million is added to the other $665 million in bilateral assistance for the Palestinians as part of the State Department‘s $715 million figure in its FY2009 Supplemental Budget Justification), along with $5 million for ―U.S. direct hires, program oversight, and related security and other support costs for increased assistance programs in the West Bank and Gaza.‖ FY2009 Supplemental Appropriations Request, op. cit., p. 92. Barak Ravid, ―Clinton: U.S. Gaza Aid Tied to Recognition of Israel,‖ Ha ’aretz, March 12, 2009. FY2009 Supplemental Appropriations Request, op. cit., p. 96; Palestinian AntiTerrorism Act of 2006 (P.L. 109- 446), Section 2(b)(2). The text of the provision

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[34] [35] [36] [37]

[38]

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[39]

[40]

[41] [42]

Jim Zanotti proposed for the supplemental reads, ―None of the funds made available in this Act may be made available for ... any power-sharing government of which Hamas is a member: Provided, That assistance may be provided to a power-sharing government if the President certifies in writing and reports to the Committees on Appropriations that such government has accepted and is complying with the principles contained in section 620K(b)(1)(A) and (B) of the Foreign Assistance Act of 1961, as amended‖. See also P.L. 110-161, Division J, Title III, ―Economic Support Fund‖; P.L. 110-252, Section 1417. FY2009 Supplemental Appropriations Request, op. cit., p. 96. Adam Graham-Silverman, ―Bid to Ease Conditions on Aid to Palestinians Faces Tough Scrutiny,‖ CQToday, April 17, 2009. See, e.g., FY2009 Supplemental Appropriations Request, op. cit., p. 96; P.L. 109-446. For example, the proposed supplemental provision does not expressly refer to Section 620K(b)(2) of the Foreign Assistance Act of 1961, as amended by P.L. 109-446 (pertaining to progress on issues including but not limited to counter-terrorism and institutional reform). Rep. Ileana Ros-Lehtinen has stated that the proposed provision appears ―to ignore requirements for the dismantling of the Islamist militant infrastructure and the halting of incitement before the P.A.—before a P.A. effectively controlled by Hamas could be eligible for U.S. funds.‖ See Transcript of House Committee on Foreign Affairs hearing: ―New Beginnings: Foreign Policy Priorities in the Obama Administration,‖ April 22, 2009.Adam Graham-Silverman, ―Bid to Ease Conditions on Aid to Palestinians Faces Tough Scrutiny,‖ CQToday, April 17, 2009. See FY2009 Supplemental Appropriations Request, op. cit., p. 96; P.L. 109-446, Section 2(b)(2). During the consideration of the Omnibus Appropriations Act, 2009 (P.L. 111-8), Senator John Kyl proposed two amendments to the bill relating to aid for Palestinians: S.Amdt. 629 (―To provide that no funds may be used to resettle Palestinians from Gaza into the United States‖) and S.Amdt. 631 (―To require the Secretary of State to certify that funds made available for reconstruction efforts in Gaza will not be diverted to Hamas or entities controlled by Hamas‖). Kyl withdrew S.Amdt. 629 after receiving a letter from the State Department assuring him that U.S. funds were not being used to resettle Gazans in the United States, and S.Amdt. 631 failed by a vote of 3 9-56. Additionally, Rep. Ileana Ros-Lehtinen said, ―I am deeply concerned about the administration‘s plan to take $900 million from U.S. taxpayers to fund Gaza reconstruction and a bailout of the Palestinian Authority at a time when our nation is grappling with serious economic challenges.‖ Adam Graham-Silverman, ―Palestinian Aid Expected to Be Approved in Supplemental, Despite Concerns,‖ CQToday, March 4, 2009. Transcript of House Appropriations Subcommittee on State, Foreign Operations and Related Programs hearing: ―Supplemental Request,‖ April 23, 2009. See also Transcript of House Committee on Foreign Affairs hearing: ―New Beginnings: Foreign Policy Priorities in the Obama Administration,‖ April 22, 2009. Transcript of House Appropriations Subcommittee on State, Foreign Operations and Related Programs hearing: ―Supplemental Request,‖ April 23, 2009. Ibid.

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[43] In February, Qatar announced a donation of $30 million and, in March, Saudi Arabia announced a donation of $20.5 million to various U.N. agencies to address post-conflict humanitarian needs, but little, if any, of those amounts appeared to be slated for reconstruction assistance. See ―Qatar Gives $40 Million, Mostly Targeted at Gaza, to Boost UN Humanitarian Relief,‖ UN News Centre, February 23, 2009; ―Riyadh Pledges $20.5 Million in Relief Funds to Palestinians,‖ The Daily Star Online (Beirut), March 24, 2009, Open Source Document GMP20090324966010. It is unclear whether this approach to post-conflict recovery in Gaza will be the rule or the exception in how the Gulf states fulfill the larger balance of their pledges. In March, Qatar Charity announced a $10 million donation to the Norwegian Refugee Council for a two-year Gaza reconstruction plan—focused on both the public sector (i.e., health, education, infrastructure) and the private sector (up to 300 homes)—without specifying how construction would proceed despite the embargo on construction materials. See Magnus Wright Jacobsen, ―Joint Project for Reconstruction,‖ Norwegian Refugee Council, March 5, 2009, available at http://www.nrc.no/?did=9386821. [44] Alaa Shahine and Alastair Sharp, ―Factbox: Pledges Made Ahead of Gaza Conference in Egypt,‖ Reuters, March 2, 2009. [45] International Crisis Group, Gaza’s Unfinished Business, Middle East Report No. 85, April 23, 2009. [46] Ibid. [47] See "Middle East: Gaza Ceasefire Faces Poor Prospects," Oxford Analytica, February 6, 2009; David Rosenberg and Saud Abu Ramadan, ―Gaza Rebuild Splits Palestinians as Iran, U.S. Clash,‖ Bloomberg, March 2, 2009. [48] The International Crisis Group has quoted a European diplomat as saying, ―The way it looks now, the most likely outcome is that, as in previous crises, recovery simply won‘t occur.‖ International Crisis Group, Gaza’s Unfinished Business, Middle East Report No. 85, April 23, 2009, footnote 272. [49] See Sherifa Zuhur, Ali Abunimah, Haim Malka, Shibley Telhami, ―Symposium: Hamas and the Two-State Solution: Villain, Victim or Missing Ingredient?‖ Middle East Policy, vol. 15, issue 2, July 1, 2008; Transcript of National Public Radio interview (―All Things Considered‖) with Robert Malley, June 16, 2007. [50] See Adam Entous and Mohammed Assadi, ―Palestinian PM Gets Phone Firm Help to Pay Wages,‖ Reuters, August 8, 2008. See also The World Bank, Implementing the Palestinian Reform and Development Agenda: Economic Monitoring Report to the Ad Hoc Liaison Committee, May 2, 2008. Only a small fraction of the $7.7 billion pledged in Paris ($1.1 billion) was pledged for budgetary support, about $535 million short of the PA‘s targeted needs for 2008. A July 2008 Washington Post article stated that many Arab governments had fulfilled only a small percentage of their pledges to the PA since 2002, and, as a group, had conspicuously decreased donations since Fayyad‘s government was installed in June 2007 (although some had since made additional donations). See Glenn Kessler, ―Arab Aid to Palestinians Often Doesn‘t Fulfill Pledges,‖ Washington Post, July 27, 2008. [51] See The World Bank, op. cit.; International Crisis Group, Ruling Palestine II: The West Bank Model? Middle East Report no. 79, July 17, 2008. Restrictions on movement have been a key factor in the Palestinian economic downturn since the second Palestinian intifada (which began in late 2000), and the closure of Gaza

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[52]

[53]

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[54]

[55]

Jim Zanotti crossings following the Hamas takeover in June 2007 has led to a near economic standstill there. International Crisis Group has referred to a UNDP official‘s estimate that it would take five years for Gaza to be restored simply to the unenviable state in which it was immediately before the recent conflict began in December 2008. International Crisis Group, Gaza’s Unfinished Business, Middle East Report No. 85, April 23, 2009. Various proposals regarding government composition include a government composed fully of independent ―technocrats,‖ one with formally non-aligned technocrats who have various factional leanings, and one with actual Fatah and Hamas members. Also at issue is whether PA Prime Minister Salam Fayyad—whose involvement is seen as central to Palestinian reform and development efforts by many U.S. and European officials—might continue as prime minister, unity government or no unity government. Fayyad submitted his resignation to PA President Mahmoud Abbas on March 7, 2009, and analysts have disagreed over whether his resignation is final or a political device aimed at gauging domestic and international feeling regarding his importance. Many believe that Fayyad will eventually withdraw his resignation and form a new government at Abbas‘s request. See P.L. 111-8, Sec. 7040(f)(1): None of the funds appropriated ... may be obligated or expended for assistance to ... any power-sharing government of which Hamas is a member unless the President certifies in writing and reports to the Committees on Appropriations that Hamas has accepted and is complying with the principles contained in section 620K(b)(1)(A) and (B) of the Foreign Assistance Act of 1961, as amended. See also Palestinian Anti-Terrorism Act of 2006 (P.L. 109-446). On the previous occasions in which Hamas participated in the PA government from 2006-2007, the European Union joined the United States in refusing to provide direct assistance to the PA. There are indications, however, that the Europeans might be less willing to follow the U.S. lead in the event that another PA government including Hamas is formed. The United Kingdom newspaper The Independent reported in February 2009 that since the end of 2008, legislators from the United Kingdom, France, the Netherlands, Sweden, and three other Western European nations had consulted with Hamas representatives, despite the official Quartet policy against such contacts. The article quotes a senior European diplomat as saying, "Far more people are talking to Hamas than anyone might think. It is the beginning of something new—although we are not negotiating." Anne Penketh, "Europe Opens Covert Talks with 'Blacklisted' Hamas," The Independent (UK), February 19, 2009. For further discussion of possible policy responses to a PA government that includes Hamas, see the section entitled ―The Role of Hamas‖ in CRS Report R40092, Israel and the Palestinians: Prospects for a Two-State Solution, by Jim Zanotti. For further discussion of this issue, see CRS Report R40092, Israel and the Palestinians: Prospects for a Two-State Solution, by Jim Zanotti.

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In: Economic and Political Issues in the Middle East Editors: C. N. Parker and D. M. Warde

ISBN: 978-1-61209-381-9 © 2011 Nova Science Publishers, Inc.

Chapter 6

SYRIA: BACKGROUND AND U.S. RELATIONS Jeremy M. Sharp† ABSTRACT

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Despite its weak military and lackluster economy, Syria remains relevant in Middle Eastern geopolitics. The Asad regime has its hands in each of the four major active or potential zones of conflict in the region (Lebanon, Israel-Palestine, Iraq, and Iran). In the Levant, Syrian leaders aim to dominate the internal politics of Lebanon, and have been accused of involvement in the assassination of four parliamentarians and former Prime Minister Rafik Hariri. The Asad regime has resisted U.S. and French attempts to bolster the pro-Western government of Prime Minister Fouad Siniora, believing that it can weather the storm of U.S. pressure over time. Syria also plays a key role in the Middle East peace process, acting at times as a ―spoiler‖ by sponsoring Palestinian militants and facilitating the rearmament of Hezbollah. At other times, it has participated in substantive negotiations with Israel, most recently in 1999-2000. A September 6 Israeli air strike against an alleged nascent Syrian nuclear facility heightened an already tense atmosphere between the two countries, though most experts believe that neither side desires a new war. Regarding Iraq, the Iraqi refugee crisis has affected Syria far more than Syria has influenced internal Iraqi politics since the fall of Saddam Hussein. There now may be close to 1.4 million Iraqis inside Syria, many of whom face the dim prospect of remaining in permanent exile. Finally, Syria‘s longstanding relationship with the Iranian clerical regime is of great concern to U.S. strategists. As Syria grew more estranged from the United States throughout this decade, Syrian-Iranian relations improved, and some analysts have called on U.S. policymakers to woo Syrian leaders away from Iran. Others believe that the Administration should go even further in pressuring the Syrian government and should consider implementing even harsher economic sanctions against it. A variety of U.S. legislative provisions and executive directives prohibit direct aid to Syria and restrict bilateral trade relations between the two countries, largely because of Syria‘s designation by the U.S. State Department as a sponsor of international terrorism. On December 12, 2003, President Bush signed the Syria Accountability Act, H.R. 1828, as P.L. 108-175, which imposed additional economic sanctions against Syria. In recent 

†

This report is excerpted from CRS Report RL33487 dated March 11, 2009. E-mail: [email protected]

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Jeremy M. Sharp years, the Administration has designated several Syrian entities as weapons proliferators and sanctioned several Russian companies for alleged WMD or advanced weapons sales to Syria. Annual foreign operations appropriations legislation also has contained provisions designating several million dollars annually for programs to support democracy in Syria. In recent months, the Obama Administration and the 111th Congress have increased calls for greater U.S. engagement with Syria. Several Congressional delegations have visited Syria, and Administration officials recently held talks with their Syrian counterparts. Whether or not this dialogue will lead to substantial changes in the U.S.Syrian bilateral relationship remains to be seen. This report analyzes an array of bilateral issues that continue to affect relations between the United States and Syria. It will be updated periodically to reflect recent developments.

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SYRIA 2000-2009: FROM ISOLATION TO ENGAGEMENT Over the last decade, Syria has been isolated by key international players but has endured their pressure and now may be poised to benefit from a more advantageous regional political environment. Syria‘s diplomatic relations with the United States spiraled downward nearly ten years ago after the breakdown of Syrian-Israeli negotiations that had been sponsored by the Clinton Administration. The ensuing Palestinian intifadah (uprising) in 2000 and Syrian support for Palestinian terrorist groups, including Hamas, stalled what had been a slow but steady process of diplomatic engagement with the United States that took place throughout the mid to late 1990s. Although U.S.-Syrian relations slightly improved following the September 11, 2001 terrorist attacks (Syria shared intelligence on Al Qaeda with U.S. officials), the U.S. invasion of Iraq, coupled with the Bush Administration‘s formulation of a region-wide democracy promotion policy that pushed for a reassertion of Lebanese sovereignty from Syria, placed the Asad regime on the defensive and, for several years, U.S. policymakers openly supported a policy of regime change in Syria. At the height of U.S. pressure, Congress passed a Syria sanctions bill (Syria Accountability and Lebanese Sovereignty Restoration Act of 2003) that curtailed most bilateral trade and authorized further targeted sanctions against Syrian companies and members of President Bashar al Asad‘s inner circle. Notwithstanding this deterioration in U.S.-Syrian bilateral relations, Syria had maintained somewhat better relations with European and Arab states until the 2005 assassination of former Lebanese Prime Minister Rafiq Hariri, which nearly all experts believe was orchestrated at the highest levels of the Syrian government. Alleged Syrian complicity in Hariri‘s murder delayed the European Union‘s ratification of its Association Agreement with Syria. It angered France, whose former President Jacques Chirac had been a close friend of Hariri. It also angered the Saudi royal family, whose leaders had long-established relationships with Hariri and his construction company, Solidaire. International outrage culminated in a series of United Nations Security Council resolutions establishing an independent investigation commission and, ultimately, a tribunal outside of Lebanon to prosecute persons responsible for the Hariri murder. Events started to turn in Syria‘s favor beginning in 2006. The Israel-Hezbollah war that summer served to remind the international community of how easily Hezbollah can destabilize the Lebanese-Israeli border. It also emphasized the need for separate Israeli peace

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deals with Syria and Lebanon. In addition, sectarian violence in Iraq sparked a reevaluation of U.S. policy there, as reflected in the 2006 Iraq Study Group Report (ISG), which, among other things, called for U.S. engagement with Iraq‘s neighbors, including Syria and Iran. Previously, Syria, among other countries, had been frequently accused of destabilizing Iraq and, while the ISG Report did not absolve the Asad regime for its tacit support of insurgents and foreign fighters, it somewhat redirected the discourse on Iraqi stability by challenging U.S. policymakers to engage Iraq‘s neighbors constructively rather than merely blame some of them for continued sectarian violence. Events in Lebanon also worked to Syria‘s advantage, culminating in Hezbollah‘s ―coup‖ in the spring of 2008, during which the pro-Western Lebanese government was paralyzed and unable to forcibly prevent Hezbollah gunmen from taking over wide swaths of Beirut. Syria assisted mediators in facilitating a reconciliation agreement between the March 14th antiSyrian coalition, led by Saad Hariri (Rafiq‘s son), and the Hezbollah-led opposition in Doha, Qatar in May 2008. The ―Doha Agreement‖ solidified the position of Syria‘s ally, Hezbollah, in Lebanese domestic politics and exposed the weaknesses in U.S., European, and Saudi attempts to neutralize Syrian influence in Lebanon.

Source: Map Resources. Adapted by CRS. Figure 1. Map of Syria.

Throughout 2008, as Iraq stabilized and reports surfaced of the existence of indirect Syrian-Israeli negotiations via Turkey, more U.S. foreign policy experts began to argue that an incoming U.S. administration should incorporate a policy of diplomatic engagement with Syria as part of a broader reassessment of U.S. strategy in the region. After the conclusion of the Doha agreement, France reestablished its ties with Syria. As a precondition to improved

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Franco-Syrian relations, President Asad pledged to formally establish diplomatic relations with Lebanon [1]. Soon thereafter, the European Union and Syria initialed an updated Association Agreement [2] which could dramatically increase EU-Syrian trade [3] Finally, the UN Development Programme (UNDP) agreed to partially finance a two-year study of commercial reforms to prepare Syria for accession to the World Trade Organization (WTO). For years, the United States has blocked any Syrian attempt to secure membership in the WTO.

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A New U.S. Approach toward Syria? Although there have been some notable setbacks to the West‘s ―courting‖ of Syria (e.g., allegations of a clandestine Syrian nuclear program following Israel‘s September 2007 air strike, continued Syrian human rights violations, an October 2008 U.S. air strike inside Syria against Iraqi insurgents), advocates of engagement with Syria assert that a normalization of ties with the Asad regime may not only further Middle East peace, but, more broadly, weaken Iran, the primary U.S. rival in the region and one of Syria‘s key patrons. Whether or not this assumption will be born out remains an open question. In recent weeks, there have been several developments in U.S.-Syrian relations. On February 9, 2009, the Syrian government announced that the U.S. Department of Commerce had approved an export license of Boeing 747 spare parts to Syria‘s national air carrier, Syrianair [4]. According to Syria‘s Transportation Minister Dr Ya'rub Badr, ―We received, through the Foreign Ministry, the US Commerce Department's approval of the necessary export license to repair two Syrian Airlines Boeing 747 planes that were taken out of service because it was not possible to repair them at that time due to the US embargo. We see this approval as a positive sign.‖ [5] However, according to one unnamed source, ―This was a purely technical decision taken by the U.S. authorities after a long review. It does not represent any change in the sanctions regime.‖ [6] In 2008, Syrianair and European aerospace manufacturer Airbus tentatively agreed to a sale of up to 54 commercial aircraft; however, the completion of the sale may be complicated by U.S. sanctions since the Airbus planes use U.S. components. In March 2009, U.S. Acting Assistant Secretary of State for Near Eastern affairs Jeffrey Feltman (and former U.S. Ambassador to Lebanon) and National Security Council Middle East Director Daniel Shapiro traveled to Syria for meetings with high level Syrian officials. Their trip followed an earlier February 2009 meeting between Feltman and Syria‘s Ambassador to the United States, Imad Mustapha. According to Ambassador Feltman, ―I don‘t want to go into a lot of detail in what was discussed in diplomatic channels today or elsewhere, but you know, you‘ve heard the Syrians say that they want a stable, secure Iraq.... Both sides say they want a unified Iraq. There are areas like this where our interests coincide.... And these are areas that we can explore...‖ [7] Despite signs of increased U.S. diplomatic engagement with Syria, there are several key unresolved questions facing U.S. policy, including: 

Although there is solid U.S. support for a resumption of Syrian-Israeli negotiations, are Israelis prepared to enter into a peace accord with Syria? What would Israel gain

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

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from such a deal? Would Syria be able or willing to control or disarm Hezbollah in Lebanon as Israel has demanded? Should Syrian-U.S. relations markedly improve, would closer ties to the West come at the expense of Syria‘s ties to Iran? From a geostrategic standpoint, are Syria and Iran natural allies? Would closer Syrian ties to the West come at the expense of Lebanese sovereignty? Would Syria still be expected to cooperate with the international investigation /tribunal of the Hariri assassination?

CURRENT ISSUES

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2008-2009 War in Gaza Syria and Israel have never concluded a peace treaty, and Syrian support for Palestinian militant/terrorist groups, such as Hamas (among others), is its indirect way of maintaining pressure on Israel. Since 2001, Khaled Meshaal (alt.sp. Meshal or Mish‘al), the head of the Hamas politburo, has lived in exile in Damascus, Syria. Syria firmly opposed Israel‘s Operation Cast Lead in Gaza. Soon after the start of Israeli air strikes, Syria said that Israel's December attack ―closed the door on the Syrian-Israeli indirect talks.‖ After both Israel and Hamas declared a cease-fire, Syria called on its fellow Arab countries to suspend the Saudi-sponsored Arab Peace Initiative and demanded, along with Hezbollah and Iran, the unconditional opening of all Israeli crossings into Gaza, echoing Hamas‘s stance. Although the Gaza war may have temporarily tabled the Israeli-Syrian track, it has sparked some calls for more engagement with certain elements of Hamas. Although Western governments, including the United States, have refrained from direct contact with Hamas leaders, should calls for more engagement with the group grow louder, Syria could play a key role as an intermediary, though this remains, for the moment, a distant possibility.

A Syria-Israel Peace Deal? The recent war in Gaza has temporarily halted talk of a resumption of direct SyrianIsraeli peace negotiations. Indirect, Turkish-mediated talks were announced in May 2008. The goal of the four rounds of talks that were held was to reach common ground on issues relating to an Israeli withdrawal from the Golan Heights, security arrangements, water, and normalization of relations—thus moving toward direct negotiations. President Asad has said that eventually direct negotiations would tackle the details of these matters, but, when dealing with water, Syria would never compromise on its interpretation of the 1967 borders that stretch to Lake Tiberias (the Sea of Galilee). Details of the indirect talks remain unknown. President Asad has publicly stated on several occasions that he would wait for a new U.S. administration before engaging Israel directly. In late December 2008, Asad referred twice in public statements to his interest in moving from indirect talks with Israel to direct peace negotiations. In his statements, Asad reiterated his demands that direct talks can only take place if Israel assures him that it is

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prepared to withdraw fully from the Golan Heights and if the United States agrees to be a sponsor. The possibility of direct Syrian-Israeli negotiations depends greatly on the outlook of Israel‘s next coalition government. Benjamin Netanyahu, who has been asked to form a government following the Likud party‘s strong showing in Israel‘s February Knesset elections, has said that his party will not cede the Golan Heights. On December 23, 2008, while Prime Minister Olmert was in Turkey for discussions on negotiations with Syria, Netanyahu remarked:

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―We are here to say clearly to the people of Israel and the entire world that the government of Israel under the Likud's leadership will remain in the Golan and safeguard it as a strategic asset for the country's future....It doesn't matter what Olmert says in Ankara. We say the government under my leadership will not withdraw from the Golan.‖ [8]

In March 2009, Dore Gold, one of Netanyahu‘s key advisors, stated that ―Netanyahu has made it clear that presently he would like to focus on the Palestinian track.‖ He added that those who ―suggest that he will begin by working on the negotiations with Syria are basing themselves on an inaccurate reading of Netanyahu's diplomacy in 1998, during his contacts with Damascus‖ [9]. While many experts believe that the foundation for an Israeli-Syrian deal exists, larger strategic issues continue to divide the parties. From Israel's standpoint, there is concern about Syria's ability to guarantee that it would rein in Iranian-supported Hezbollah and prevent future attacks against Israel. From Syria's standpoint, a peace agreement with Israel, even a cold peace, could change the entire orientation of its foreign policy away from Iran, a change the Asad regime may be unwilling to make without guarantees of diplomatic and financial support from the United States and Europe. Furthermore, Syria may insist that it would be politically difficult to conclude a separate peace agreement with Israel without significant progress on the Israeli-Palestinian track. Other experts (and some U.S. officials) also oppose separating the Syrian track from the Israeli-Palestinian peace process.

Syria's Role in Lebanon During the Bush Administration, U.S. policy toward Lebanon focused on supporting antiSyrian political factions. Most experts assert that the May 2008 Doha Agreement, which laid the groundwork for the foundation of a unity government in which Hezbollah and the opposition gained a blocking minority (one-third plus one) of cabinet seats, effectively neutralized U.S. and other outside attempts to isolate Syria‘s Lebanese allies. The outcome of the June 2009 Lebanese parliamentary elections and progress (or lack thereof) on the United Nations Hariri tribunal may be critical in determining the future direction of Syrian- Lebanese ties and the overall U.S. policy approach toward the Levant. Some experts believe that the Syrian-allied opposition - Hezbollah, Michel Aoun [10] (the leader of the Free Patriotic Movement, the largest Christian party in parliament), and Amal (Lebanon‘s oldest Shiite party) – may be poised for a victory [11]. For the first time, polls will be held on the same day in all electoral districts, a result of a new electoral law issued in late September 2008 following an agreement to redraw the electoral districts. Government

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officials hope that this change will prevent the outcomes from one district from affecting voting patterns in the rest of the country. If Syria‘s allies secure a parliamentary majority, continued U.S. support for Lebanon‘s economy, civil society, and armed forces, which has been substantial since 2005, could be in jeopardy. After months of delay, the Hariri tribunal at the Hague officially commenced on March 1, 2009. It is comprised of seven foreign and four Lebanese judges. Lebanese criminal law will be applied by the Tribunal subject to the exclusion of penalties such as death penalty and forced labor, which are otherwise applicable under the Lebanese law. The issuing of formal charges or the start of an actual trial are expected to take place over the next several months. Four Lebanese generals have remained in Lebanese custody without formal charges. Overall, most observers believe that continued delays in the now nearly four-year Hariri investigation work to the advantage of the Asad regime, which would like the entire issue to vanish [12]. On October 15, 2008, after a series of negotiations, Syria and Lebanon established formal diplomatic ties for the first time since the two countries gained independence sixty years before. However, Syria has not sent an ambassador to Beirut, though it has opened an embassy there. In January 2009 Lebanese diplomat Michel Khoury was named and approved as Lebanon's ambassador to Syria.

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Iraqi Refugees in Syria During the height of sectarian warfare in Iraq between 2006 and 2007, nearly 1.3 million Iraqi refugees flooded Damascus and its suburbs. Syria contends that it has expended significant resources in hosting displaced Iraqis with very little acknowledgment or support from the nascent Iraqi government or international community. Iraqi refugees have settled at least temporarily in the Damascus suburbs, changing the character of entire neighborhoods and creating strains on the Syrian domestic economy in the form of inflation, rising rents, housing demands, and impending water and electricity shortages. The sex trade in Syria has grown, as many Iraqi women work as prostitutes in Syria [13]. The Iraqi refugee population in Syria has many female-headed households in which mothers lack personal savings and cannot work legally. Syrian authorities maintained an open door policy regarding new arrivals until they imposed a visa requirement in September 2007, and demanded more Iraqi government and international assistance. So far, the Maliki government has provided very little, pledging only $15 million to Syria in April 2007. In addition, Syria's own cumbersome rules have dissuaded international aid organizations from working with its inefficient bureaucracy. As a result, international aid organizations claim that Iraqis in Syria have received insufficient support, though it appears that only the most destitute have been forced to return to Iraq. In 2008, as Iraq stabilized, some refugees returned home. According to U.N. statistics, more than 220,000 Iraqis who fled abroad (not just to Syria) or were displaced within the country after the 2003 U.S.-led invasion returned home in 2008. Nevertheless, refugees may still be hesitant to return because standards of living in Syria are much better than in Iraq.

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Clandestine Nuclear Program and the IAEA Investigation On September 6, 2007, an Israeli air strike inside Syrian territory destroyed what is now referred to as Al Kibar, a remote desert facility which may have housed a nuclear reactor. On April 24, 2008, U.S. intelligence officials briefed some Members of Congress and provided a background news briefing to the media on the nature of the facility. According to reports in the Washington Post, Syria and North Korea were suspected of collaborating on a secret nuclear program since 1997 [14]. Since then, senior North Korean officials and scientists from North Korea's Yongbyon nuclear complex reportedly visited Syria several times before construction began in Syria at Al Kibar, between 2001 and 2003. In the spring of 2007, Israel reportedly provided the Administration with photographs of the interior of the alleged facility still under construction. According to the Washington Post, the ―pictures depicted a site similar to the one at Yongbyon, which produces plutonium for nuclear weapons.‖ In order to stress the imminent danger posed by Syria‘s actions, senior U.S. intelligence officials repeatedly stressed that Al Kibar was nearly operational at the time of the Israeli strike. U.S. officials were quoted saying that, before the Israeli bombing, Al Kibar was within weeks or months of becoming operational [15] Others noted that the reactor there would have ultimately produced enough plutonium for one or two bombs within a year of becoming operational [16]. Several days after the intelligence briefings, Japanese public broadcaster NHK, citing South Korean intelligence officials, reported that 10 North Koreans working at Al Kibar had died in the September 2007 air raid and that the dead included officials of the North Korea‘s communist party unit that exports weapons and military technology and members of the North Korean military unit which made nuclear facilities in the country [17]. For many experts, the Israeli attack has implications that go far beyond Syrian-Israeli relations. Although the veil of secrecy surrounding the attack may reflect U.S. efforts not to derail ongoing Middle East peace negotiations, the attack has been largely seen through the prism of restoring Israeli deterrence at a time when some analysts expect Israel to take action against Iran‘s uranium enrichment facilities. Though a strike against Iran would be far more difficult than the September 6 bombing or even Israel‘s strike against the Osirak nuclear facility in Iraq in 1981, Israel‘s bombing may be intended to send a signal to its opponents in the region that it has the will to act, if necessary unilaterally, to stop Iran and others from developing an advanced nuclear weapons program. In June 2008, U.N. inspectors visited some areas surrounding Al Kibar. In late 2008, the U.N. International Atomic Energy Agency (IAEA) concluded that the facility had similarities to a nuclear reactor and chemically processed uranium particles were found at the site, but that a final determination could be made until Syria provides ―the necessary transparency‖ [18]. In a follow-up report in early 2009, the IAEA said that enough uranium particles had turned up in soil samples to constitute a ―significant‖ find. In response, Syria claims that the uranium particles came from depleted uranium used in Israeli munitions. Syria also claims that the site was a conventional military base, but then disclosed in February 2009 that a new missile facility had been constructed at Al Kibar [19]. According to Gregory Schulte, U.S. ambassador to the IAEA, the IAEA‘s report ―contributes to the growing evidence of clandestine nuclear activities in Syria.... We must understand why such (uranium) material -material not previously declared to the IAEA -- existed in Syria and this can only happen if Syria provides the cooperation requested‖ [20].

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Relations with Iran

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Syria‘s historic rivalry with neighboring Iraq [21] created opportunities for improved Syrian relations with Iran, another natural rival of Iraq. The Syrian-Iranian alliance has always been considered a ―marriage of convenience,‖ as both countries have placed a higher value on regional strategic interests rather than shared cultural and religious affinities [22]. In recent years, as Syria has grown more estranged from the West, Syrian-Iranian relations have improved, and some analysts have called on U.S. policymakers to ―flip‖ Syria and woo it away from Iran. Others assert that the foundation of the Syrian-Iranian relationship—a shared concern over a resurgent Iraq, support for Hezbollah in Lebanon, and countering Israel—is deeply rooted in the geopolitics of the region and cannot be easily overturned. Reliable information on the extent of Iranian influence in Syria is difficult to quantify. Nevertheless, there have been several recent reports of increased Iranian investment and trade with Syria. In the financial sector, Iran has stated its intention to establish a joint IranianSyrian bank, possibly involving Bank Saderat and the Commercial Bank of Syria – 2 entities which have been sanctioned by the U.S. Treasury Department. In the manufacturing and industrial sectors, the Iran Khodro Industrial Group has established two car assembly plants in Syria. Iranian companies also have invested in concrete production, power generation, and urban transportation. In the energy sector, Syria, Iran, Venezuela and Malaysia established a joint petroleum refinery in Homs, Syria. In addition, Iran, Turkey, and Syria reached a new natural gas deal that would allow Iran to export 105 billion cubic feet of natural gas annually to Syria via Turkey. Despite increased Iranian investments, the overall volume of IranianSyrian trade remains low. According to the Economist Intelligence Unit, bilateral trade may total between just $160 and $400 million [23]. Ironically, the total volume of U.S. trade with Syria exceeds that of Iran-Syria.

Syrian Support for Terrorist Activity Syria was placed on the State Department‘s State Sponsors of Terrorism List in 1979. According to the U.S. State Department's most recent annual report on global terrorism, ―The Syrian government has not been implicated directly in an act of terrorism since 198624, although an ongoing UN investigation into the February 2005 assassination of former Lebanese Prime Minister Rafiq Hariri continued to examine Syrian involvement‖ [25]. With the Hariri investigation and possible trial still unresolved, Syria remains indirectly involved in terrorist activity, as the Asad regime supports terrorist proxy groups to further its foreign policy aims in the Levant region. For years, Syria has indirectly supported a number of U.S. State Department-designated Foreign Terrorist Organizations (FTOs), including Hezbollah in Lebanon and the Palestinian groups Hamas, Palestinian Islamic Jihad (PIJ), the Popular Front for the Liberation of Palestine (PLFP), and the Popular Front for the Liberation of Palestine-General Command (PFLP-GC), all of which have offices in Damascus and operate within Syria's borders. Syria admits its support for Palestinians pursuing armed struggle in Israeli occupied territories and for Hezbollah raids against Israeli forces on the Lebanese border, but insists that these actions represent legitimate resistance activity as distinguished from terrorism.

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U.S. military officials continue to assert that Syria remains the primary transit point for foreign fighters entering Iraq. According to the latest U.S. Defense Department report on Iraqi stability, ―Syria‘s continued tolerance of AQI [Al Qaeda in Iraq] facilitation activity on its soil obstructs further progress on both the economic and diplomatic fronts. Syria has made limited and sporadic efforts to stem the flow of foreign fighters into Iraq by detaining AQI facilitators and operatives, but it continues to be the primary gateway for foreign fighters entering Iraq‖ [26]. Anti-Syrian Lebanese politicians have accused Syria of sponsoring Fatah al Islam, a militant Islamic fundamentalist group that fought the Lebanese Army for three months in 2007 from inside the Palestinian refugee camp of Nahr al Bared [27]. On August 9, 2007, Secretary of State Rice designated Fatah al Islam as a Specially Designated Global Terrorist Organization. The designation, among other things, cuts off Fatah al Islam from the U.S. financial system, sanctions any of its property or interests in the United States, and blocks its members from entry into the United States. Fatah al Islam was believed by some to have fractured and dispersed after the siege at Nahr al Bared.

U.S. Sanctions

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Syria remains a U.S.-designated State Sponsor of Terrorism and is therefore subject to a number of U.S. sanctions. Moreover, in recent years, in order to compel Syrian cooperation on issues of importance to U.S. national security policy in the Middle East, the Bush Administration and Congress expanded U.S. sanctions on Syria. At present, a variety of legislative provisions and executive directives prohibit U.S. aid to Syria and restrict bilateral trade.28 Principal examples follow.

General Sanctions Applicable to Syria The International Security Assistance and Arms Export Control Act of 1976 [P.L. 94329]. Section 303 of this act [90 Stat. 753-754] required termination of foreign assistance to countries that aid or abet international terrorism. This provision was incorporated into the Foreign Assistance Act of 1961 as Section 620A [22 USC 2371]. (Syria was not affected by this ban until 1979, as explained below.) The International Emergency Economic Powers Act of 1977 [Title II of P.L. 95-223 (codified at 50 U.S.C. § 1701 et seq.)]. Under the International Emergency Economic Powers Act (IEEPA), the President has broad powers pursuant to a declaration of a national emergency with respect to a threat ―which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.‖ These powers include the ability to seize foreign assets under U.S. jurisdiction, to prohibit any transactions in foreign exchange, to prohibit payments between financial institutions involving foreign currency, and to prohibit the import or export of foreign currency. The Export Administration Act of 1979 [P.L. 96-72]. Section 6(i) of this act [93 Stat. 515] required the Secretary of Commerce and the Secretary of State to notify Congress before licensing export of goods or technology valued at more than $7 million to countries determined to have supported acts of international terrorism. (Amendments adopted in 1985

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and 1986 re- lettered Section 6(i) as 6(j) and lowered the threshold for notification from $7 million to $1 million.) A by-product of these two laws was the so-called state sponsors of terrorism list. This list is prepared annually by the State Department in accordance with Section 6(j) of the Export Administration Act. The list identifies those countries that repeatedly have provided support for acts of international terrorism. Syria has appeared on this list ever since it was first prepared in 1979; it appears most recently in the State Department‘s annual publication Country Reports on Terrorism, 2005, published on April 28, 2006. Syria‘s inclusion on this list in 1979 triggered the above-mentioned aid sanctions under P.L. 94-329 and trade restrictions under P.L. 96-72. Omnibus Diplomatic Security and Antiterrorism Act of 1986 [P.L. 99-399]. Section 509(a) of this act [100 Stat. 853] amended Section 40 of the Arms Export Control Act to prohibit export of items on the munitions list to countries determined to be supportive of international terrorism, thus banning any U.S. military equipment sales to Syria. (This ban was reaffirmed by the Anti- Terrorism and Arms Export Amendments Act of 1989—see below.) Also, 10 U.S.C. 2249a bans obligation of U.S. Defense Department funds for assistance to countries on the terrorism list. Omnibus Budget Reconciliation Act of 1986 [P.L. 99-509]. Section 8041(a) of this act [100 Stat. 1962] amended the Internal Revenue Code of 1954 to deny foreign tax credits on income or war profits from countries identified by the Secretary of State as supporting international terrorism. [26 USC 901]. The Anti-Terrorism and Arms Export Control Amendments Act of 1989 [P.L. 101-222]. Section 4 amended Section 6(j) of the Export Administration Act to impose a congressional notification and licensing requirement for export of goods or technology, irrespective of dollar value, to countries on the terrorism list, if such exports could contribute to their military capability or enhance their ability to support terrorism. Section 4 also prescribed conditions for removing a country from the terrorism list: prior notification by the President to the Speaker of the House of Representatives and the chairmen of two specified committees of the Senate. In conjunction with the requisite notification, the President must certify that the country has met several conditions that clearly indicate it is no longer involved in supporting terrorist activity. (In some cases, certification must be provided 45 days in advance of removal of a country from the terrorist list). The Anti-Economic Discrimination Act of 1994 [Part C, P.L. 103-236, the Foreign Relations Authorization Act, FY1994-1995]. Section 564(a) bans the sale or lease of U.S. defense articles and services to any country that questions U.S. firms about their compliance with the Arab boycott of Israel. Section 564(b) contains provisions for a presidential waiver, but no such waiver has been exercised in Syria‘s case. Again, this provision is moot in Syria‘s case because of other prohibitions already in effect. The Antiterrorism and Effective Death Penalty Act of 1996 [P.L. 104-132]. This act requires the President to withhold aid to third countries that provide assistance (Section 325) or lethal military equipment (Section 326) to countries on the terrorism list, but allows the President to waive this provision on grounds of national interest. A similar provision banning aid to third countries that sell lethal equipment to countries on the terrorism list is contained in Section 549 of the Foreign Operations Appropriations Act for FY2001 (H.R. 5526, passed by reference in H.R. 4811, which was signed by President Clinton as P.L. 106-429 on November 6, 2000).

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Also, Section 321 of P.L. 104-132 makes it a criminal offense for U.S. persons (citizens or resident aliens) to engage in financial transactions with governments of countries on the terrorism list, except as provided in regulations issued by the Department of the Treasury in consultation with the Secretary of State. In the case of Syria, the implementing regulation prohibits such transactions ―with respect to which the United States person knows or has reasonable cause to believe that the financial transaction poses a risk of furthering terrorist acts in the United States.‖ (31 CFR 596, published in the Federal Register August 23, 1996, p. 43462.) In the fall of 1996, the then Chairman of the House International Relations Committee reportedly protested to then President Clinton over the Treasury Department‘s implementing regulation, which he described as a ―special loophole‖ for Syria. Since then, several measures have been introduced in previous Congresses to forbid virtually all financial transactions with Syria but none were enacted. Section 531 of the Consolidated Appropriations Resolution, 2003 (P.L. 108-7) bans aid to countries not in compliance with U.N. Security Council sanctions against Iraq. This ban would be applicable to exports of Iraqi oil through Syria or to reported shipments of military equipment via Syria to Iraq; however, it may be moot following the collapse of Saddam Hussein‘s regime in Iraq.

Specific Sanctions Against Syria In addition to the general sanctions listed above, specific provisions in foreign assistance appropriations enacted since 1981 have barred Syria by name from receiving U.S. aid. The most recent ban appears in Section 7007 of H.R. 1105, the Omnibus Appropriations bill, FY2009. Section 307 of the Foreign Assistance Act of 1961, amended by Section 431 of the Foreign Relations Authorization Act for FY1994-1995 (P.L. 103-236, April 30, 1994), requires the United States to withhold a proportionate share of contributions to international organizations for programs that benefit eight specified countries or entities, including Syria. The Iran Nonproliferation Act of 2000, P.L. 106-178, was amended by P.L. 109-112 to make its provisions applicable to Syria as well as Iran. The amended act, known as the Iran and Syria Nonproliferation Act, requires the President to submit semi-annual reports to designated congressional committees, identifying any persons involved in arms transfers to or from Iran or Syria; also, the act authorizes the President to impose various sanctions against such individuals. The 2003 Syria Accountability Act On December 12, 2003, President Bush signed H.R. 1828, the Syria Accountability and Lebanese Sovereignty Restoration Act, as P.L. 108-175. H.R. 1828 was passed by the House on October 15, 2003, and the Senate on November 11, 2003. (The House agreed to a Senate amendment expanding the President‘s waiver authority on November 20). This act requires the President to impose penalties on Syria unless it ceases support for international terrorist groups, ends its occupation of Lebanon, ceases the development of weapons of mass destruction (WMD), and has ceased supporting or facilitating terrorist activity in Iraq (Section 5(a) and 5(d)). Sanctions include bans on the export of military items (already banned under other legislation) and of dual use items (items with both civil and military applications) to Syria (Section 5(a)(1)). In addition, the President is required to impose two or more sanctions from a menu of six:

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a ban on all exports to Syria except food and medicine; a ban on U.S. businesses operating or investing in Syria; a ban on landing in or overflight of the United States by Syrian aircraft; reduction of diplomatic contacts with Syria; restrictions on travel by Syrian diplomats in the United States; and blocking of transactions in Syrian property (Section 5(a)(2)).

Implementation On May 11, 2004, President Bush issued Executive Order 13338, implementing the provisions of P.L. 108-175, including the bans on munitions and dual use items (Section 5(a)(1)) and two sanctions from the menu of six listed in Section 5(a)(2). The two sanctions he chose were the ban on exports to Syria other than food and medicine (Section 5(a)(2)(A) and the ban on Syrian aircraft landing in or overflying the United States (Section 5(a)(2)(D). In issuing his executive order, the President stated that Syria has failed to take significant, concrete steps to address the concerns that led to the enactment of the Syria Accountability Act. The President also imposed two additional sanctions based on other legislation. 

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

Under Section 311 of the USA PATRIOT Act, he instructed the Treasury Department to prepare a rule requiring U.S. financial institutions to sever correspondent accounts with the Commercial Bank of Syria because of money laundering concerns. Under the International Emergency Economic Powers Act (IEEPA), he issued instructions to freeze assets of certain Syrian individuals and government entities involved in supporting policies inimical to the United States.

Waivers In the executive order and in an accompanying letter to Congress, President Bush cited the waiver authority contained in Section 5(b) of the Syria Accountability Act and stated that he wished to issue the following waivers on grounds of national security: 



Regarding Section 5(a)(1) and 5(a)(2)(A): The following exports are permitted: products in support of activities of the U.S. government; medicines otherwise banned because of potential dual use; aircraft parts necessary for flight safety; informational materials; telecommunications equipment to promote free flow of information; certain software and technology; products in support of U.N. operations; and certain exports of a temporary nature [29] Regarding Section 5(a)(2)(D): The following operations are permitted: takeoff/ landing of Syrian aircraft chartered to transport Syrian officials on official business to the United States; takeoff/landing for non-traffic and non-scheduled stops; takeoff/landing associated with an emergency; and overflights of U.S. territory.

Targeted Financial Sanctions Since the initial implementation of the Syria Accountability Act (in Executive Order 13338 dated May 2004), the President has repeatedly taken action to sanction individual members of the Asad regime‘s inner circle.30 E.O. 13338 declared a national emergency with

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respect to Syria and authorized the Secretary of the Treasury to block the property of individual Syrians. Based on section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), the President has annually extended his authority to block the property of individual Syrians (first on May 5, 2005, then again on April 25, 2006, and lastly on May 8, 2007). When issuing each extension, the President has noted that the actions and policies of the government of Syria continued to pose an unusual and extraordinary threat. The following individuals and entities have been targeted by the U.S. Treasury Department: 

 

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





On June 30, 2005, the U.S. Treasury Department designated two senior Syrian officials involved in Lebanon affairs, Syria‘s then-Interior Minister and its head of military intelligence in Lebanon (respectively, the late General Kanaan and General Ghazali), as Specially Designated Nationals, thereby freezing any assets they may have in the United States and banning any U.S. persons, including U.S. financial institutions outside of the United States, from conducting transactions with them [31] Kanaan allegedly committed suicide in October 2005, though some have speculated that he may have been murdered. On January 18, 2006, U.S. Treasury Department took the same actions against the President‘s brother-in-law, Assef Shawkat, chief of military intelligence. On August 15, 2006, the U.S. Treasury Department froze assets of two other senior Syrian officers: Major General Hisham Ikhtiyar, for allegedly contributing to Syria‘s support of foreign terrorist organizations including Hezbollah; and Brigadier General Jama‘a Jama‘a, for allegedly playing a central part in Syria‘s intelligence operations in Lebanon during the Syrian occupation [32] On January 4, 2007, the U.S. Treasury Department designated three Syrian entities, the Syrian Higher Institute of Applied Science and Technology, the Electronics Institute, and the National Standards and Calibration Laboratory, as weapons proliferators under an executive order (E.O. 13382) based on the authority vested to the President under IEEPA. The three state-sponsored institutions are divisions of Syria‘s Scientific Studies and Research Center, which was designated by President Bush as a weapons proliferator in June 2005 for research on the development of biological and chemical weapons [33] On August 1, 2007, the President issued E.O. 13441 blocking the property of persons undermining the sovereignty of Lebanon or its democratic processes and institutions. On November 5, 2007, the U.S. Treasury Department designated four individuals reportedly affiliated with the Syrian regime‘s efforts to reassert Syrian control over the Lebanese political system, including Assaad Halim Hardan, Wi‘am Wahhab and Hafiz Makhluf (under the authority of E.O. 13441) and Muhammad Nasif Khayrbik (under the authority of E.O.1338) [34] On February 13, 2008, President Bush issued another Order (E.O. 13460) blocking the property of senior Syrian officials. According to the U.S. Treasury Department, the order ―targets individuals and entities determined to be responsible for or who have benefitted from the public corruption of senior officials of the Syrian regime. The order also revises a provision in Executive Order 13338 to block the property of Syrian officials who have undermined U.S. and international efforts to stabilize Iraq [35]. One week later, under the authority of E.O.13460, the U.S. Treasury

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Department froze the U.S. assets and restricted the financial transactions of Rami Makhluf, the 38 year-old cousin of President Bashar al Asad. Makhluf is a powerful Syrian businessman who serves as an interlocutor between foreign investors and Syrian companies. According to one report, ―Since a military coup in 1969, the Asads have controlled politics while the Makhlufs have been big business players. The tradition continues in the next generation, with Bashar al-Assad (sic) as president and Rami Makhluf as a leading force in business.‖ [36] Makhluf is a major stakeholder in Syriatel, the country‘s largest mobile phone operator. In 2008, the Turkish company Turkcell was in talks to purchase Syriatel, but according to Reuters, negotiations over the sale were taking longer than expected because some Turkcell executives have U.S. passports [37]. Then, in August 2008, Turkcell said it had frozen its plans for a venture in Syria amid U.S. opposition to the project. Makluf‘s holding company, Cham, is involved in several other large deals, including an agreement with Syria‘s state airline and a Kuwaiti company to set up a new airline. Several months ago, Dubai-based real-estate company Emaar Properties announced it had agreed to set up a $100 million venture with Cham to develop real estate projects in Syria. Makhluf also is a minority shareholder in Gulfsands Petroleum, [38] a publicly-traded, United Kingdom-incorporated energy company. According to the Wall Street Journal, a Gulfsands executive said the Treasury Department‘s sanctioning of Makhlouf would have no impact on the company pursuing its partnership with Cham [39].

Effect of U.S. Sanctions on Syria's Economy U.S. economic sanctions on Syria have produced mixed results. On the one hand, the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 (P.L. 108-175) and successive targeted financial sanctions have clearly dissuaded many U.S. and some foreign businesses from investing in Syria. According to one report, General Electric, the French power company Alstom, and Japanese-owned Mitsubishi all declined to bid on a Syrian government contract for the construction of power plants [40]. As mentioned above, Turkcell withdrew its bid to purchase Syriatel in August 2008 after the United States sanctioned Syriatel‘s primary stakeholder, Rami Makluf. U.S. sanctions under the Patriot Act against the Commercial Bank of Syria have deterred private Western banks from opening branches inside Syria. As Syria‘s energy production levels decline, sanctions have prevented major Western energy companies from making new investments there, though other foreign companies have supplanted U.S. firms. One company, Gulfsands Petroleum, moved its principle office to London in order to circumvent U.S. sanctions against its local partner, Rami Makluf. On the other hand, U.S. economic sanctions have had a limited impact on U.S.-Syrian bilateral trade. In fact, because U.S. commodity exports to Syria are permitted under P.L. 108-175, rising cereal prices and greater U.S. export volumes have combined to actually increase the overall volume in trade in 2008 (see table below). According to several reports, U.S. brands manufactured outside the United States are widely available inside Syria. According to one article, ―GM's cars that are sold in Syria are manufactured in the company's factories in South Korea. Another major US company, Coca Cola, uses a bottling factory in Syria itself, while Cargill, an American sugar company, has also invested in a large factory, which is about to open soon in Syria.‖ [41]. In March 2009, after returning from a recent visit to Syria, Senate Foreign Relations Chairman John Kerry stated that ―Loosening certain

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sanctions in exchange for verifiable changes in behavior can actually benefit US businesses.... The sanctions can always be tightened again if Syria backtracks.‖ U.S.-Syrian Trade Statistics 2005-2008 ($s in millions)

Source: TradeStats Express – National Trade Data, Presented by the Office of Trade and Industry Information (OTII), Manufacturing and Services, International Trade Administration, U.S. Department of Commerce.

RECENT CONGRESSIONAL ACTION

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New Legislation H.R. 1206, the Syria Accountability and Liberation Act, would place new sanctions on countries and individuals who help Syria gain access to weapons of mass destruction. It also calls for sanctions against those who invest $5 million or more in Syria‘s energy sector. The bill also states that existing U.S. sanctions shall remain in effect until the President certifies that Syria has, among other things, ―ceased support for terrorism, has dismantled biological, chemical, or nuclear weapons programs and has committed to combat their proliferation, respects the boundaries and sovereignty of all neighboring countries, and upholds human rights and civil liberties.‖ H.R. 1105, the Omnibus Appropriations Act, 2009, includes in an explanatory statement accompanying the bill a provision appropriating $2.5 million for U.S. State Departmentadministered democracy and governance programs for Syria.

SYRIA'S NEED FOR ECONOMIC GROWTH AND REFORM Although regional politics have heavily influenced Syrian policy in recent years, economic considerations may be driving Syria‘s effort to break out of its diplomatic isolation. Syria is seeking aid, trade, and foreign investment from the international community to boost its lackluster, mostly state-controlled economy which is highly dependent on dwindling oil production. In 2009, a drought, the global economic crisis, and a drop in oil prices has led to projections of meager Syrian economic growth (just 2.5%) for the remainder of the year. Though foreign investment from the Arab Gulf States and Iran had been substantial in recent years, Syria‘s poor relationship with the United States and Saudi Arabia has hindered additional investments. Overall, the government is running large budget deficits (9.8% of GDP in 2008) which are unsustainable over the long term. Fuel subsidies on imported diesel and other petroleum

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products cost the Syrian treasury several billions dollars a year. Poor harvests due to drought have led the government to increase public sector salaries to alleviate the loss of agricultural income for farmers, straining the budget even further. In order to reform itself, the Syrian government has taken steps to reduce public subsidies, privatize state-owned businesses, and enact a new value added tax. However, according to Syria expert Andrew Tabler, currently at the Washington Institute for Near East Policy, ―The transformation they have in front of them now is enormous.... They must move from a state funded by oil revenues to one funded by taxation, and that has to play some role in their thinking‖ [42]. Economic reforms may clash with the vested, status quo interests of Syrian business and political elites with ties to the Asad family. Thus, the key question facing Syria is whether the regime can modernize society without alienating its key constituents.

INTERNAL POLITICAL SCENE The death of Syrian President Hafiz al Asad on June 10, 2000, removed one of the longest- serving heads of state in the Middle East and a key figure in regional affairs. Hardworking, ascetic, and usually cautious, the late President exercised uncontested authority through his personal prestige, his control of the armed forces and other centers of power, and his success in exploiting regional developments to Syria‘s advantage. President Bashar al Asad, who succeeded his father in 2000 in a smooth transfer of power, inherited a ready-made politico-military apparatus his father helped build. Although Bashar is generally considered to be less ruthless and calculating than his father, he has essentially sought to preserve the status quo and, above all else, maintain regime stability.

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Key Members of the Asad Family Bashar al Asad - The 41-year old President of Syria is married to Asma‘ al Akhras, a British-born Syrian Sunni Muslim and formerly an investment banker at J.P. Morgan. Maher al Asad - The younger brother of Bashar, he heads the Presidential Guard and other military agencies. Bushra al Asad & Assef Shawkat - Bushra is the older sister of Bashar, and she is rumored to be a key decisionmaker.Her husband, Assef Shawkat, is head of military intelligence and part of the President‘s inner circle.

Pillars of the Regime The Alawite Sect The Alawite religious sect, which evolved from the Shi‘ite sect of Islam, constitutes approximately 12% of the Syrian population. Formerly the most economically deprived and socially disadvantaged group in Syria, the Alawites rose rapidly in the ranks of the military establishment and the ruling Ba‘th Party in the 1960s and have dominated political life in Syria since then. The Alawite community as a whole, and the Asad family in particular, constituted an important power base for the late President Hafiz al Asad and at least for the

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time being have rallied behind his son and successor. Though committed to maintaining the primacy of the Alawite community, the Asads have sought with some success to coopt support from other sects; many senior positions, including that of prime minister, are ordinarily held by members of the Sunni Muslim majority. However, most key positions, particularly in the security institutions, remain in Alawite hands, and some observers believe that any weakening of the central regime or an outbreak of political turmoil could precipitate a power struggle between entrenched Alawites and the majority Sunni Muslims, who comprise over 70% of the population.

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The Ba'th Party The socialist, pan-Arab Ba‘th Party, whose rival wing governed Iraq before the collapse of Saddam Hussein‘s regime, came to power in Syria in 1963. Although the Syrian constitution specifies a leading role for the Ba‘th Party and the party provides the regime with political legitimacy, the Ba‘th is more an instrument for the execution of policy than an originator of policy. Many Ba‘thists are not Alawites, but there is a complex synergistic relationship between the party and the community. Still, barring a major governmental change, a Syrian leader would need to enjoy the support of the Ba‘th Party apparatus. The party‘s top decision-making body, known as the ―Regional Command,‖ sits at the top of Syria‘s policy-making process, and membership in this body is a stepping stone to top positions in Syria. In June 2000, when senior Syrian officials were orchestrating the succession of Bashar al Asad to the presidency after the death of his father, one of their first steps was to arrange for Bashar to be elected Secretary General of the Regional Command, replacing his late father. The Military and Security Establishment The role of the armed forces and national security services has figured prominently in most Syrian regimes and predates by some years the establishment of the Ba‘thist regime. Factionalism within the armed forces was a key cause of instability in Syria in the past, as military cliques jockeyed for power and secured and toppled governments with considerable frequency. This situation changed abruptly after 1970 as the elder Asad gained a position of unquestioned supremacy over the military and security forces. The late president appointed long-standing supporters, particularly from his Alawite sect, to key military command positions and sensitive intelligence posts, thereby creating a military elite that could be relied upon to help maintain the Asad regime in power. According to one Syria expert, ―Within the military, Bashar has replicated the patron-client relationship wielded so effectively by his father. Despite repeated rumors about tension within the Assad family, there is no evidence that any rival—most notably Asaf Shawkat, Bashar‘s brother-in-law and the head of the Shu‘bat al-Mukhabarat al-‘Askariyya (military security department), or Bashar‘s younger brother Mahir, an officer in a Republican Guards division—has sufficient power to challenge his rule‖ [43].

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The Syrian Opposition

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The Syrian Muslim Brotherhood Over the last half-century, political Islamist groups have risen to challenge entrenched Middle Eastern monarchical and authoritarian regimes, a process which culminated in the 1979 overthrow of the Shah of Iran. Since then, U.S. policymakers have been concerned that secular Arab dictatorships like Syria would face rising opposition from Islamist groups seeking their overthrow. Although Syria faced violent challenges from such groups during the decades of the 1970s and 1980s, the Syrian security state has by and large succeeded in eliminating any organized political opposition, including Islamists. Once considered the most imminent threat to Syrian stability, the Syrian Muslim Brotherhood, formerly the largest Islamist opposition group, [44] has been largely in exile since its crushing defeat at the hands of the Asad regime in 1982, when Syrian forces attacked the Brotherhood‘s stronghold in the city of Hama and killed approximately 10,000 people. Since then, the government has attempted to coopt the forces of political Islam by continuing to outlaw the Muslim Brotherhood and keep its activists in prison, while promoting Islam as a social force for national unification [45]. Over the past twenty years, the Syrian government has financed the construction of new mosques, aired more Islamic programming on state television, loosened restrictions on public religious celebrations and weddings, and monitored the sermons of clerics, many of whom are on the state‘s payroll. At the same time, the Syrian government, like other dictatorships in the region, has used the threat of ―homegrown‖ Islamist violence in order to justify one-party rule and has frequently exaggerated its threat in order to bolster its own appeal to Western governments. Syria has received some favorable attention for its reported cooperation with U.S. intelligence agencies in detaining and tracking Al Qaeda operatives in the Middle East and in Europe, although some U.S. officials have discounted these contributions. The Damascus Declaration In 2005, a group of 274 civil society activists, reformers, communists, Kurdish rights advocates, Islamists, and intellectuals signed the Damascus Declaration, a document calling for the Syrian government to end the decades-old state of emergency and allow greater freedom of speech. Soon thereafter, many of these same signatories crafted the National Council of the Damascus Declaration, a quasi-political party that has since met periodically to push for political reform inside Syria. However, many observers suggest that the Damascus Declaration lacks a popular base of support amongst the Syrian people and remains an elitedominated organization [46]. Between 2006 and 2008, authorities arrested a number of high profile activists, many of whom remain imprisoned. According to Human Rights Watch, these activists include Riad al Seif, 61, a former member of parliament suffering from prostate cancer, Dr. Kamal Labwani, a physician, and Michel Kilo and Mahmoud Issa, detainees who have still not been released despite the decision of the Syrian Court of Cassation to overturn their sentences [47]. In a recent interview, President Asad rejected criticisms of his government‘s human rights record stating that ―We don't allow anyone to make or internal issues a matter for relations. Europeans and Americans supported the occupation of Iraq. Talking about values has no credibility any more. And after what happened in Gaza they have no right (to criticize us) at all‖ [48].

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Syrian Dissidents, Exiles, and Defectors Abroad Although it is difficult for opposition activists to organize inside Syria, an array of dissident groups freely operate abroad, particularly in Western Europe. In March 2006, former Syrian Vice- President Abd al Halim Khaddam and Sadr al Din al Bayanuni, the London-based leader of Syrian Muslim Brotherhood, formed The National Salvation Front (NSF), a coalition of secular and Islamist opposition activists based primarily outside of Syria. The NSF, which attempts to bridge the gap between religious and secular Syrians, is non-sectarian though its membership appears to be mostly Sunni. It has called for the peaceful removal of the Asad regime without outside intervention, though some analysts doubt that the NSF will be able to make inroads within Syrian society due to the regime‘s effective security apparatus. Syrian authorities have prevented many dissidents from leaving Syria. Reportedly, the NSF held regular meetings with Bush Administration officials from the State Department and National Security Council in order to discuss ways of promoting democracy in Syria [49].

REFERENCES [1] [2]

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[3]

[4]

[5]

[6]

The Syrian embassy in Beirut was opened in December 2008, and a new ambassador is expected to take up residence during the first quarter of 2009. This free-trade agreement would need to be ratified by all 27 EU member states and by the Syrian parliament before it goes into effect, which may happen later in 2009. According to the Economist Intelligence Unit, ―The main element of the agreement is the development of free trade for all goods other than agricultural exports to the EU. Syria will immediately gain tariff- and quota-free access to the EU market, while Syrian tariffs on imports from the EU will be phased out over 12 years. The agreement will also open the way to increased EU aid to Syria, although the EU has already provided substantial support for development projects and economic reforms since negotiations on the agreement started in the late 1990s.‖ Executive Order 13338, which implements the Syria Accountability Act, states that the Secretary of Commerce shall not permit the exportation or re-exportation to Syria of U.S. products ―except to the extent provided in regulations, orders, directives, or licenses issued pursuant to the provisions‖ of the order. U.S. Department of Commerce Bureau of Industry and Security regulations [Code of Federal Regulations, Title 15, Chapter VII, Part 742.9(b)] state U.S. export licensing policy with regard to Syria. According to the BIS regulations, ―applications for export and re-export to all end-users in Syria... will generally be denied,‖ including licenses for aircraft, helicopters, engines, and related spare parts and components, ―except that parts and components intended to ensure the safety of civil aviation and the safe operation of commercial passenger aircraft will be reviewed on a case-by-case basis, with a presumption of approval.‖ ―Syrian Minister: US Approval To Repair 2 SyrianAir Boeing Planes 'Positive Sign'‖, Open Source Center, Document ID# GMP200902 10627002, Damascus Al-Ba'th Online in Arabic, February 8, 2009. ―Syria says US approves Syrianair Boeing Overhaul,‖ Reuters, February 10, 2009.

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Syria: Background and U.S. Relations [7] [8] [9] [10]

[11] [12] [13] [14] [15] [16] [17] [18] [19]

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[20] [21]

[22] [23] [24]

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U.S. Department of State, "Acting Assistant Secretary Feltman Briefs on Meetings With Syrian Officials," press release, March 7, 2009. "Assad Considers Direct Talks as Olmert travels to Turkey," Jerusalem Post, December 23, 2008. "Netanyahu will Focus First on PA, not Syria, Senior Adviser Says," Jerusalem Post, March 10, 2009. In early December, Michel Aoun visited Damascus in a reported attempt to present himself as the leader and spokesman of Christians in Lebanon and to garner Syrian support for his party ahead of parliamentary elections. For more information, see CRS Report R40054, Lebanon: Background and U.S. Relations, by Casey L. Addis. "Election 2009: Lebanese Parliamentary Polls Set for Single Day," Global Insight, January 6, 2009. For a broader discussion of the tribunal and Lebanese-Syrian relations, see Joshua Hammer, ―Getting Away With Murder?‖ The Atlantic, December 2008. "Desperate Iraqi Refugees Turn to Sex Trade in Syria," New York Times, May 29, 2007. "U.S. Details Reactor in Syria," Washington Post, April 25, 2008. ―US Shows Evidence of Alleged Syria-N. Korea Nuke Collaboration,‖ Associated Press, April 24, 2008. ―Hayden: Syrian Site Could Have Produced Fuel for 2 Weapons,‖ Associated Press, April 28, 2008. ―N.Koreans May Have Died in Israel Raid in Syria: NHK,‖ Reuters, April 28, 2008. Introductory Statement to the Board of Governors by IAEA Director General Dr. Mohamed ElBaradei, November 27, 2008, Vienna, Austria, IAEA Board of Governors. "Diplomats: Damascus has Built Missile Facility on Suspected Nuclear Site," Associated Press, February 25, 2009. "Evidence Mounts of Syrian Nuclear Cover-Up - U.S.," Reuters, March 4, 2009. For many years, Syria and Iraq had an uneven and often troubled relationship, stemming from political disputes, border tensions, demographic differences, and personal animosity between the two countries' late leaders: Syrian President Hafiz al Asad and Iraqi President Saddam Hussein. Moreover, the two countries were governed by rival wings of the pan-Arab Baath Party. Syria severed diplomatic relations with Iraq in 1982 after it accused Saddam Hussein's regime of inciting and supporting Syrian Muslim Brotherhood-led riots. In the late 1990s bilateral relations improved markedly, primarily in the economic sphere. The two countries formally restored relations in November 2006. Thousands of Iranian Shiites do visit Syria annually on pilgrimages to several famous shrines and mosques. "Syria economy: Iran bank deal?," Economist Intelligence Unit, October 14, 2008. Syrian intelligence was implicated in an abortive attempt to place a bomb on an El Al airliner in London in 1986. In what is now referred to as the ―Hindawi Affair,‖ the convicted Syrian operative was Nezar Hindawi, a Jordanian of Palestinian origin who gave his pregnant girlfriend a bomb (1.5 kilograms of Semtex) to take on board an El Al jet at Heathrow airport. When the plot failed, Hindawi was given refuge in the Syrian Embassy in London before turning himself in. During his trial in England, a British court concluded that Hindawi came from Damascus to London with a bogus Syrian passport identifying him as a Government official, that he traveled in the

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[25] [26]

[27]

[28]

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[29]

[30]

[31] [32] [33] [34] [35]

[36]

Jeremy M. Sharp company of a Syrian airline crew, and that he had fled to the Syrian Embassy to meet with the Syrian Ambassador after the bomb plot was uncovered. In addition, Scotland Yard maintained that Hindawi had been an agent of the chief of Syrian Air Force intelligence. See, ―Britain Breaks Syrian Ties; Cites Proof of Terror Role; El Al Suspect Is Convicted; U.S. Recalls Envoy,‖ New York Times, October 25, 1986. Office of the Coordinator for Counterterrorism, Country Reports on Terrorism, U.S. State Department, April 30, 2008, Chapter 3 -- State Sponsors of Terrorism Overview. Department of Defense, Measuring Stability and Security in Iraq, Report to Congress, In accordance with the Department of Defense Supplemental Appropriations Act 2008 (Section 9204, P.L. 110-252), December 2008, p. 5. Open Source Center Document ID# GMP2008 1117966001, "The Daily Star: AlMustaqbal Publishes 'Proof' That Syria, Not Future, Helped Fatah," The Daily Star Online, November 17, 2008. Because of a number of legal restrictions and U.S. sanctions, many resulting from Syria‘s designation as a country supportive of international terrorism, Syria is no longer eligible to receive U.S. foreign assistance. Between 1950 and 1981, the United States provided a total of $627.4 million in aid to Syria: $34.0 million in development assistance, $438.0 million in economic support, and $155.4 million in food assistance. Most of this aid was provided during a brief warming trend in bilateral relations between 1974 and 1979. Significant projects funded under U.S. aid included water supply, irrigation, rural roads and electrification, and health and agricultural research. No aid has been provided to Syria since 1981, when the last aid programs were closed out. According to U.S. regulations, any product that contains more than 10% U.S.-origin content, regardless of where it is made, is not allowed to be exported to Syria. For U.S. commercial licensing prohibitions on exports and re-exports to Syria, see 15 C.F.R. pt. 736 Supp No. 1. According to the original text of E.O. 13338, the President‘s authority to declare a national emergency authorizing the blocking of property of certain persons and prohibiting the exportation or re-exportation of certain goods to Syria is based on ―The Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.) (NEA), the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003, P.L. 108-175 (SAA), and section 301 of title 3, United States Code.‖ Available online at http://www.treas.gov/office s/enforcement/ofac/legal/eo/ 13338.pdf See, http://www.treas.gov/press/releases/js2617.htm. See, http://www.treas.gov/press/releases/hp60.htm. See, http://www.treas.gov/press/releases/hp216.htm. See, http://www.treas.gov/press/releases/hp666.htm. A previous executive order, E.O. 13315, blocks property of former Iraqi President Saddam Hussein and members of his former regime. On June 9, 2005, the Treasury Department blocked property and interests of a Syrian company, SES International Corp., and two of its officials under the authority of E.O. 13315. ―Sanctions on Businessman Target Syria‘s Inner Sanctum,‖ Washington Post, February 22, 2008.

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[37] ―Turkcell Continues Talks on Syriatel Stake,‖ Reuters, April 14, 2008. [38] Gulfsands‘ chief executive and largest shareholder, John Dorrier, is an American citizen, and the company has offices in Houston. [39] ―Syrian Tycoon Bristles At US Sanctions Against Him,‖ the Wall Street Journal, March 26, 2008. [40] ―Tired of Energy Ills, Syrians Doubt the West Is to Blame,‖ New York Times, August 15, 2007. [41] "Politics aside, US-Syrian trade grows," YANIV BERMAN, The Media Line News Agency, Special to The Jerusalem Post , May 19, 2008. [42] ―Syrians See an Economic Side to Peace,‖ New York Times, July 29, 2008. [43] Eyal Zisser, ―Where Is Bashar al-Assad Heading?‖ Middle East Quarterly, Winter 2008. [44] The Syrian Muslim Brotherhood, an off-shoot of its larger Egyptian counterpart, has been banned in Syria since 1958, and according to a 1980 law (Emergency Law #49), known membership in the group is punishable by execution. See, Ghada Hashem Telhami, ―Syria: Islam, Arab Nationalism and the Military,‖ Middle East Policy, Vol. 8, Iss. 4; December 2001. [45] See International Crisis Group (ICG), ―Syria Under Bashar (II): Domestic Policy Challenges, ICG Middle East Report #24, February 2004. [46] Joe Macaron, ―Syria: The Opposition and its Troubled Relationship with Washington,‖ Arab Reform Bulletin, February 2008, Volume 6, Issue 1, published by the Carnegie Endowment for International Peace. [47] Others included the group's leader and only woman Fidaa Horani (the daughter of Akram Horani, one of the founders of Syria‘s Baath Party), and writers Ali Abdullah and Akram Bunni. [48] "Syria's Strongman ready to woo Obama with both Fists Unclenched," The Guardian (UK), February 17, 2009. [49] ―Unlikely Allies: To Check Syria, U.S. Explores Bond With Muslim Brothers,‖ Wall Street Journal, July 25, 2007.

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In: Economic and Political Issues in the Middle East Editors: C. N. Parker and D. M. Warde

ISBN: 978-1-61209-381-9 © 2011 Nova Science Publishers, Inc.

Chapter 7

AFGHANISTAN: GOVERNMENT FORMATION  AND PERFORMANCE Kenneth Katzman Middle Eastern Affairs

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ABSTRACT The central government‘s limited writ and perceived corruption are helping sustain a Taliban insurgency and feeding pessimism about the Afghanistan stabilization effort. However, ethnic disputes remain confined largely to political debate and competition, enabling President Karzai to try to focus on improving governance, reversing security deterioration and on his re-election bid in the fall of 2009. Karzai is running for reelection, but he faces some loss of public confidence and fluid coalitions of potentially strong election opponents. At the same time, U.S. and Afghan officials are shifting toward promoting local governing bodies and security initiatives as a complement to efforts to build central government capabilities. See CRS Report RL30588, Afghanistan: Post-War Governance, Security, and U.S. Policy, by Kenneth Katzman.

POST-CONFLICT POLITICAL TRANSITION AND POLITICAL LANDSCAPE U.S. policy has been to extend the authority and encourage reform of Afghanistan‘s President Hamid Karzai and his central government, predicated on the observation that weak and corrupt governance is causing some Afghans to acquiesce to Taliban insurgents as providers of stability and credible justice. Karzai‘s is the first fully elected government in Afghan history, although there were parliamentary elections during the reign of King Zahir Shah (the last were in 1969). Presidential, parliamentary, and provincial elections, and adoption of a constitution were part of a post-Taliban transition roadmap established by a United Nations-sponsored agreement of major Afghan factions signed in Bonn, Germany on 

Excerpted from CRS Report RS21922 dated January 6, 2009.

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Kenneth Katzman

December 5, 2001, (―Bonn Agreement‖), [1] after the Taliban had fallen. The political transition process is depicted in the table below. The United States provides about 22,000 forces to a 51,000 troop NATO-led peacekeeping coalition there; another 14,000 U.S. troops continue the original post-September 11 counter-terrorism mission in Afghanistan. Since its formation in late 2001, Karzai‘s government has come to be progressively dominated by ethnic Pashtuns, who are about 42% of the population and traditionally have governed Afghanistan. However, the Intelligence Directorate continues to be headed by a non-Pashtun (Amrollah Saleh, a Tajik), and, adhering to a tacit consensus, the other security ministries (Defense, Interior) tend to have Pashtun leadership but with non-Pashtuns in key deputy or subordinate positions. One prominent example is the defense ministry, in which the chief of staff is a Tajik (Bismillah Khan), who reports to a Pashtun Defense Minister (Abd al Rahim Wardak). Still, it is the National Assembly (parliament), particularly the 249 seat elected lower house (Wolesi Jirga), that is the key institution for the ethnic minorities to exert influence. Many seats in the lower house are held by personalities and factions prominent in Afghanistan‘s recent wars. The lower house is divided into (mainly Pashtun) pro-Karzai, (mainly minority) opposition figures, and ―independents‖ of varied ethnicities, not strictly organized according to Afghanistan‘s 90 registered political parties. Karzai has not formed his own party, but his core support in the Wolesi Jirga consists of former members of the hardline conservative Pashtun-based Hizb-e-Islam party; and supporters of Abd-i-Rab Rasul Sayyaf – a prominent Islamic conservative mujahedin party leader. Another base of support for him is the delegation from Qandahar (Karzai‘s home province), including several Karzai clan members. One clan member in the body is his cousin Jamil Karzai, and relative by marriage Aref Nurzai. Karzai‘s elder brother, Qayyum, was in the lower house representing Qandahar until his October 2008 resignation due to health reasons. Also pro-Karzai are former Pashtun militia and Taliban leaders, including Hazrat Ali (Nangarhar Province), who had gained fame for leading the Afghan component of the failed assault on Osama bin Laden‘s purported redoubt at Tora Bora in December 2001; Pacha Khan Zadran (Paktia) who, by some accounts, helped Osama bin Laden escape Tora Bora; and Mullah Abdul Salam (―Mullah Rocketi‖), from Zabol. The ―opposition,‖ led by ethnic minorities (Tajik, Uzbek, and Hazara) of the anti-Taliban ―Northern Alliance,‖ view as a betrayal Karzai‘s firing of many of the non-Pashtuns from the cabinet – such as former Foreign Minister Dr. Abdullah Abdullah, dismissed in 2006). However, the bloc says its disputes with Karzai will remain political and peaceful. In April 2007, Wolesi Jirga Speaker Yunus Qanooni and former Afghan president Burhanuddin Rabbani, both prominent Northern Alliance figures, organized a broader opposition bloc called the ―United Front‖ (UF), which includes both of Karzai‘s vice presidents, and some Pashtuns prominent in the Soviet-occupation era such as Sayed Muhammad Gulabzoi (Khost Province) and Nur ul-Haq Ulumi, who chairs parliament‘s defense committee. The UF advocates amending the constitution to give more power to parliament and to empower the elected provincial councils (instead of the President) to select governors and mayors. Fearing Pashtun consolidation, the UF has been generally opposed to Karzai‘s overtures to Taliban fighters to end their fight and join government – an initiative that has begun to draw backing from the U.S. and British governments. The opposition first showed its strength in March 2006, following the December 19, 2005 inauguration of parliament, by requiring Karzai‘s cabinet to be approved individually, rather

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than en bloc, increasing opposition leverage. However, Karzai rallied his support and all but 5 of the 25 nominees were confirmed. One of those defeated was a female nominee for Minister of Women‘s Affairs, leaving Afghanistan without any women ministers. The post was held by a female since it was established in 2002. In May 2006, the opposition compelled Karzai to change the nine-member Supreme Court, the highest judicial body, including ousting 74year-old Islamic conservative Fazl Hadi Shinwari as chief justice. Parliament approved his new Court choices in July 2006, all of whom are trained in modern jurisprudence. In May 2007, the UF achieved a majority in parliament to oust Karzai ally Rangin Spanta as Foreign Minister. However, Karzai refused to replace him, instead seeking a Supreme Court ruling that Spanta should remain, on the grounds that his ouster was related to a refugee issue (Iran‘s expulsion of 100,000 Afghan refugees), not a foreign policy issue. The Court has, to date, supported Karzai, and Spanta remains Foreign Minister. Karzai and the UF often battle for the support of the many ―independents‖ in the lower house. Among them are several outspoken women, intellectuals, and business leaders, such as 37 year-old Malalai Joya (Farah Province), a leading critic of war-era faction leaders. In May 2007 the lower house voted to suspend her for this criticism for the duration of her term, but she continues to legally challenge the expulsion. Others in this camp include Ms. Fauzia Gailani (Herat Province); Ms. Shukria Barekzai, editor of Woman Mirror magazine; and Mr. Ramazan Bashardost, a former Karzai minister who champions parliamentary powers. U.S.based International Republican Institute (IRI) has helped train the independents; the National Democratic Institute (NDI) has assisted the more established factions. Karzai has fewer critics in the Meshrano Jirga, partly because of his 34 appointments (one-third of that body). He engineered the appointment as Speaker an ally, Sibghatullah Mojadeddi, a noted Islamic scholar who headed the post-Communist mujahedin government for one month (May 1992) and who now heads the effort to reconcile with Taliban figures (Peace and Reconciliation Commission, or ―PTSD‖ program). Karzai also appointed Northern Alliance military leader Muhammad Fahim, perhaps to compensate for his removal as Defense Minister, although he resigned after a few months and later joined the National Front. There is one Hindu, and 23 women; 17 are Karzai appointees and 6 were selected in their own right. This body tends to be more Islamist conservative than the lower house, advocating a legal system that accords with Islamic law, and restrictions on press and Westernized media broadcasts. In late 2008, the body approved a law opposing a U.S.Afghan plan to establish tribal militias to help keep Taliban infiltrators out of Afghan communities. The plan is being reworked and tested (―Community Guard Program‖) in some provinces as of early 2009 (see below). On less contentious issues, the executive and the legislature have worked well. During 2008, parliament passed a labor law, a mines law, a law on economic cooperatives, and a convention on tobacco control. It also confirmed several Karzai nominees, including the final justice to fill out the Supreme Court. Both houses of parliament, whose budgets are controlled by the Ministry of Finance, are staffed by about 275 Afghans, reporting to a ―secretariat.‖ There are 18 oversight committees, a research unit and a library.

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GOVERNMENT PERFORMANCE [2] U.S. policy has been to help expand Afghan institutions and to urge reforms such as merit-based performance criteria and weeding out of the rampant official corruption. Afghan ministries are growing their staffs and technologically capabilities, although still suffering from a low resource and skill base. U.S. officials have generally refrained from publicly criticizing Karzai when, in the interests of political harmony, he has indulged faction leaders with appointments and tolerated corruption. However, President-elect Obama has been somewhat more publicly critical of Karzai‘s shortcomings than has the Bush Administration. Karzai argues that compromises with faction leaders and tribes are needed to keep the government intact as he focuses on fighting ―unrepentant‖ Taliban insurgents. Partly as a result of these compromises, as well as what many Afghans view as a ―predatory‖ central government, some Afghans are said to be losing faith in the government and in Karzai‘s leadership, to the point where his re-election appears increasingly uncertain. Karzai‘s popularity also is being undermined by civilian casualties resulting from U.S./NATO operations. Following an August 21, 2008, airstrike that some Afghans said killed 90 civilians (the incident is in dispute) near Herat city, the Afghan cabinet called for bringing foreign forces under Afghan law, replacing an 2001 interim ―status of forces agreement‖ with the coalition. Afghanistan and the United States conducted a joint investigation of the incident.

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Official Corruption and Compromises with Faction Leaders The issue of official corruption has become a key U.S. agenda item as Karzai‘s leadership image fades. Some observers, such as former Coordinator for Counter-Narcotics and Justice Reform Thomas Schweich, in a July 27, 2008 New York Times article, have gone so far as to assert that Karzai, to build political support, is deliberately tolerating officials in his government who are allegedly involved in the narcotics trade. The New York Times reported allegations (October 5, 2008) that another Karzai brother, Qandahar provincial council chief Ahmad Wali Karzai, is involved in narcotics trafficking. The perception of governmental corruption was not improved by Karzai‘s decisions in 2007 to empower two Supreme Court chief justice Abdul Salam Azimi and Attorney General Abdul Jabbar Sabit to instill confidence in the justice sector and enhance accountability. Nor was confidence improved when Karzai fired Sabit on July 16, 2008, after Sabit declared his intention to run against Karzai in 2009. Several high officials, despite very low official government salaries, have acquired ornate properties in west Kabul since 2002, and it apparently is a widespread view in Afghanistan that obtaining government services or assistance routinely requires sometimes onerous bribes [3]. Transparency International, a German organization that assesses governmental corruption worldwide, ranked Afghanistan in 2008 as 176th out of 180 countries ranked in terms of government corruption. To try to address the criticism, in August 2008 Karzai, with reported U.S. prodding, set up the ―High Office of Oversight for the Implementation of Anti-Corruption Strategy‖ with the power to investigate the police, courts, and the attorney general‘s office, and to catalogue the overseas assets of Afghan officials. Karzai said publicly in December 2008 that he believes that many high officials have bank accounts overseas, such as in Dubai. In October

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2008, Karzai replaced the ministers of Interior, of Education, and of Agriculture with officials, particularly the new Interior Minister – former Soviet-era official Muhammad Hanif Atmar – believed to be dedicated to reform of their ministries and weeding out of official corruption. However, Atmar‘s appointment incurred further UF concern because Atmar, a Pashtun, replaced a Tajik (Zarrar Moqbel) in that post. In December 2008, the lower house voted Commerce Minister Amin Farhang out of office (nearly unanimous vote) for failing to bring down energy prices. Karzai has marginalized several major regional strongmen but has been hesitant to confront them to the point where their followers go into armed rebellion. In 2008, some observers cited Karzai‘s handling of prominent Uzbek leader Abdurrashid Dostam as evidence of political weakness. Dostam is often referred to as a ―warlord‖ because of his command of partisans in his redoubt in northern Afghanistan (Jowzjan and Balkh provinces), and he is widely accused of human rights abuses of political opponents in the north. To try to separate him from his militia, in 2005 Karzai appointed him to the post of chief of staff of the armed forces. On February 4, 2008, Afghan police surrounded Dostam‘s villa in Kabul in response to reports that his followers attacked and beat an ethnic Turkmen rival, but Karzai did not order his arrest for fear of stirring unrest among Dostam‘s followers. To try to resolve the issue without stirring unrest, in early December 2008 Karzai purportedly reached an agreement with Dostam under which he resigned as chief of staff and went into exile in Turkey in exchange for the dropping any case against him [4]. Karzai has curbed prominent Tajik political leader, former Herat governor Ismail Khan, by appointing him Minister of Energy and Water. In February 2007, both houses passed a law giving amnesty to so-called ―warlords‖; Karzai altered the draft to give victims the right to seek justice for any abuses; Karzai did not sign a modified version in May 2007, leaving the status unclear.

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Increasing Focus on Local Solutions and Governance U.S. and Afghan government policy is in the process of shifting toward a reduced focus on empowering the central government and promoting local security and governance solutions. A key indicator of this shift came in August 2007 when Karzai placed the selection process for local leaders (provincial governors and down) in a new Independent Directorate for Local Governance (IDLG)—and out of the Interior Ministry. The IDLG, with advice from India and other donors, has also developed plans to empower localities to decide on development priorities. In March 2008 Karzai replaced the weak and ineffective governor of Helmand -Asadullah Wafa - with Gulab Mangal, who is from Laghman Province and who the U.N. Office of Drugs and Crime said in an August 2008 report is taking relatively effective action to convince farmers not to grow crops other than poppy. Some observers say that the central government has not given Mangal the support he is requesting, such as delivery of seeds and other goods to encourage Helmand farmers to grow legitimate crops, and there are reports Karzai wants to replace him with the former governor, Sher Mohammad Akhundzadeh, who is accused of human rights abuses when he was governor during 20022005 but who remains powerful in the province. The UNODC report said that improving governance in some provinces had contributed to the increase to 18 ―poppy free‖ provinces (out of 34), from 13 in the same report in 2007. The governor of Qandahar was changed (to former General Rahmatullah Raufi, replacing Asadullah Khalid) after the August 7, 2008

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Taliban assault on the Qandahar prison that led to the freeing of several hundred Taliban fighters incarcerated there. Karzai changed that governorship again in December 2008, naming Canadian-Afghan academic Tooryalai Wesa as governor, perhaps hoping that his ties to Canada would assuage Canadian reticence to continuing its mission in Qandahar beyond 2011. The IDLG also has replaced the governor of Ghazni Province, and several other governors are slated to be changed. The IDLG is also the chief implementer of the recently-launched ―Social Outreach Program‖ which provides financial support (about $125 per month) and other benefits to tribal and local leaders in exchange for their cooperation with U.S./NATO led forces against the Taliban insurgency. The civilian aspects of the program are funded partly by USAID. A more controversial security aspect of the program is called the ―Community Guard program‖ – a partial resurrection of the traditional tribal militias (―arbokai‖) that provided local security before Afghanistan‘s recent wars. U.S. commanders say U.S. weapons will not be provided to the militias – only training – but some weapons may come from the Afghan government. The security components of the program are partially funded with DoD funds (―CERP‖ – Commanders Emergency Response Program.). The program has been launched in Wardak province and will also be implemented in Kapisa, Ghazni, and Lowgar in early 2009 Some see the shift toward new local militias as a reversal of the 2001-2007 programs to disarm militias nationwide, although U.S. commanders say they will be able to control the new militias.

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Overall Human Rights Issues On human rights issues, the overall State Department judgment is that the country‘s human rights record remains poor, but primarily because of the weakness of the central government. The security forces are widely cited for abuses and corruption, including torture and abuse of detainees. In debate over a press law, both houses of parliament approved a joint version, but Karzai has vetoed it on the grounds that it gives the government too much control over private media. In the absence of a new law, Afghanistan‘s conservative Council of Ulema (Islamic scholars) has been ascendant. With the Council‘s backing, in April 2008 the Ministry of Information and Culture banned five Indian-produced soap operas on the grounds that they are too risque, although the programs were restored in August 2008 under a compromise that also brought in some Islamic-oriented programs from Turkey. At the same time, press reports say that there are growing numbers of arrests or intimidation of journalists who criticize the central government or local leaders. On the other hand, many women are now in parliament (numbers in the table below), and there is one female governor (Bamiyan Province), 67 female judges, and almost 500 female journalists working nationwide. The September 2008 International Religious Freedom report says the Afghan government took limited steps during the year to increase religious freedom. Still, members of minority religions, including Christians, Sikhs, Hindus, and Baha‘i‘s, often face discrimination; the Supreme Court declared the Baha‘i faith to be a form of blasphemy in May 2007. In October 2007, Afghanistan resumed enforcing the death penalty after a four-year moratorium, executing 15 criminals. One major case incurring international criticism has been the January 2008 death sentence, imposed in a quick trial, against 23 year old journalist Sayed Kambaksh for allegedly distributing material critical of Islam. On October 21, 2008, a Kabul appeals

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court changed his sentence to 20 years in prison; he remains in jail but has several avenues of appeal remaining. Afghanistan was again placed in Tier 2 in the State Department‘s June 4, 2008, Trafficking in Persons report for 2008 on the grounds that it does not fully comply with minimum standards for the elimination of trafficking in persons. However, the report says it is making significant efforts to do so, including by establishing anti-trafficking offices in the offices of the Attorney General in all 34 provinces. Table 1. Afghanistan Political Transition Process

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Interim Administration

Formed by Bonn Agreement. Headed by Hamid Karzai, an ethnic Pashtun, but key security positions dominated by mostly minority ―Northern Alliance.‖ Karzai reaffirmed as leader by June 2002 ―emergency loya jirga.‖ (A jirga is a traditional Afghan assembly).

Constitution

Approved by January 2004 ―Constitutional Loya Jirga‖ (CLJ). Set up strong presidency, a reb Northern Alliance that wanted prime ministership to balance presidential power, but gave parliament significant powers to compensate. Gives men and women equal rights under the law, allows for political parties as long as they are not ―un-Islamic‖; allows for court rulings according to Hanafi (Sunni) Islam (Chapter 7, Article 15). Set out electoral roadmap for simultaneous (if possible) presidential, provincial, and district elections by June 2004. Named exKing Zahir Sha non-hereditary position of ―Father of the Nation;‖ he died July 23, 2007.

Presidential Election

Elections for President and two vice presidents, for five year term, held October 9, 2004. Tu was 80% of 10.5 million registered. Karzai and running mates (Ahmad Zia Masud, a Tajik and brother of legendary mujahedin commander Ahmad Shah Masud, who was assassinated by Al Qaeda two days before the September 11 attacks, and Karim Khalili, a Hazara) elected with 55% against 16 opponents. Second highest vote getter, Northern Alliance figure (and Education Minister) Yunus Qanooni (16%). One female ran, got about 1%. Hazara leader Mohammad Mohaqiq got 11.7%; and Dostam won 10%. Funded with $90 million in international aid, including $40 million from U.S. (FY2004 supplemental, P.L. 108-106).

Parliamentary Elections

Elections held September 18, 2005 on Single Non-Transferable Vote‖ System; candidates stood as individuals, not part of party list. Parliament consists of a 249 elected lower house (Wolesi Jirga, House of the People) and a selected 102 seat upper house (Meshrano Jirga, House of Elder). Voting was for one candidate only, although number of representatives varied by p from 2 (Panjshir Province) to 33 (Kabul Province). Herat has 17; Nangahar, 14; Qandahar, Balkh, and Ghazni, 11 seats each. The body is 28% female (68 persons), in line with the legal minimum of 68 women - two per each of the 34 provinces. Upper house appointed by Karzai (34 seats, half of which are to be women), by the provincial councils (34 seats), and district councils (remaining 34 seats). There are 23 women in it, above the 17 required by the constitution. Because district elections (400 district councils) were not held, provincial councils selected 68 on interim basis. 2,815 candidates for Wolesi Jirga, including 347 women.

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Kenneth Katzman Table (Continued)

Provincial Elections/

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District Elections

Turnout was 57% (6.8 million voters) of 12.5 million registered. Funded by $160 million in international aid, including $45 million from U.S. (FY2005 supplemental appropriation, P.L. 109-13). Provincial elections held September 18, 2005, simultaneous with parliamentary elections. Exact powers vague, but now taking lead in deciding local reconstruction Provincial councils size range from 9 to the 29 seats on the Kabul provincial council. Total seats are 420, of which 121 held by women. l3,185 candidates, including 279 women. Some criticize the provincial election system as disproportionately weighted toward large districts within each province. District elections not held due to complexity and potential tensions of drawing district boundaries.

Cabinet

Full-term 27 seat cabinet named by Karzai in December 2004. Heavily weighted toward Pashtuns, and created new Ministry of Counter-Narcotics. Rahim Wardak named Defense Minister, replacing Northern Alliance military leader Mohammad Fahim. Qanooni not in cabinet, subsequently was selected Wolesi Jirga Speaker. Northern Alliance figure Dr. Abdullah replaced as Foreign Minister in March 2006. Cabinet reshuffle in October 2008 including appointment of Atmar as Interior Minister.

Next Elections

Presidential and provincial elections to be held in fall 2009; parliamentary, district, and municipal elections in 2010. Each election to cost $100 million. Elections also to be held for 23,000 ―Community Development Councils‖ (CDC‘s) nationwide that decide development priorities.

One positive development is that Afghanistan‘s Shiite minority, mostly from the Hazara tribes of central Afghanistan (Bamiyan and Dai Kundi provinces) can celebrate their holidays openly – a development unknown before the fall of the Taliban. Some Afghan Shiites follow Iran‘s clerical leaders politically, but Afghan Shiites tend to be less religious and more socially open than their co-religionists in Iran. The Minister of Justice is a Shiite.

Funding Issues USAID has spent about $440 million (FY2002-2007) to build democracy and rule of law, and assist the elections. A revised request for FY2008 supplemental funding included $100 million to assist with the presidential elections planned for 2009. For FY2009, $707 million in Economic Support Funds (ESF) was requested which will be used in part to enable the Karzai government to ―extend the reach of good governance....‖ Some of the aid for FY2009 is being extended to the IDLG for its operations and to support the Social Outreach Program discussed above. In FY 2009, according to a September 25, 2008 State Department fact sheet, USAID is providing $8.5 million to support the IDLG and to fund the Social Outreach Program and a separate ―Governor‘s Performance Fund‖ intended to promote good governance. Another $95 million will go to the IDLG to help it construct new district centers and rehabilitate fifty provincial and district offices. For comprehensive tables on U.S. aid to Afghanistan, by fiscal

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year and by category and type of aid, see CRS Report RL30588. Afghanistan: Post-War Governance and Security, by Kenneth Katzman.

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2009 ELECTIONS The next major political milestone in Afghanistan is the 2009 presidential and provincial elections. No firm date is yet set, but a consensus, backed by Afghanistan‘s Independent Election Commission (IEC) that will run the elections, seems to be forming around a late summer time frame. The UF, sensing vulnerability for Karzai, had wanted the elections in May 2009 in accordance with a strict interpretation of the constitution. Security conditions could still derail the elections, in which case a loya jirga would convene to select a president. However, enthusiasm among the public appears to be high, and pre-election maneuvering is advancing, according to observers. Registration (updating of 2005 voter rolls) began in October 2008 and is expected to be completed by February 2009. However, there are also reports of some registration fraud, with some voters registering on behalf of women who do not, by custom, show up at registration sites. U.S./NATO military operations in some areas, including in Helmand in January 2009, were conducted to secure registration centers. Still, registration percentages in restive areas are lower than in more secure areas. In the election-related political jockeying, [5] Karzai said in August 2008 that he is seeking re-election; the two-round election virtually assures victory by a Pashtun. Anti-Karzai Pashtuns at first attempted, unsuccessfully, to coalesce around one challenger, possibly former Interior Minister Ali Jalali (who resigned in 2005 over Karzai‘s compromises with faction leaders), or former Finance Minister and Karzai critic Ashraf Ghani. In December 2008, Ghani, a member of the prominent Ahmedzai clan, returned to Afghanistan to a welcoming ceremony in which he was ―nominated‖ for president by ―32 political parties,‖ according to Afghan media. Some observers say that there is discussion of an agreement under which Jalali, a Pashtun, might head a UF ticket, a move that would be intended to win votes from both Pashtuns and minorities. Under this scenario, former Foreign Minister Dr. Abdullah (a Tajik) might run as a vice presidential candidate on the UF ticket, and neither he nor former President Burhanuddin Rabbani (a Tajik, and president during 1992-1996), would head the UF slate. Others say Rabbani, as the elder statesman of the UF bloc, is insisting on heading the ticket himself. Other potential contenders include Hazara leader Mohammad Mohaqqeq; Ramazan Bashardost (another Hazara); Sabit (Pashtun, mentioned above); and Pashtun monarchist figures Pir Gaylani and Hedayat Arsala Amin. Rumors have recently abated that U.S. Ambassador to U.N., Afghan-born Zalmay Khalilzad, might himself run.

REFERENCES [1] [2]

For text, see http://www.un.org/News/dh/latest/afghan/afghan-agree.htm. Some information in this section is from the State Department reports on human rights in Afghanistan for 2007. March 11, 2008 http://www.state.gov/g/drl/rls/hrrpt/2 007/100611.htm; the International Religious Freedom Report, released September 19, 2008. http://www.state.gov/g/drl/irf/2007/90225.htm; and Defense Department ―Report on Progress Toward Security and Stability in Afghanistan.‖ June 2008.

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Filkins, Dexter. ―Bribes Corrode Afghan‘s Trust in Government.‖ New York Times, January 2, 2009. CRS e-mail conversation with National Security aide to President Karzai. December 2008. Some of the information in this paragraph obtained in CRS interviews with a Karzai national security aide. December 2008.

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[5]

Kenneth Katzman

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In: Economic and Political Issues in the Middle East Editors: C. N. Parker and D. M. Warde

ISBN: 978-1-61209-381-9 © 2011 Nova Science Publishers, Inc.

Chapter 8

ISRAEL AND HAMAS: CONFLICT IN GAZA (2008-2009)



Jim Zanotti†, Jeremy M. Sharp, Casey L. Addis, Christopher M. Blanchard and Carol Migdalovitz Middle Eastern Affairs

ABSTRACT

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On December 27, 2008, Israel launched a major military campaign dubbed ―Operation Cast Lead‖ against the Palestinian Islamist militant group Hamas in the Gaza Strip in order to counter Palestinian rocket fire and, more broadly, to significantly weaken all aspects of Hamas rule in Gaza. On January 3, 2009, Israel began a ground offensive into Gaza intended to eliminate Hamas‘s willingness or capability to launch rockets at Israeli towns and cities. As of January 14, Israeli bombings and ground forces had reportedly killed over 1,000 Palestinians, while 13 Israelis had been killed by Palestinian rockets and attempts to counter the ground invasion. Some Israeli observers have suggested that neither toppling the Hamas regime nor permanently ending all rocket attacks is a realistic goal. Nevertheless, by temporarily disabling Hamas‘s military capacity and slowing its rearmament, Israel could ease the frequency and intensity of Hamas attacks in the months ahead as it prepares to deploy new, more sophisticated anti-rocket defense systems. One complicating factor for Israel is time: the longer Operation Cast Lead runs without a definitive outcome in Israel‘s favor, the more pressure will grow for a cessation of hostilities. The unraveling of the six-month tahdiya or temporary cease-fire between Israel and Hamas that led to the December 2008 outbreak of violence in and around the Gaza Strip can be linked to several factors—some tactical, some more deeply-rooted. Some commentators have said that giving up on the cease-fire was in both sides‘ interests. The world response to the Gaza crisis has been characterized by consistent calls for an end to the violence and by concern over the humanitarian situation in Gaza. Both houses of Congress have passed resolutions supporting Israel‘s right to defend itself. The crisis has exacerbated tensions between countries in the region with a relatively pro †

Excerpted from CRS Report R40101 dated January 15, 2009. E-mail: [email protected]

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Jim Zanotti, Jeremy M. Sharp, Casey L. Addis et al. Western orientation—like Egypt, Jordan, and Saudi Arabia—and other countries and non-state actors—like Iran, Syria, and Hezbollah. Egyptian-facilitated talks aimed at halting the fighting continue after a United Nations Security Council resolution calling for an ―immediate, durable and fully respected ceasefire‖ was passed unanimously on January 8, with the United States abstaining. U.S. President-elect Barack Obama will likely be compelled to address the Gaza situation directly at the outset of his administration. The incoming 111th Congress may be called upon to increase various forms of assistance to Israel, to the Palestinian Authority headed by President Mahmoud Abbas, and to Palestinian civilians in order to support a sustainable post-conflict order that guarantees Israel‘s security and attends to the needs of the Palestinian humanitarian situation. The Gaza crisis constitutes a conundrum for all involved. Israel would like to avoid a drawn-out invasion and occupation of Gaza, but at the same time does not want to abandon the military operation without assurance that the end result will leave Israelis more secure from rocket attacks. Although the ground attack might endanger its rule in Gaza, Hamas may welcome it in the hopes of miring Israeli forces in close-quarters combat to strip away their advantages in technology and firepower and in hopes of heightening perceptions that Palestinians are being victimized. Linking the cessation of violence in and around Gaza with international enforcement of a truce or a broader regional security initiative may be possible, but, at present, no proposed solution appears straightforward. This report will be updated as necessary to reflect further developments.

INTRODUCTION: ISRAEL’S 2008-2009 GAZA CAMPAIGN [1]

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Overview of the Conflict On December 27, 2008, Israel launched an extensive military campaign dubbed ―Operation Cast Lead‖ against the Palestinian Islamist militant group Hamas in the Gaza Strip in order to counter Palestinian rocket fire into southern Israel and, more broadly, to significantly weaken all aspects of Hamas rule in Gaza. Initially, coordinated Israeli air strikes against pre-selected targets took Hamas by surprise, as the operation commenced in full daylight (Hamas expected any attack to come at night) and was timed to coincide with a meeting of Hamas‘s leadership as well as a graduation ceremony of hundreds of new Gazan police cadets. In addition to Hamas weapons caches and military facilities, Israel has targeted other elements of Gaza‘s infrastructure that it believes support Hamas‘s military objectives, including mosques, the Islamic University of Gaza, Hamas‘s Al Aqsa television station, the homes of Hamas militants and government officials, a wide range of government buildings, and a network of smugglers‘ tunnels along the border with Egypt. Israeli air strikes have reportedly killed senior Hamas officials and militants, including Hamas interior minister Said Siam (who was responsible for various security apparatuses in Gaza, was a key security liaison between Hamas‘s political and military wings, and was known as an extremist among Hamas‘s top leadership ranks in Gaza), Salah Abu Shrakh (head of Hamas‘s general security service), and Mahmoud Watfah and Shaykh Nizar Rayyan (influential figures within Hamas‘s military wing (the Izz al Din al Qassam Brigades) [2]. On January 3, 2009, Israel expanded its operations by beginning a ground offensive— sending thousands of troops over Gaza‘s northern border, along with tanks, armored personnel carriers, and artillery divisions. Observers presume that the ground operation began in the north largely to disable Palestinian rocket launch sites that took advantage of the area‘s

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relative proximity to targets in southern Israel. Palestinian rocket attacks on southern Israel have continued (see the inset section ―Palestinian Rocket Attacks from Gaza: Threat Assessment and Israeli Responses‖ below), although their frequency appears to have gradually diminished as the fighting has endured. Hamas and other allied Palestinian militant groups have reportedly moved more rocket-launching operations into densely-populated sectors of Gaza City and to areas further south that are less endangered by Israeli forces. As of January 14, Israeli air and naval strikes and ground forces had reportedly killed over 1,000 Palestinians, including hundreds of Hamas gunmen but also hundreds of Palestinian civilians (civilians represent at least half of the total deaths, according to reports), while 13 Israelis had been killed—four from Palestinian rocket fire and nine from other fighting. For a more detailed breakdown of casualties and internal displacement, see ―Impact on Civilians‖ below. Israeli officials also have said that several Hamas fighters have been taken into Israeli custody. Having captured military targets in the northern sector of Gaza (e.g., weapons caches, rocket launch sites, bunkers), the Israeli forces positioned themselves around Gaza City during the week of January 5 after taking control of Gaza‘s main north-south highway, and there has been close-quarters fighting between Israeli forces and Hamas gunmen in various Gaza City neighborhoods and in towns in the immediate vicinity such as Jabalia. By cutting off northward access and effectively stopping all tunneling from Egypt, Israeli forces are seeking to prevent Hamas from supplying their fighters with weapons from the south of Gaza. Israeli officials allege that Hamas‘s guerrilla warfare tactics of deception (fighting in civilian clothes, using tunnels and bunkers, and using civilian buildings for military purposes) are based on Iranian training and on methods used by Hezbollah (the Lebanese Shia militant group whose summer 2006 war with Israel is regularly compared by observers to the conflict in Gaza) [3]. According to Yuval Diskin, the head of Israel‘s Shin Bet (internal security service), senior Hamas leaders have even used Gaza‘s main medical center, Shifa Hospital (see location on Figure 1), as a hideout (see ―Impact on Palestinian Civilians‖ below). Despite Hamas‘s use of these tactics, Israeli ground forces do not appear to have met lasting formidable resistance from Hamas fighters or prepared positions. Israel has reportedly gained valuable intelligence from Gazans it has detained, from captured maps and plans, and from subterfuge. Israel‘s decision to have its troops go in ―heavy,‖ using armored vehicles and firepower even in urban environments and warning civilians to leave ahead of time, is also thought to have kept Israeli casualties low, perhaps at the price of greater threats posed to Gazan civilians. According to Israeli Defense Minister Ehud Barak, Israel‘s attacks were intended to deal Hamas a ―severe blow,‖ ending its willingness and capability to launch rockets at Israeli towns and cities. As the third week of fighting began, Prime Minister Ehud Olmert said that Israel was ―getting close to achieving the goals it set for itself‖ but that ―more patience, determination and effort are still demanded.‖ There are reports that Israel believes that the Gaza-based leadership of Hamas is inclined to accept a cease-fire, given the setbacks it has suffered in the fighting and its seemingly weakened military capacity. The Gaza leadership‘s views may be at odds with the proclaimed stance of Damascus-based Hamas political chief Khaled Meshaal, who reportedly has been conferring with Iranian and Syrian leaders throughout the conflict and has demanded that Israel end its assault and open all border crossings before agreeing to a cease-fire. As the week of January 12 began, Israeli Defense Ministry official Amos Gilad and representatives from Hamas were talking separately with

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Egyptian facilitators regarding a possible end to the fighting. U.S. and Israeli media sources report an ongoing debate among Olmert, Barak and Israeli Foreign Minister Tzipi Livni over how the war should end and whether Israel should seek a cease-fire with Hamas or unilaterally declare victory at some point [4]. Thus far, significant domestic public approval has accompanied Israel‘s military operations. An Israeli announcement on January 11 that its reservists have entered the fighting alongside its regular army divisions could signal the beginning of a ―third phase‖ to the conflict, in which Israel may engage more directly in urban warfare in an attempt to further weaken and pressure Hamas militants and leaders, may seek to seize the strip of Gazan land immediately bordering Egypt to gain control of the smuggling routes, and may even try to end Hamas rule in Gaza [5]. As of January 15, Israeli forces were reportedly thrusting further into Gaza City. The Gaza headquarters of the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) and Al Quds Hospital have both sustained damage (see the locations of both sites on Figure 1; also see ―Impact on Palestinian Civilians‖ below). After U.N. Secretary-General Ban Ki-Moon (who had just arrived in Israel to try to facilitate an end to the fighting—see ―United Nations‖ below) said that Barak had apologized to him for the damage inflicted on the UNRWA building (which has injured three UNRWA staff members and may have involved incendiary white phosphorus shells) and had called the incident a ―grave mistake,‖ [6] Olmert— while expressing regret—told Ban that Israel fired in response to Hamas attacks from the UNRWA compound [7].

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Major Developments - Military, Diplomatic, and Humanitarian [8] The intensification of Israeli military operations has led to heightened international pressure for an end to hostilities. As the second week of fighting neared its end, the United Nations Security Council passed Resolution 1860 on January 8, which called for an ―immediate, durable and fully respected ceasefire leading to the withdrawal of Israeli forces from Gaza.‖ Diplomatic attention centered around a joint Egyptian-French proposal to end hostilities and establish a sustainable post-conflict order, but both Israel and Hamas have thus far refused to halt the conflict. Resistance by Egypt to allowing greater international authority over smuggling prevention efforts from its side of the border, along with disagreements over which parties might be assigned responsibility for the crossings from the Gaza side of the border, may have made a compromise elusive. Getting updates on developments in the Gaza Strip has been made more difficult due to Israel‘s barring of the international media from entering the territory independently (only a small group has been permitted into Gaza, accompanied by Israeli troops), even though the Israeli Supreme Court issued an order during the first week of the conflict requiring that some journalists be admitted. Asked to explain the continuing embargo, Daniel Seaman of Israel‘s Government Press Office said, ―Any journalist who enters Gaza becomes a fig leaf and front for the Hamas terror organization, and I see no reason why we should help that‖ [9].

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Sources: U.N. Office for the Coordination of Humanitarian Affairs (including for the Bisection Line) and UNOSAT, with additional data from UNRWA; adapted by CRS. Note: All locations are approximate. Figure 1. Map of the Gaza Strip in the 2008-2009 Conflict.

Many have called attention to what they characterize as a humanitarian crisis for the people of Gaza, although Israel insists that it is not targeting Gaza‘s population at large—only Hamas. Starting on January 7, Israel instituted (and Hamas has generally reciprocally observed) what it calls a ―humanitarian corridor‖—a lull in violence for three hours every day—in order to allow medical assistance in conflict areas and to allow trucks to bring needed goods and supplies to Gazan civilians. Some, however, insist that this measure does not sufficiently address the situation. There is also evidence that Israeli forces may have accidentally shelled a residential site in the Zeitoun neighborhood south of Gaza City to which some Israeli troops had previously gathered about 110 civilians, killing about 30 and injuring dozens more, and that the Israelis kept the site and a broader area of the

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neighborhood off-limits to international rescue and health care providers for up to four days. For more information on the humanitarian situation in Gaza, see ―Impact on Civilians‖ below. One of the most controversial events of the ground offensive to date has been the January 6 shelling by Israeli forces of a school in Jabalia (just north of Gaza City) operated by UNRWA. When the school was hit—killing approximately 40 Palestinians and wounding dozens more—it was being used as a civilian shelter. Israeli officials have vacillated in their public statements regarding whether Palestinian militants were firing from the U.N. school grounds or from an adjacent area, while U.N. officials have maintained that no firing came from the school grounds and have called for an independent investigation. Reported Israeli strikes on two other U.N. schools (one in Jabalia, one in Gaza City) and on two U.N. humanitarian aid convoys (which killed one U.N. worker and injured two others), despite the United Nations‘ insistence that its buildings and vehicles were clearly marked and their locations provided to Israeli officials, have led to condemnation by U.N. Secretary-General Ban Ki-Moon of Israel‘s actions vis-à-vis the convoys and to a one-day suspension of U.N. food delivery operations (see ―Impact on Palestinian Civilians‖ below). An Israeli military spokesman claimed that Hamas was attacking humanitarian convoys and blaming the attacks on Israel [10]. Another notable occurrence was the firing of at least two Katyusha rockets on January 8 from southern Lebanon into northern Israel (near the town of Nahariya). The rockets did not cause fatalities, but did lead to two injuries at a senior care facility that was hit. Israel fired back at the location from which the rockets came, but did not retaliate further. The timing of the firing initially led Israel and many observers to wonder whether Hezbollah was attempting to open a second front in the conflict, but subsequent indications are that Hezbollah was not directly responsible, and the Israeli government has expressed its belief that the rocket fire was an isolated incident. Nonetheless, some analysts believe that Hezbollah and/or Iran may have orchestrated or at least consented to the firing to cause confusion in Israel and to portray themselves as defenders of the Palestinian cause, and that the indirect, low-level nature of the attack may have been intentionally calibrated to avoid a major Israel reprisal. These suspicions grew on January 14 when another volley of three or four Katyusha rockets was fired into northern Israel from southern Lebanon (and shortly thereafter, three more Gradstyle rockets that were set to be fired were reportedly discovered and dismantled by Lebanese troops), once again triggering return fire from Israel aimed at the source.

The Conflinct’s Origins Prior to the start of Israel‘s campaign, experts warned that a full-scale resumption of Israeli-Palestinian violence was imminent, as Egyptian mediation failed to extend the sixmonth cease-fire (tahdiya or calm) that expired on December 19, 2008. Each party felt as though the other was violating the terms of the original cease-fire. Hamas demanded— unsuccessfully—that Israel lift its economic blockade of Gaza, while Israel demanded—also unsuccessfully—a full end to rocket fire and progress on the release of Gilad Shalit, an Israeli corporal who has been in Hamas‘s captivity for more than two years. Violence had already resumed in the waning days of the cease-fire. After an Israeli raid on November 4 (ostensibly aimed at preventing Hamas‘s use of tunnels to abduct Israeli soldiers), rocket fire on Israel from Hamas and other Palestinian militant groups in Gaza

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resumed with greater intensity (see the inset section ―Palestinian Rocket Attacks from Gaza: Threat Assessment and Israeli Responses‖ below). Some analysts speculated that the crossborder skirmishes and rocket fire that continued into December represented jockeying by both parties for more favorable renegotiating positions as the cease-fire‘s December 19 expiration approached [11]. On the 19th, Hamas issued a statement on its website that ―The cease-fire is over and there will not be a renewal because the Zionist enemy has not respected its conditions.‖ On December 24, approximately 88 rockets were fired into southern Israel from Gaza, followed by another 44 on December 25 [12]. The magnitude of this violation of Israeli airspace and territory—although it did not cause casualties—apparently prompted the Israeli leadership‘s decision to launch the December 27 air strike and larger offensive. Although it appears that the timing of the conflict‘s outbreak was driven primarily by the end of the cease-fire, the fact that it occurred during the U.S. presidential transition and on the eve of Palestinian Rocket Attacks from Gaza:Threat Assessment and Israeli Responses [18] Since 2001, several Palestinian terrorist groups based in the Gaza Strip have attacked communities in southern and coastal areas of Israel with thousands of indiscriminately fired rockets and mortars. During the second Palestinian intifada or uprising in 2001, Hamas militia members and others fired homemade mortars at Israeli settlements in the Gaza Strip and launched the first locally produced ―Qassam‖ rockets, named after the early 20th century militant leader Shaykh Izz al Din al Qassam. Widely-available household ingredients, such as fertilizer, sugar, alcohol, and fuel oil, serve as propellants for the low-cost Qassam rockets, which are fabricated locally from scrap metal and pipes and armed with smuggled explosives. Teams of engineers, chemists, and machinists have improved the range and payload of the Qassam series rockets over time, and several individuals and facilities associated with rocket research and production operations have been targeted in Israeli military raids. Since 2006, longer-range 122mm Grad rockets and 122mm Grad-style copies, often referred to as Katyushas, have expanded the range of Hamas and its allies beyond relatively small Israeli communities near the Gaza border, such as the town of Sderot (population est. 24,000), to the larger coastal cities of Ashqelon (population est.120,000) and Ashdod (population est. 200,000) and to the Negev city of Beersheva (population est. 185,000). Similar midrange rockets have been fired by Palestinian Islamic Jihad (Al Quds series) and the Popular Resistance Committees (Nasser series). A map showing the approximate range of various Gaza-based rockets and mortars appears as Figure 2 on the next page. Press reports allege that some 122mm rockets fired against Israel have been Grad-style copies made in Iran, while others have been Eastern-bloc editions modified to expand their range and lethality. The longer range Grad rockets are believed to be smuggled into the Gaza Strip via tunnels from Egypt. The approximately 7,000 rockets and mortars fired by Palestinians since 2001 have killed at least 18 Israelis and wounded dozens, while the persistent threat of rocket fire has had a broader negative psychological effect on Israelis living in targeted communities [15] Some observers estimate that Palestinian militants in Gaza may have had

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Jim Zanotti, Jeremy M. Sharp, Casey L. Addis et al. as many as 10,000 rockets at their disposal at the outset of the conflict, up to a third of which may have been Grad-style rockets. In response to ongoing rocket attacks, Israel has invested millions of dollars in both passive and active defense measures, including an advance warning alert system known as ‗Color Red‘, safe room construction programs in residential areas near Gaza, and the deployment of a new counter-rocket defense system known as ‗Iron Dome‘. In December 2008, the Israeli cabinet issued final approval for a three-stage plan to build reinforced security rooms in all 8,500 housing units within 2.8 miles of the Gaza Strip. The cost of the program is estimated to be over $200 million [16]. Reports suggest that Israel has budgeted $230 million for the development and procurement of the Iron Dome system; its rocket interceptor costs are estimated at $45,000 each, with a total annual system deployment cost in areas around Gaza estimated at $25 million. Some Israeli military officials and public figures reportedly favor the deployment of a less mobile, but potentially more cost effective directed laser system, based on the work of the joint Israeli-U.S. Tactical High Energy Laser (THEL) research program that was terminated in 2004 [17]. For more detailed information on Israeli rocket defense measures, see ―Defense Budget Appropriations for U.S.-Israeli Missile Defense Programs‖ below.

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Israeli elections scheduled for February 2009 (not to mention just two weeks before the possible, although disputed, expiration of Abbas‘s PA presidential term on January 9, 2009 [13]) has led some observers to speculate that these political factors had at least partial influence on Israel‘s and Hamas‘s actions. In any event, it now appears likely that the fighting in and around Gaza could impact near-term political developments [14].

Can Israel Achieve Its Goals? [19] Operation Cast Lead appears to have been planned well in advance. Some Israeli observers have suggested that although the military has unleashed a devastating series of bombings, neither toppling the Hamas regime nor permanently ending all rocket attacks is a realistic goal—even with the ground forces that have been inserted. Instead, observers suggest that Operation Cast Lead seeks to severely cripple all aspects of Hamas‘s presence in Gaza— military, economic, and cultural—so that it would take several years of rebuilding for Hamas to return to its pre-December 2008 strength. By temporarily disabling Hamas‘s military capacity, Israel could substantially ease the frequency and intensity of Hamas attacks in the months ahead as it prepares to deploy new, more sophisticated anti-rocket defense systems. With Gaza blockaded by land and sea, Israel has calculated that it would take Hamas significantly longer to rearm and rebuild than it took for Hezbollah after its war with Israel in 2006 (see the inset section ―Palestinian Rocket Attacks from Gaza: Threat Assessment and Israeli Responses‖ above). Some military experts have suggested that survival is Hamas‘s main goal, as the organization may try to retain some rocket capability until the fighting wanes. One complicating factor for Israel is time: the longer Operation Cast Lead runs without a definitive outcome in Israel‘s favor, the more pressure, both internal and external, will grow

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for a cessation of hostilities. Furthermore, the risk of unintended regional escalation, though it remains low, is always a possibility. A weakened Hamas may be more susceptible to accepting terms of reconciliation offered by its Palestinian rival Fatah (the political movement currently headed by Mahmoud Abbas, who is both President of the Palestinian Authority (PA) and Chairman of the Executive Committee of the Palestine Liberation Organization (PLO)), which has been bolstered by international assistance and Israeli engagement over the past year. The prospects for reconciliation between Hamas and Fatah, which many believe to be integral to effective Israeli-Palestinian peace negotiations, may be undermined by the selective targeting of Hamas and the passive acceptance of the Israeli offensive by Fatah, the PA, and the PLO that many observers claim is apparent despite statements of opposition [20].

Source: Map Resources, adapted by CRS. Data based on reporting by Jane‘s Missiles and Rockets and Israeli government statements to international media outlets. Note: All ranges listed for weapons are approximate and may vary based on launch sites and the characteristics of individual rockets, most of which are locally produced and some of which are modified from their original foreign designs. Figure 2. Range of Selected Rockets and Mortars Fired from the Gaza Strip.

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THE UNRAVELING OF THE ISRAEL-HAMAS CEASE-FIRE The unraveling of the tahdiya or temporary cease-fire between Israel and Hamas that led to the December 2008 outbreak of violence in and around the Gaza Strip was not only a result of short-term tactical considerations by Israel and Hamas (see ―The Conflict‘s Origins‖ above), but reflective of the deeply-rooted dilemma posed by Hamas‘s steady rise in influence over Israeli-Palestinian relations during the last 20 years and more recently in Gaza proper. Because of its militant, anti-Israel ideology and its acts of terrorism, Hamas has been politically and financially isolated by Israel, the United States, and other international actors—making any engagement with the organization, even through third parties, extremely difficult. Israel has repeatedly asserted that Hamas will remain in isolation until it renounces violence and, more importantly, recognizes Israel‘s right to exist as a nation-state.

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Background of Hamas in the Gaza Strip Since Hamas‘s inception, it has maintained its primary base of support and particularly strong influence in the Gaza Strip, even though its current political headquarters is in Damascus, Syria. Hamas‘s politicization and militarization can be traced to the intifada (―uprising‖) that began in the Gaza Strip in 1987 in resistance to the Israeli occupation. Hamas refuses to recognize the right of Israel to exist, refuses to renounce the use of violence, and refuses to consider itself bound by previous agreements reached by the PLO with Israel. For these reasons, the United States designated it as a Foreign Terrorist Organization in 1997, and U.S. aid to Palestinians has been tailored to bypass Hamas and Hamas-controlled entities. Hamas‘s victory in January 2006 Palestinian legislative elections set in motion a chain of events that has led to the current crisis. The refusal of the United States, the European Union, and much of the rest of the world to have direct dealings with or to give financial assistance to a Hamasdominated PA cabinet led to a tense standoff that was only temporarily averted by a February 2007 Hamas-Fatah ―unity agreement‖ brokered by Saudi Arabia. These tensions contributed to the factional fighting between Hamas and Fatah that led to Hamas‘s forcible takeover of the Gaza Strip in June 2007. In response to the Hamas takeover, PA President Abbas dissolved the Hamasled cabinet and appointed a ―caretaker‖ technocratic PA government in the West Bank, leading to renewed U.S. and international assistance for the PA in the West Bank that prompted Hamas to tighten its grip on Gaza even further.

The Cease-Fire and Its End As the vulnerability of Israeli cities and towns near the Gaza border to mortar and rocket fire from an Hamas-controlled Gaza became clearer, Israel and Hamas indirectly agreed (via Egyptian mediation) to the six-month cease-fire in June 2008. In return for a moratorium on attacks, Hamas understood that Israel would open the Gaza border crossings to allow a flow of workers and goods. One ostensible aim of the cease-fire was to facilitate a prisoner exchange agreement— Israel‘s release of a number of Palestinian prisoners in exchange for

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Hamas‘s release of Israeli corporal Gilad Shalit. Yet, as discussed earlier in this report (see ―The Conflict‘s Origins‖ above), no such agreement was achieved. For the first five months, the cease-fire held relatively well. Some rockets were fired into Israel, but most were attributed to non-Hamas militant groups, and, progressively, Hamas appeared increasingly able and willing to suppress even these attacks. No casualties were reported (only minor property damage was incurred), and Israel refrained from retaliation. Nevertheless, Israel cited the sporadic rocket fire as justification for keeping the border crossings and Gaza‘s seaport closed to nearly everything but basic humanitarian supplies. Hamas, other Arab leaders, and international organizations involved in aiding Gazan civilians complained that Israel was reneging on its promises under the agreement. Some in Israel believed that the pressure applied through a blockade on Gaza could squeeze Hamas from power by turning Gazans against the Islamist group, while other observers asserted the exact opposite—that confining economically desperate people in Gaza would likely increase their dependence on Hamas. The nearly complete shutdown of the highly export-dependent Gazan economy [22]. left Israel and its supporters open to charges that they were knowingly worsening the already-precarious situation of Gaza‘s population—one of the most densely concentrated (Gaza‘s 1.5 million people live within the territory‘s 146 square miles) and poorest in the world. The United Nations estimates that at least 80% of Gazans live below the poverty line. Many believe that, all along, both sides considered the temporary cease-fire to be merely an opportunity to prepare more fully for eventual conflict. Accounts of Hamas‘s military buildup and its use of tunnels from Egypt‘s Sinai Peninsula for smuggling weapons, and reports describing how Israel devised plans for the Gaza offensive, support this argument. Some commentators have said that giving up on the cease-fire was in both sides‘ interests— asserting that Hamas wanted to reclaim the mantle of ―heroic resister‖ in order to reverse recent erosions in its popularity among Palestinians since its takeover of Gaza, while Israeli leaders wanted to prove their ability to defend Israeli citizens on the eve of national elections [23].

IMPACT ON CIVILIANS [24] The fighting in Gaza and southern Israel during this conflict has affected both Palestinian and Israeli civilians. Questions have been raised over who is a legitimate target. Rockets from Palestinian militants in Gaza are almost exclusively fired with the aim of killing and terrorizing Israeli civilians. Israel‘s bombing campaign and ground offensive has targeted Hamas, but some have charged that Israel‘s targeting of cultural, residential, and governmental sites has disproportionately impacted Gaza‘s civilian population despite Israel‘s insistence that these sites are inextricably linked with Hamas‘s military operations [25]. Israeli officials and media have alleged that Hamas has virtually or actually used Gaza civilians as ―human shields,‖ citing Hamas‘s use of homes, mosques, schools, and hospitals for military purposes and its militants‘ immersion in densely-populated areas. The toll exacted goes beyond civilians‘ immediate wellbeing to possible implications for regional politics (see ―International Response,‖ ―The General Palestinian Response,‖ and ―Conclusion: Strategizing an Exit and a Future‖ below) and post-conflict reconstruction (see ―Humanitarian

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Aid (Including to UNRWA) and Other Economic Assistance to Palestinians‖ below), including concerns over further radicalization on either or both sides.

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Impact on Palestinian Civilians In spite of periodic humanitarian relief shipments allowed by Israel, ongoing fighting has further deteriorated the already dire humanitarian situation in the Gaza Strip. While casualty and injury figures are difficult to verify, the U.N. Office for the Coordination of Humanitarian Affairs (OCHA) estimates that, as of January 14, 1,013 Palestinians have been killed, including 322 children and 76 women, and 4,560 have been injured in the fighting (but OCHA estimated the number of critical injuries to be slightly more than 10% of total injuries as of January 11). The number of displaced persons is estimated between 80,000 and 90,000, including up to 50,000 children. The United Nations Relief and Works Agency (UNRWA) is operating 41 shelters housing 37,937 people in the Gaza Strip. Shelters are overcrowded and it is problematic to open new shelters due to security concerns [26]. Access to food, potable water, and services such as electricity and sanitation also are extremely limited. The January 11 OCHA report states that approximately 500,000 of Gaza‘s 1.5 million residents have no access to running water and that infrastructure damage has raised concerns about contamination of existing water supplies. On January 10, the Gaza City Wastewater treatment plant was reportedly hit by Israeli fire and the extent of the damage is yet unknown. According to U.N. reports, shortages of fuel and food have compounded humanitarian concerns and the functions of relief agencies have been limited because of security concerns. Hospitals are reportedly running on backup generators and, due to shelling, only an estimated 35 of 58 primary health care clinics are open. Health care supplies and staff are also in short supply. The United Nations temporarily suspended deliveries into Gaza on January 8 due to personnel casualties, which U.N. representatives claim occurred despite the scheduled lulls in the fighting intended to facilitate the flow of relief aid and despite coordination with Israeli officials and the IDF [27]. The International Committee of the Red Cross (ICRC) also suspended deliveries into Gaza for a limited time on January 8 out of concerns for its workers‘ safety. At the same time, the ICRC issued an unusually direct statement claiming that the Israeli military had not met its obligations under international humanitarian law in allowing for the care and evacuation of the wounded in connection with shelling damage mentioned above in the Zeitoun neighborhood of Gaza City (see ―Major Developments— Military, Diplomatic, and Humanitarian‖).The January 15 reports of damage sustained by UNRWA‘s Gaza headquarters and Al Quds Hospital in Gaza City (see ―Overview of the Conflict‖ above) are likely to intensify concerns that the Israeli military is not distinguishing between military targets and civilian areas with sufficient precision [28]. As mentioned above (see ―Overview of the Conflict‖), a recent Israeli report alleges that senior Hamas leaders in Gaza are ―hiding‖ in the basement of Shifa Hospital, Gaza‘s flagship medical facility (see location on Figure 1). This further fuels allegations that Hamas leaders are willing to endanger civilians to protect themselves, while also raising concerns about a military strike against the facility, which could potentially cause large numbers of civilian casualties and damage or destroy the hospital—further exacerbating the humanitarian crisis [29].

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Impact on Israeli Civilians As of January 14, an estimated 13 Israelis have been killed (four from rocket fire), including four civilians, and approximately 58 civilians have been injured (not counting those treated for shock) [30]. Over 600 rocket attacks have been launched by Hamas into southern Israel since the official expiration of the cease-fire on December 19, 2008—according to Israel‘s Shin Bet, some 565 (plus some 200 mortars) since the beginning of the Israeli offensive on December 27. [31] Hamas and other Palestinian militant groups firing rockets and mortars target Israeli civilians specifically, and some observers argue that the arbitrary nature of these attacks compound the physical danger they represent with severe psychological repercussions that cannot be quantified [32]. The siren alert system used to warn civilians of incoming attacks provides only momentary warning time for Israelis to head to shelters, and because the rockets are fired indiscriminately, virtually no place can be safely ruled out as a target—further contributing to Israeli anxieties. Since Operation Cast Lead started on December 27, 2008, Hamas rockets have hit a school, open markets, homes, and other sites in Sderot, Gedera, Ashdod, Ashqelon, Beersheva, and elsewhere in southern Israel. As mentioned above (see ―Major Developments—Military, Diplomatic, and Humanitarian‖), northern Israel has also been hit by rockets originating from Lebanon on January 8 and January 14, prompting concerns among Israelis in the north that they might have to be on indefinite alert. The government of Israel has stated that it is the right of its people to feel safe in their homes, and other analysts have alluded to the ―expectation of normal life.‖ [33]

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INTERNATIONAL RESPONSE The worldwide response to the Gaza crisis has been characterized by consistent calls for an end to the violence and by concern over the humanitarian situation in Gaza. Protests broke out in numerous Middle Eastern and other international capitals, and the Arab media have continuously aired footage of casualties in Gaza. The crisis also has exacerbated existing tensions between countries in the region with a relatively pro-Western orientation—like Egypt, Jordan, and Saudi Arabia—and other countries and non-state actors—like Iran, Syria, and Hezbollah. European and other Western countries have generally faulted Hamas for starting the crisis but some, including France, also have criticized the Israeli response as disproportionate.

International Community Much of the international community outside the Middle East has expressed concerns about the humanitarian situation in Gaza but has generally placed the blame for the current violence squarely with Hamas. Nevertheless, all parties have called for an end to or, at the very least, a de-escalation of the violence. On January 6, Egyptian President Hosni Mubarak, with support from France and Turkey, put forth a proposed initiative to address the situation in Gaza. While some specifics of the proposal are still ambiguous, the initiative included a call for an immediate cease-fire to

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facilitate the delivery of humanitarian supplies and an ―urgent meeting‖ between Israelis and Palestinians to agree on specific arrangements to ensure a durable cease-fire, secure Gaza‘s borders from arms shipments, and reopen all crossing points into Gaza. Delegations from both Hamas and Israel were scheduled to meet separately with Egyptian officials in Cairo during the week of January 12 to discuss the proposal.

United Nations Libya, a United Nations Security Council (UNSC) member, called for a special session of the UNSC after the Israeli air strikes began. The UNSC met on December 28 and issued a statement expressing ―serious concern‖ over the situation in Gaza and calling for an ―immediate halt to all violence.‖ The statement also included a call for expanded humanitarian assistance to the people in Gaza. According to the Washington Post, a stronger UNSC statement urging an immediate cease-fire was blocked on January 4 by the United States [35]. As the fighting wore on for a second week, the UNSC convened on January 8 and adopted Resolution 1860 by a vote of 14-0 with one abstention (the United States). Resolution 1860 calls for an ―immediate, durable and fully respected ceasefire, leading to the full withdrawal of Israeli forces from Gaza‖ and:

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calls upon Member States to intensify efforts to provide arrangements and guarantees in Gaza in order to sustain a durable ceasefire and calm, including to prevent illicit trafficking in arms and ammunition and to ensure the sustained re-opening of the crossing points on the basis of the 2005 Agreement on Movement and Access between the Palestinian Authority and Israel; and in this regard, welcomes the Egyptian initiative, and other regional and international efforts that are under way [36]

In a January 12 speech in Ashqelon, Israeli Prime Minister Olmert claimed that his personal intervention with President Bush was responsible for changing the U.S. vote on Resolution 1860 from a ―yes‖ to an abstention: In the night between Thursday and Friday, when the secretary of state [Condoleezza Rice] wanted to lead the vote on a ceasefire at the Security Council, we did not want her to vote in favour. I said ‗get me President Bush on the phone.‘ They said he was in the middle of giving a speech in Philadelphia. I said I didn't care. ‗I need to talk to him now.‘ He got off the podium and spoke to me. I told him the United States could not vote in favour. It cannot vote in favour of such a resolution. He immediately called the secretary of state and told her not to vote in favour.... [Secretary Rice] was left shamed. A resolution that she prepared and arranged, and in the end she did not vote in favour [37]

A State Department official has denied Olmert‘s claim, stating that the abstention was planned and that ―The government of Israel does not make US policy‖ [38]. After the vote, Secretary Rice explained the U.S. abstention by stating that the United States thought it important to see the outcomes of the Egyptian mediation efforts in order to ―see what this resolution might have been supporting.‖ [39] Both Israel and Hamas rejected the call for an immediate ceasefire; Israel responded by calling Resolution 1860 ―unworkable‖ and fighting continued. Both sides also expressed concerns about the Egyptian proposal. As Israel intensified its ground operation on January

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10-11, reports circulated that Israel was planning to use the Egyptian-facilitated talks during the week of January 12 to demand an end to smuggling along the Philadelphi Corridor at the Gaza-Egypt border [40] Hamas representatives complained that they were not initially consulted about the specifics of the Egyptian proposal, and Hamas spokesman Usamah Hamdan said that the initiative ―contains points which do not meet the expectations of the Palestinian people,‖ but did not reject it altogether [41]. U.N. Secretary-General Ban Ki-Moon is visiting the region during the week of January 12 in hopes that he can help facilitate an end to the fighting.

United States The United States has joined the international community in calls for a cease-fire but maintains that Israel is justified in retaliating against Hamas‘s attacks. In a State Department press release, Secretary Condoleezza Rice said that the United States ―strongly condemns‖ rocket attacks against Israel and ―holds Hamas responsible‖ for breaking the truce and for the renewal of violence. The statement also called upon all concerned to address the humanitarian needs of the people in Gaza. President Bush has echoed this statement in his remarks since. Members of Congress have expressed support for Israel‘s operations in Gaza. S.Res. 10, passed by unanimous consent in the Senate on January 8, recognizes the ―right of Israel to defend itself against attacks from Gaza and reaffirm[s] the United States‘s strong support for Israel in its battle with Hamas, and support[s] the Israeli-Palestinian peace process.‖ A similar resolution, H.Res. 34, passed the House on January 9 by a vote of 390-5, with 22 voting present.

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Middle East Regional responses to the conflict have consistently condemned the Israeli air campaign and ground invasion as ―disproportionate‖ and tantamount to a ―massacre‖ of Palestinians in Gaza. Governments as well as other regional leaders have issued statements criticizing the attack. For example, Grand Ayatollah Ali al Sistani, the prominent Iraqi Shia cleric, condemned the attacks as ―barbaric.‖ Iranian President Mahmoud Ahmadinejad and Syrian President Bashar al Asad called the Israeli campaign ―outrageous aggression.‖ [42]. Near the end of the second week of fighting, Al Qaeda second-in-command Ayman al Zawahiri said that the Israeli offensive was a ―Zionist-Crusader campaign‖ against Islam and Barack Obama‘s ―gift‖ to the Palestinian people before he takes office. Zawahiri called on Muslims around the world to respond by hitting ―Zionist and Crusader‖ targets around the world and by all available means [43]. Osama bin Laden followed Zawahiri‘s statement with an unauthenticated audiotaped message—bin Laden‘s first public statement since May 2008— that circulated on Islamist websites on January 14, exhorting Muslims to wage holy war on Israel and criticizing Israel‘s ―Arab allies‖ [44]. There were more moderate reactions. In a joint press conference, the Egyptian and Turkish foreign ministers urged both parties to stop attacks and called for Palestinian reconciliation. They also focused attention on humanitarian needs in Gaza. Contrary to the views of its own citizenry and some of its parliament members, the Jordanian government also has taken a more tempered position, though King Abdullah II has condemned the attacks

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and called on Israel to halt all military actions in Gaza. As the conflict continues and the humanitarian toll grows on both sides, moderate responses have given way to outrage reflected both in leaders‘ statements and in public opinion [45]. In addition to condemning Israel, some regional voices are criticizing certain Arab governments. These criticisms reflect existing intra-Arab and Sunni-Shia fault-lines. As protests have broken out across the region and as Arab media outlets have run footage from Gaza, Al Qaeda, Hezbollah, Syria, and Iran have charged moderate Arab governments of complicity in the attacks because of their inaction. In particular, the Egyptian government faces increasing criticism for its refusal to open the Rafah border crossing (which links Egypt with Gaza) for humanitarian aid. See ―Mounting Pressure on Egypt‖ for a more detailed discussion of the criticism against Egypt [46].

POSSIBLE CONSEQUENCES OF THE GAZA CAMPAIGN

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Effects on the Arab-Israeli Peace Process Some observers maintain that the impact of the fighting in and around Gaza and the resulting casualties, damage to infrastructure, loss of goodwill, and regional uncertainty could change the dynamics on which the Arab-Israeli peace process have been based, making progress at best unpredictable and at worst indefinitely unattainable [48]. Although the IsraeliPLO negotiations formally initiated by the U.S.-sponsored Annapolis Conference in November 2007 did not meet the conference‘s goal of a peace agreement by the end of 2008, prior to the outbreak of major violence in December many observers speculated that the incoming administration of Barack Obama might seek to capitalize on the momentum from Annapolis to encourage further Israeli peace negotiations with both the PLO and Syria. Among the determinants of the amenability of a post-conflict situation to a reprise of the peace process, the most important may be: how long the conflict lasts and how it ends, its intensity, the degree to which the respective parties are characterized as aggressors, and the positions of various regional and international actors during and after the conflict (including in relation to post-conflict reconstruction in Gaza).

Prospects for an Israeli-Palestinian Two-State Solution As anticipation built that no final-status peace agreement would be forthcoming in the months prior to the end of President Bush‘s tenure in office, there was widespread speculation among Israeli, Palestinian, and international actors over the possibility that the Oslo process concept of a two-state solution involving the establishment of a Palestinian state alongside Israel might not be tenable for much longer. Before the conflict in Gaza, several interested parties on both sides had advanced possible alternatives to a two-state endgame, but many observers believed that each of these parties‘ intentions was primarily tactical—aimed at improving its side‘s bargaining position in final-status negotiations [49]. Now, however, it appears that some observers are genuinely pessimistic that an end to the violence in Gaza would allow for a resumption of the peace process. Some doubt that international efforts to broker a peace settlement can succeed given that many Israelis and

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Palestinians appear to believe that fighting is the better option. They point to changes in the regional environment from the Oslo period of the 1990s (immediately following the Cold War) to a more charged post-9/11 era featuring a U.S./Sunni Arab/Israeli rivalry with Iran. They also point to regional trends signaling the political ascendancy of nationalist movements featuring Islamist elements at the expense of those featuring secular and/or pan-Arab elements. This leads them to believe that the official PLO position of peaceful engagement with Israel may vanish with the decline of Abbas‘s secular Fatah movement and the continuing rise of Hamas and other Islamists, especially if Hamas‘s control of the Gaza Strip survives the conflict and the continued gulf between Gaza and West Bank Palestinians fuels further cultural and political separation [50]. Hamas‘s opportunity to broaden its appeal may rest on its success at convincing Palestinians that the Abbas strategy of peaceful engagement plays into the hands of an Israel that seeks to weaken the Palestinians by sowing division through the false hope of a future state [51]. Others maintain that the conditions for peace have not fundamentally changed and that, although the conflict in Gaza may set back negotiations for a while, the parties are likely to resume talks at some point, just as they did following previous cycles of violence. Some might argue that the weakening of Hamas in Gaza as a result of the fighting may actually bolster Abbas, the PA, and the PLO—even possibly returning them to some form of control or joint control with Hamas in Gaza—and confer greater legitimacy on them to negotiate authoritatively with Israel on behalf of Palestinians. Some might assert that the post-conflict situation could lead to a heightened sense of urgency among the parties and the international community to resolve the conflict once and for all.

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A Syria-Israel Peace Deal: Still in the Cards? [52] Over the past year, speculation has been widespread over the prospect of a renewed Syria-Israel peace track, though it would appear that the latest round of fighting has tempered expectations for the short term. Syria has said that Israel‘s December attack on Gaza ―closed the door on the Syrian-Israeli indirect talks,‖ which had been brokered by Turkey over the last several months [53]. With an incoming Obama Administration perceived as amenable to sponsoring Syria-Israel peace talks, some observers had hoped for a resumption in direct bilateral negotiations in 2009. Outgoing Prime Minister Ehud Olmert had recently traveled to Turkey to discuss the Syria track and, during Olmert‘s trip, Syrian President Bashar al Asad held a press conference where he stated that Syria and Israel are ―now laying the foundations‖ for peace through their indirect talks. Nonetheless, most observers believe that, ultimately, the results of Israel‘s February elections will determine the direction of Syria-Israel peace talks. Should the more hawkish Likud party score a decisive victory in February, its rise to power and the tense climate over Gaza may combine to stall negotiations for the near term.

Mounting Pressure on Egypt Outside the immediate theater of war, the Gaza conflict has posed a challenge for Egypt‘s policy toward Hamas. Egypt‘s northern Rafah border crossing to Gaza remains mostly sealed,

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thereby directly reinforcing Israel‘s own closure of the Gaza Strip [55]. As mentioned briefly earlier in this report (see the ―Middle East‖ subsection under ―International Response‖ above), Palestinians, the wider Arab world, and Egyptian citizens themselves all have accused the Mubarak government of colluding with Israel to the detriment of Palestinian civilians. On December 28, Hezbollah chief Hassan Nasrallah said:

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We are facing a partnership [with Israel and the USA] by some Arab states, and complicity by some other Arab states concerning the events in our region.... go out to the streets...open this [Egypt-Gaza] crossing [at Rafah] with your bare chests.... I am for the generals and the officers to go to the political leadership, saying: the honor of our military uniform.... does not allow us to see our kinsfolk in Gaza being slain while we guard the borders with Israel.‖ [56]

The Egyptian government has responded by asserting that Hamas itself is to blame for the failed cease-fire, as one pro-government editorial suggested that ―If you can't kill the wolf, don't pull its tail.‖ [57] Although Egypt has officially called on Israel to stop, not to widen, its military operations, President Hosni Mubarak stated that the Rafah border will remain closed until Palestinian Authority forces loyal to PA President Mahmoud Abbas, not Hamas, can be deployed along the Egypt-Gaza border. Egypt‘s state-owned media have responded vigorously to the charges of collusion with Israel, simultaneously condemning Israel for its attacks and chastising Hamas for irrationality and for the death of an Egyptian border guard in armed clashes with Palestinians [58]. Since Israel‘s withdrawal from Gaza in 2005, Egypt has been placed in a difficult position vis-àvis Hamas. On the one hand, it has attempted to serve as an intermediary between Hamas and Israel and to broker Hamas-Fatah unity negotiations. On the other hand, the Mubarak government, unlike many of its own citizens, does not sympathize with Hamas and wants to keep it isolated but, because of domestic political considerations, is sensitive to accusations that Egyptian policy is tantamount to the collective punishment of Gazan civilians. In addition, the secular Mubarak regime is opposed to Islamists wielding real political power, and it fears that Hamas could serve as a model for Egyptian Muslim Brotherhood activists who may yearn for an Iranian-style revolution in Egypt.

Impact of Conflict on Israeli Election Israel is scheduled to hold a national election on February 10, 2009. Along with Prime Minister Ehud Olmert, Foreign Minister Tzipi Livni and Defense Minister Ehud Barak decided to launch Operation Cast Lead against Hamas. Livni and Barak also are heading the Kadima and Labor party lists, respectively, in the election and, therefore, are candidates to succeed Olmert as prime minister. In the run-up to the election before the Gaza conflict, Likud—led by opposition leader, former Prime Minister, and peace process skeptic Benjamin Netanyahu—held a decisive lead in most public opinion polls. Kadima was a close second and Labor was trailing badly, with some polls suggesting that it could sink to fifth place in the multi-party field. Some analysts maintain that the decision to launch the Gaza offensive was motivated by Israeli officials‘ election calculus, while others say that the election merely provided the context for the decision. Those who contend that the election was determinative suggest that Livni needed to

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burnish her leadership and security credentials before the election because she is perceived as a security novice. A barrage of negative Likud campaign advertisements had emphasized her inexperience by describing Livni as ―out of her league,‖ and her supporters‘ only response was that Likud was ―sexist.‖ At the same time, in order to revive Labor as a viable contender, Barak, a former chief of staff of the Israel Defense Forces (IDF) and former prime minister, needed to overcome public antipathy to his personality and a widespread perception that he had failed as prime minister [60]. After the first week of the Gaza campaign, some polls indicated that the electoral race may have changed, with Kadima in first place or tied with Likud, and Labor registering a sharp rise to third place [61]. Other, perhaps less prominent polls continued to predict a large Likud victory and a major Labor loss [62]. Even if the election were not the primary reason for the assault on Gaza, the Gaza situation will greatly influence the election outcome. There still is fluidity in the electorate‘s preferences. A successful military campaign could boost the election prospects of Livni and Barak. Both have been in the forefront of media attention and their conduct may affect voters. Livni has sought to appear strong and decisive, unyielding to international interlocutors seeking a rapid cease-fire and calling for the eventual toppling of Hamas. She has said that Israel cannot exist next to a ―terrorist state.‖ Livni also is known to have been skeptical of the previous cease-fire, arguing that it simply enabled Hamas to rearm. Meanwhile, Barak generally has seemed pragmatic, cautious, and strong, often limiting his stated goal to ensuring security for Israelis living in southern Israel. He will get much of the credit if Operation Cast Lead is successful because of his role in rebuilding the IDF, which had been shaken by the 2006 war against Hezbollah, and as the planner of a victorious military operation against Hamas. Nonetheless, Netanyahu still may become prime minister. He is certainly set to revive Likud‘s political fortunes and the party undoubtedly will post major gains over its disappointing showing in the 2006 election. Netanyahu blames the government for the rising threat from Hamas since Israel‘s August 2005 withdrawal from Gaza, over which he had resigned from former Prime Minister Ariel Sharon‘s cabinet. After that withdrawal, he repeatedly called for action against Hamas and demanded its toppling. During the current crisis, Netanyahu has patriotically supported the government‘s action. Netanyahu, fluent in ―American‖ English and a master of media, even has acted as a spokesman for the government and defended the Gaza operation to foreign news outlets at Olmert‘s request. Likud has shelved its negative campaign against Livni at least temporarily in favor of a patriotic, unifying theme: ―Strong Together – the Likud with the IDF and the Residents of the South.‖ In the end, Netanyahu may be able to withstand the electoral challenges from Livni and Barak if the government appears to be following his policy prescriptions. Moreover, some in Likud suggest that Labor‘s rise would be more at the expense of Kadima than of Likud. There is a consensus that Likud, Kadima, and Labor have gained during the crisis from the prominence of their leaders in the public eye and the many smaller political parties have lost. The latter have been overshadowed and unable to gain attention. All parties have ceased campaigning until Israel‘s Gaza military operations end so as not to appear unpatriotic. At this time, none of the polls or analyses may accurately predict the election results as the vote is likely to turn on the outcome of the conflict and on the Israeli voters‘ perception of Israel‘s success or failure. If Hamas continues to be a threat by retaining or regaining the

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ability to continue to launch rockets into southern Israel and/or if the terms of a cease-fire are not seen to favor Israel, then the public probably will conclude that Israel had been defeated and an overwhelming Likud victory is probable. That victory could be followed by the formation of a right-wing coalition government opposed to territorial concessions to both the Palestinians and Syria in a peace process [63]. If the Hamas threat is diminished or controlled, then Kadima and Labor may be able to withstand a right-wing tide and cobble together a centrist coalition. Such a government might proceed with a peace process on all tracks (Palestinian, Syrian, Lebanese) that could result in significant Israeli territorial concessions. The election may take place as scheduled on February 10. Alternatively, it could be postponed, depending on how long the conflict continues and the extent to which it may impede voters in southern Israel from voting. As of the second week in January, only smaller parties were calling for a delay. The 1973 Israeli-Arab war provides a precedent for rescheduling. At that time, a previously scheduled national election was postponed from October to December [64].

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The General Palestinian Response Questions remain over how Palestinians in Gaza and the West Bank will react to the Gaza conflict, both in the short term and in the long term. Although a third intifada has been called for by Damascus-based Hamas political chief Khaled Meshaal and endorsed by Lebanese Hezbollah leader Hassan Nasrallah, the response in Gaza (where the general population is mainly concerned with survival) and the West Bank has been relatively muted. Although anti-Israel demonstrations have taken place in the West Bank, some analysts believe that Palestinian confusion or hesitancy over whether to side with Hamas against the PA and other Arab countries and general weariness and/or despair over current circumstances may have lessened the demonstrations‘ potential to lead to violent uprisings. Although the possibility of an uprising—ranging from political demonstrations and civil disobedience to suicide and rocket attacks—may be minor, it remains as long as there is the potential for antiIsrael outrage at mounting civilian casualties and damage to cultural and civic institutions in Gaza.

IMPLICATIONS FOR U.S. POLICY AND THE 111TH CONGRESS The Incoming ObamaAdministration From Proactive to Reactive? During his campaign and presidential transition, U.S. President-elect Barack Obama and his foreign policy advisors have indicated an interest in proactively engaging in the ArabIsraeli peace process as part of a strategy to advance U.S. interests and improve stability throughout the Middle East. The Israeli offensive in Gaza, however, could put Obama‘s incoming administration in a more reactive position. Obama and his advisors will likely be compelled to address the Gaza situation directly, either in connection with efforts to bring an end to the violence or to provide a sustainable

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post-conflict order that guarantees Israel‘s security, deals with Palestinian political realities (including the role of Hamas), and attends to the needs of the population in Gaza. Possible approaches to this situation are discussed below (see ―Conclusion: Strategizing an Exit and a Future‖).

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Public Dimplomacy Challenges Many have anticipated that Obama‘s skills at communicating could help improve the U.S.‘s image abroad, particularly among Middle Eastern Muslims. One of Obama‘s muchnoted plans is to give a speech in the Muslim world early in his presidency to help—in his words—―reboot‖ U.S. relations with the Arab and Muslim worlds by speaking of shared interests and values [66]. The fighting in and around Gaza, however, may have preempted Obama‘s public diplomacy plans to some degree. Veteran U.S. Middle East peace negotiator Aaron David Miller has asserted that the violence would speak louder to many Muslims about the United States ―than any words Obama could utter.‖ [67] Moreover, the Israeli leadership has used Obama‘s own words to imply approval of Israel‘s actions. While describing the objectives of the Gaza offensive in a December 29 address before the Knesset, Israeli Defense Minister Ehud Barak reminded his listeners that during Obama‘s campaign trip to the southern Israeli city of Sderot—one of the prime targets for rockets from Gaza—he said that ―if rockets were being fired at his home while his two daughters were sleeping, he would do everything he could to prevent it.‖ Obama has not spoken at length about the conflict. On January 7, he expressed ―deep concern‖ at the loss of civilian lives on both sides and made the following statement: I am doing everything that we have to do to make sure that the day that I take office we are prepared to engage immediately in trying to deal with the situation there. Not only the short-term situation but building a process whereby we can achieve a more lasting peace in the region [.68]

In a January 11 interview with ABC‘s This Week, Obama added that seeing civilians harmed makes him ―much more determined to try to break a deadlock that has gone on for decades now.‖ Despite possible difficulties posed for U.S. public diplomacy, the worldwide attention the Gaza conflict has attracted could present an opportunity for the new administration to rally support for its desired approach to Israeli-Palestinian issues. In his first weeks and months in office, Obama will probably deliver at least three speeches of potential worldwide import (his inaugural, his first State of the Union, and the Muslim world address) in which he may clarify U.S. intentions regarding the situation and frame his approach. Obama‘s challenge will be to enunciate his approach clearly and to make the larger case that the approach is in the best interests of the American public and of interested stakeholders in the Middle East and worldwide. Doing so might compel Obama to explain the interests he seeks to prioritize and the assumptions underlying his priorities. On the other hand, he might choose to downplay the peace process entirely, calculating that the Israeli-Palestinian conflict is too intractable for his incoming administration to overcome.

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Possible Options for the Incoming 111th Congress

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Although Israel‘s Operation Cast Lead is designed to thwart Palestinian rocket fire, over the long term, Israel has recognized that it will require new missile defense systems capable of knocking out short range projectiles. The Israeli government has sought U.S. assistance not only in countering long-range ballistic missile threats, but also in co-developing short-range missile defense systems to thwart rockets fired by non-state groups, such as Hamas and Hezbollah (see the inset section ―Palestinian Rocket Attacks from Gaza: Threat Assessment and Israeli Responses‖ above). Congress and successive administrations have shown strong support for joint U.S.-Israeli missile defense projects. U.S.-Israeli missile defense cooperation has perennially been authorized and appropriated in the defense authorization and appropriations bills. P.L. 110329, the FY2009 Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, provides a total of $177.2 million for U.S.-Israeli missile defense programs, a $58 million increase over the President‘s FY2009 request.

Defense Budget Appropriations for U.S.-Israeli Missile Defense Programs As mentioned earlier, Israel is currently developing a short-range system, dubbed ―Iron Dome,‖ to destroy crude, Palestinian-made rockets fired by Palestinian militants in the Gaza Strip [70]. Iron Dome, which is expected to be deployed in 2010 at a development cost of $215 million, is designed to intercept very short-range threats up to 40 kilometers in allweather situations. It is being developed by Rafael Advanced Defense Systems. Reportedly, the Israeli government may be seeking U.S. assistance in financing the Iron Dome system. According to one Israeli defense official, ―We're not just looking for funding assistance, although that is extremely important for us. We've offered the Americans to join as full participants and to use the system to defend their troops and assets around the world.... We're hopeful that after careful examination of the data and the system's capabilities, that they'll decide to join the program‖ [71]. Oversight of U.S. Arms Sales to Israel David‘s Sling (a.k.a. Magic Wand) is a short/medium-range system designed to counter long-range rockets and cruise missiles, such as those possessed by Hezbollah in Lebanon, fired at ranges from 40 km to 300 km. It is being jointly developed by Israel's Rafael Advanced Defense Systems and Raytheon. The system is expected to be operable by 2010. P.L. 110-329 provides $72.8 million for a short-range missile defense program. In August 2008, Israel and the United States officially signed a ―project agreement‖ to co-develop the David‘s Sling system. According to Lt. Gen. Henry Obering, director of the U.S. Missile Defense Agency, ―We wanted a truly co-managed program because the United States will be very interested in this for our own purposes.... The agreement we just signed allows us to work through specific cost-sharing arrangements and other program parameters‖ [72]. Israel may have used weapons platforms and munitions purchased from the United States in its military operations in Gaza, reportedly including, among others, F-15 and F-16 aircraft, Apache helicopters, and, according to Israeli press reports, GBU-39 small diameter guided bombs approved for sale by the 110th Congress following notification in September 2008 [74]

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The transfer by sale of U.S. defense articles or services to Israel and all other foreign countries is authorized subject to the provisions of the Arms Export Control Act (AECA) and the regulations promulgated to implement it. Sales are made through contracts outlining the terms and conditions of the sale and the use and management of defense articles or services by the recipient country. Section 3 of the AECA stipulates that in order to remain eligible to purchase U.S. defense articles, training, and services, foreign governments must agree not to use purchased items and/or training for purposes other than those permitted by the act without the prior consent of the President. Section 4 of the AECA states that sales are authorized to friendly countries solely for specific purposes, including, but not limited to, ―internal security‖ and ―legitimate selfdefense.‖ These terms are not defined in the AECA, in its predecessors, or in subsequent amendments. To date, the President and Members of Congress have chosen to interpret the terms on a case-by-case basis. The AECA requires the President to report to Congress promptly when the President has received information that a ―substantial violation‖ of an agreement made pursuant to the AECA ―may have occurred.‖ Such a report is not required to reach a conclusion as to whether a substantial violation of an agreement has or has not occurred.

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Table 1. Defense Budget Appropriations for U.S.-Israeli Short-Range Missile Defense: FY2006-FY2009 ($ in millions)

If the President were to submit a written report to Congress stating that a substantial violation had occurred or in the event that Congress were to pass and have enacted a joint resolution containing such a finding, then the recipient country in question would become ineligible for purchases of U.S. defense articles or services. Such a joint resolution or any other legislation seeking to restrict or condition sales of defense articles and services to specific countries would be subject to presidential veto. Sales of U.S. defense articles and services to Israel are made subject to the terms of the July 23, 1952 Mutual Defense Assistance Agreement between the United States and Israel (TIAS 2675). The 1952 agreement states: The Government of Israel assures the United States Government that such equipment, materials, or services as may be acquired from the United States ... are required for and will be used solely to maintain its internal security, its legitimate self-defense ... and that it will not undertake any act of aggression against any other state.

To date, Israeli leaders and officials have publicly described recent Israel Defense Forces (IDF) military operations in Gaza as defensive actions taken in response to rocket attacks on Israeli towns, cities, and civilians by Hamas, which is a U.S.-designated Foreign Terrorist Organization, and other Palestinians in Gaza. Some Palestinian groups and other Arab and international governments have characterized Israel‘s military operations in Gaza as acts of aggression. President Bush stated on January 5, 2009 that ―the situation now taking place in

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Gaza was caused by Hamas,‖ and added that ―Israel has obviously decided to protect herself and her people.‖75 As mentioned above (see the ―United States‖ subsection within the ―International Response‖ section), the Senate and the House overwhelmingly passed resolutions during the week of January 5 in connection with the Gaza conflict that supported Israel‘s right to defend itself [76]. On January 6, 2009, Representative Dennis Kucinich submitted a letter to Secretary of State Condoleezza Rice requesting that the Administration submit a report examining ―Israel‘s compliance with the provisions of the Arms Export Control Act‖ in relation to ongoing Israeli military operations in Gaza. The letter expresses support for ―Israel‘s security and its right to exist in peace, without the fear of rocket attacks from Hamas,‖ while arguing that ―Israel‘s most recent attacks neither further internal security nor do they constitute ‗legitimate‘ acts of self-defense.‖ As mentioned above, a report issued by the Administration in response to the question of whether or not a ―substantial violation‖ of a sales agreement with Israel made pursuant to the AECA ―may have occurred‖ may, but need not, definitively determine whether a violation has occurred. Any determination that a violation has occurred must be based on definitive proof that U.S.-sold equipment has been used in specific acts that violate a sales agreement with the United States pursuant to the AECA. In the past, the Bush Administration and some of its predecessors have transmitted reports to Congress stating that ―substantial violations‖ of agreements between the United States and Israel regarding arms sales ―may have occurred.‖ The most recent report of this type was transmitted in January 2007 in relation to concerns about Israel‘s use of U.S.supplied cluster munitions during military operations in Lebanon during 2006 [77]. Other examples include findings issued in 1978, 1979, and 1982 with regard to Israel‘s military operations in Lebanon and Israel‘s air strike on Iraq‘s nuclear reactor complex at Osirak in 1981. The Reagan Administration suspended the delivery of cluster munitions to Israel from 1982 to 1988 based on concerns about Israel‘s use of U.S. supplied cluster munitions in Lebanon. The Reagan Administration also briefly delayed a scheduled shipment of F-15 and F-16 aircraft to Israel following Israel‘s 1981 strike on Iraq. While it appears unlikely that the Bush Administration or President-elect Obama are presently inclined to characterize Israel‘s military operations in Gaza as anything but defensive measures, heightened congressional or public concern could lead the current or incoming Administration to seek renewed assurances from Israel about the nature of its use of defense articles and services purchased from the United States.

Humanitarian Aid (Including to UNRWA) and Other Economic Assistance to Palestinians The United States is the largest single-state donor to the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), which provides food, shelter, medical care, and education for many of the original refugees from the 1947-1949 ArabIsraeli war and their families—now comprising approximately one million Palestinians in the Gaza Strip (two thirds of the total Gaza population) and three million other Palestinians in the West Bank, Jordan, Syria, and Lebanon. On December 30, the State Department announced an initial 2009 contribution of $85 million to UNRWA—$5 million to a special Gaza ―flash appeal‖ fund related to the conflict, $20 million to the emergency appeal fund for the West

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Bank and Gaza, and $60 million to the general fund. The United States contributed $185 million to UNRWA in 2008. Depending on the damage incurred from the fighting in Gaza, Congress could face additional requests for FY2009 appropriations to the State Department accounts from which UNRWA contributions are made to accommodate the humanitarian needs of the refugeeheavy Gaza population. A proposal for continued or increased aid to UNRWA could meet with increased scrutiny if there is a perception that resources from UNRWA or other international organizations were used (with or without organizational complicity) to strengthen Hamas or to repel Israeli military operations in Gaza [79]. Independent from its UNRWA contributions, the United States has provided substantial economic and development assistance to the West Bank and Gaza (approximately $239.5 million in FY2008). Authorized under a continuing resolution to provide assistance at FY2008 levels through March 31, 2009, the State Department was in the process, as of January 9, of providing approximately $4 million in aid to meet humanitarian needs in Gaza. According to the U.S. Agency for International Development (USAID), $1.75 million of this aid is in the form of grants to approved local non-governmental organizations (CARE International, Mercy Corps, American Near East Refugee Aid, Cooperative Housing Foundation (CHF International), Relief International, and Catholic Relief Services), $1.6 million is in the form of food aid through the World Food Programme, and the remainder is in the form of direct deliveries of food items, medical supplies, blankets, and plastic sheeting.

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Table 2. U.S. Appropriated Funds Directed to Palestinians (June 2007-December 2008) ($ in millions)

Source: U.S. Department of State. Notes: Amounts used for security assistance were appropriated or reprogrammed to the International Narcotics Control and Law Enforcement account; all other amounts were appropriated to the Economic Support Fund account; contributions to UNRWA (which come from the Migration and Refugee Assistance and Emergency Refugee and Migration Assistance accounts) are not included; all amounts are approximate.

The United States might be asked to increase this assistance and to aid post-conflict reconstruction and development in Gaza—the projected scope of which has grown as the fighting has continued. Secretary of State Rice has anticipated the possibility of an international donors conference to this end, which raises questions over which Palestinian groups might be in a position to receive and to utilize aid for reconstruction. Currently, economic assistance to the West Bank and Gaza is subject to prohibitions on aid to Hamas or Hamas-affiliated organizations. Additionally, the United States has transferred $300 million directly to the West Bankbased Palestinian Authority in the past calendar year in order to help the PA meet its

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budgetary obligations to pay employee salaries—the primary engine for an economy that boasts of little private sector activity or foreign investment. Current law forbids the PA to use U.S. budgetary transfers for the payment of PA salaries in Gaza. If the PA regains control over Gaza in the aftermath of the current conflict, however, there might be calls for Congress to lift this restriction and perhaps increase direct budgetary aid to the PA to accommodate the increased expenses the PA may incur as it reestablishes itself in Gaza. Conversely, if the PA‘s control slips in the West Bank or it is seen as participating in or endorsing violence from the West Bank against Israel as a result of popular discontent from the current fighting in and around Gaza, there could be calls for Congress to cut or cease aid to the PA and further limit economic assistance to the West Bank and Gaza.

U.S. Security Assistance to the Palestinian Authority The outcome of the fighting in and around Gaza could be crucial in determining the future of current U.S.- and internationally-sponsored programs to help recruit, train, equip, house, manage, and reform PA security forces. Congress might ask whether the assumptions that justified security assistance to the PA in the West Bank before the conflict remain operative in its aftermath. How the PA security forces perform throughout the conflict (whether they handle their public order duties competently and refrain from aggravating factional conflict and from attacking Israelis) could be particularly relevant, as could the words and actions of Abbas and other PA leaders. A senior Western official in the region has told CRS that, thus far, the forces ―have performed exceptionally. They have been tough while still allowing non-violent rallies and demonstrations‖ [80]. Another important factor could be whether the Israelis remain open to the concept of gradually increasing the PA forces‘ freedoms of movement and of action that appear to be pivotal to the forces‘ continued development and assumption of responsibility over Palestinian-administered areas. If the conflict leads to renewed Israeli distrust of the PA forces, expectations for what is achievable with the forces could diminish from the earlier levels that led to $161.3 million in U.S. appropriations since mid-2007. On the other hand, if the PA forces acquit themselves well during the Gaza conflict and/or find themselves entrusted with establishing and/or improving security in Gaza as well as in the West Bank, support from Israel and the Obama Administration for significantly expanded appropriations for the U.S. security assistance program could be forthcoming. A concern in that case may be whether U.S. involvement in Palestinian affairs is enhancing the legitimacy of Abbas and the PA or detracting from it by allowing Hamas and others to argue that the PA is too beholden to the United States. This could lead to a discussion of ways to advance the U.S. interest in strengthening Palestinian moderates while at the same reducing the U.S. ―footprint.‖

CONCLUSION: STRATEGIZING AN EXIT AND A FUTURE Conundrums Bringing an end to the conflict and constructing a sustainable order in its aftermath are major challenges with implications for the Gaza Strip‘s population and infrastructure, Israel‘s security, and the future Palestinian polity—including the role of Hamas.

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The crisis presents a conundrum for all involved. The desperate economic circumstances and living conditions of Gaza‘s 1.5 million residents—exacerbated by the sealing of border crossings and the sea blockade—arguably have provided a fertile breeding ground for Hamas and its militant anti-Israel Islamist ideology. The Israeli government launched Operation Cast Lead to end or minimize the threat from Hamas to its southern residents. Even if it felt threatened, Hamas may have welcomed the Israeli ground offensive at first, hoping to entrap the Israel Defense Forces in built-up urban terrain in order to strip away their technological and firepower advantages and to heighten perceptions that Palestinians were being victimized. Moreover, the toll of civilian casualties might shield Hamas from blame for the plight of Gazans, deepen Palestinian and regional resentment of Israel, and ultimately strengthen Hamas. Israeli officials may wish to avoid a ―third phase‖ of the offensive or a broadening of the ground invasion. Yet, they do not want to abandon the military campaign without assurance that the end result will leave Israelis more secure from rocket attacks—mainly because it is seen as the first responsibility of any government to provide for the security of its people and partly because of the domestic political ramifications of a perceived ―defeat‖ just prior to a scheduled national election. They are also reluctant to accept a cease-fire or truce that strengthens Hamas by giving it the ―victory‖ of having border crossings opened. This is despite some observers‘ view that open border crossings would facilitate commercial opportunities for Gazans, decrease their dependence on Hamas, weaken the group, and thereby contribute to the longer term potential for an end to violence [82]. Many questions linger. Can Israel achieve deterrence by reducing or eliminating Hamas‘s ability and/or motivation to launch rockets and smuggle weapons? What might prompt Israel to go beyond its stated objective of ending the threat to residents of the south and seek to topple Hamas from its rule in Gaza? If Israel ousts Hamas, who would take over—Israel, the Palestinian Authority, some internationally-mandated authority, or might there be a chaotic power struggle? Assuming Israel does not oust Hamas, how do the two reach accommodation that allows each to save face given that they do not recognize each other‘s legitimacy? How can Gaza‘s economy be rebuilt without crediting and enabling Hamas? The most problematic issue is how Israel, the Quartet, the PA, other Arab/Muslim states, and the wider international community might deal with Hamas without granting it state-like legitimacy and undermining the PA and President Mahmoud Abbas [83]. Thus far, U.S. and most European leaders have attempted to isolate Hamas, not to engage it. This has led them and Israel to seek third-party Arab/Muslim intermediaries, pre-eminently Egypt, to facilitate coexistence arrangements with Hamas. However, Hamas‘s relationship with Egypt has deteriorated because of the collapse of Hamas-Fatah unity talks in November 2008 and the Gaza conflict, and this level of mistrust might preclude or delay its acceding to a new arrangement under Egypt‘s aegis. Other Western-allied Arab states, such as Saudi Arabia and Jordan, appear wary of getting too involved because of their mistrust of both Israel and Hamas and fear of losing credibility with their own citizens. Egypt vehemently rejects the view of some that it might provide the solution to Israel‘s Gaza problem by assuming primary responsibility for Gaza, with international support, and insists that only the creation of an independent Palestinian state is the answer. The emergence of Turkey and Qatar as regional interlocutors may present additional options going forward.

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At present, Egypt (despite the deterioration of its relationship with Hamas) and France, with considerable U.S. backing, have taken the lead in the search for an end to the current crisis.

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Ways of Reaching and Sustaining a Truce The United States has proposed a three-point cease fire: (1) halting rocket fire into Israel, (2) reopening border crossings, and (3) ending the use of tunnels for arms smuggling. The keys to controlling Gaza‘s borders are monitoring and enforcement. From 2005 until Hamas took control of Gaza in June 2007, European Union (EU) monitors were stationed at the Rafah border crossing between Egypt and Gaza and Israel remotely observed PA-supervised border traffic there via offsite closed circuit television [84]. The EU reportedly is willing to resume monitoring at Rafah and to station additional monitors at crossings between Gaza and Israel [85]. Since it took control of Gaza, however, Hamas has uncompromisingly demanded a role at the crossing—which the other parties did not accept. It also has preemptively rejected the deployment of an international peacekeeping force in Gaza modeled on the United Nations Interim Force in Lebanon (UNIFIL), whose presence and duties in southern Lebanon increased after the 2006 war between Israel and Hezbollah. Hamas argues that such a force would only protect Israel and not the Palestinian people. For its part, Israel has been frustrated by UNIFIL‘s inability or unwillingness to prevent the smuggling of weapons to Hezbollah and is wary of giving the U.N. responsibility on another of its borders. It is unclear how Hamas and Israel could be made to accept international monitors and/or peacekeepers [86]. Furthermore, Israel now wants more than what it perceives as ―toothless‖ border monitors. It seeks a muscular force that could forcefully prevent the reconstruction of tunnels and arms smuggling from Egypt to Gaza and destroy any new tunnels that might be built. In particular, it seeks to have the entire Philadelphi Corridor (the border area between Gaza and Egypt), not just the Rafah crossing, effectively monitored. As of January 7, the United States, France, Britain, and Egypt reportedly were discussing the possible deployment of an international force of combat engineers and other troops to assist Egypt in fulfilling its responsibilities to prevent smuggling along the Philadelphi Corridor [87]. Egypt would retain the main responsibility for preventing smuggling and the others would assist, permitting Egypt to escape allegations that it is not competent to handle the task. Thus far, however, Egypt has been unwilling to have an international force deployed on its side or the crossing. As of this date, Egypt and Israel want an international force stationed on the Palestinian side; Hamas does not. This and other sensitive subjects regarding how such an international force would interact with Egyptian, PA, and possibly Hamas authorities and forces would need to be clarified in order to finalize any arrangement. Some experts also have recommended the construction of a barrier all along the Philadelphi Corridor similar to the one the Israel is constructing in the West Bank, but deeper to impede tunnels. A barrier would require Egypt‘s cooperation as it would constitute a clear and physical infringement of its territorial sovereignty. Egypt has long sought to deploy additional military forces along the border, but Israel has rejected these augmentation proposals [88]. Even if an agreement on a barrier could be achieved, questions concerning funding for a barrier and the border patrols would remain.

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In the end, only a final-status peace agreement between Israelis and Palestinians is likely to prevent the repeated relapse into violence. In the aftermath of the current crisis, it may be possible to organize yet another broad initiative to provide greater impetus for the IsraeliPalestinian peace process. A more vigorous effort (which probably would involve a U.S. special envoy) might include shuttle diplomacy and/or a conference or dialogue among relevant actors. Parallel to this, the international community would need to address reconstruction of Gaza and related humanitarian issues. The participation of Hamas as a group, or of some of its leaders who might be considered by some to be moderate, is likely to be the subject of heated debate. Unless it is irreparably weakened in the aftermath of the current conflict, Hamas may embrace every opportunity to sabotage a revived peace process, particularly if it is excluded.

REFERENCES [1]

[2] [3] [4] [5]

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[6]

[7]

[8] [9]

[10] [11] [12] [13]

This section was written by Jeremy M. Sharp, Specialist in Middle Eastern Affairs and Acting Research Manager, Middle East and Africa Section; and by Jim Zanotti, Analyst in Middle Eastern Affairs; except where otherwise specified. Yaakov Katz, ―Hamas Interior Minister Said Siam Dies in IAF Air Strike,‖ jpost.com, January 15, 2009. Steven Erlanger, ―A Gaza War Full of Traps and Trickery,‖ New York Times, January 10, 2009. Griff Witte, ―Israelis Push to Edge of Gaza City,‖ Washington Post, January 12, 2009. On January 2, Vice Premier Haim Ramon said on Israeli television: ―What I think we need to do is to reach a situation in which we do not allow Hamas to govern.‖ Ethan Bronner, ―Is the Real Target Hamas Rule?‖ New York Times, January 3, 2009. ―Israel Apologizes to Ban for Hitting U.N. Compound,‖ Reuters, January 15, 2009. An Israeli security source has denied that Barak called the incident a ―grave mistake.‖ ―Gaza Pounded Amid Push for Truce,‖ BBC News Online, January 15, 2009. Olmert reportedly said, ―We do not want such incidents to take place and I am sorry for it but I don't know if you know, but Hamas fired from the UNRWA site. This is a sad incident and I apologise for it.‖ Sheera Frenkel and Philippe Naughton, ―UN Headquarters in Gaza Hit by ‗White Phosphourus‘ Shells,‖ The Times Online (UK), January 15, 2009. This section was written by Jim Zanotti, Analyst in Middle Eastern Affairs. Lisa Goldman, ―Eyeless in Israel,‖ Jewish Daily Forward, January 8, 2009. According to the same source, Israeli media have not been allowed in the Gaza Strip for more than two years. See Griff Witte and Colum Lynch, ―As U.S. Abstains, U.N. Security Council Calls for Cease-Fire,‖ WashingtonPost, January 9, 2009. See Karin Laub, ―Analysis: Hamas, Israel Trying to Rewrite Truce,‖ Associated Press, November 17, 2008. International Crisis Group, Ending the War in Gaza, Middle East Briefing No. 26, January 5, 2009. See ―Middle East Politics: Prolonging Abu Mazen,‖ Economist Intelligence Unit, November 28, 2008.

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[14] The New York Times has written: ―Many Middle East experts say Israel timed its move against Hamas, which began with airstrikes on Dec. 27, 24 days before Mr. Bush leaves office, with the expectation of [the Bush Administration‘s] backing in Washington. Israeli officials could not be certain that President-elect Barack Obama, despite past statements of sympathy for Israel‘s right of self-defense, would match the Bush administration‘s unconditional endorsement.‖ Scott Shane, ―Israel Strikes Before an Ally Departs,‖ New York Times, December 29, 2008. [15] Toni O'Loughlin and Hazem Balousha, ―News: Air Strikes on Gaza,‖ The Observer (UK), December 28, 2008; David Isby, ―Effective anti-Qassam defence could be more than six years away,‖ Jane's Missiles and Rockets, January 01, 2007. [16] Herb Keinon and Yaakov Katz, ―Cabinet okays rocket-protection for communities within range,‖ Jerusalem Post, December 8, 2008; Yaakov Lappin and Dan Izenberg, ―Barak wants government's okay to hit Gaza residential areas,‖ Jerusalem Post, November 10, 2008. [17] See Alon Ben-David, ―Iron Dome advances to meet Qassam threat,‖ Jane's Defence Weekly, March 17, 2008. [18] This inset section was written by Christopher M. Blanchard, Analyst in Middle Eastern Affairs. [19] This section was written by Jeremy M. Sharp, Specialist in Middle Eastern Affairs and Acting Research Manager, Middle East and Africa Section. [20] A Washington Post column has asserted that Abbas‘s adviser Nimr Hammad told the Lebanese daily Al-Akhbar: ―The one responsible for the massacres is Hamas, and not the Zionist entity, which in its own view reacted to the firing of Palestinian missiles.‖ Robert J. Lieber, ―Hard Truths About the Conflict,‖ Washington Post, January 1, 2009. Abbas has, however, assertively call for an end to fighting since the week of January 5. In one statement, he said that if a cease-fire was rejected, that all parties would be to blame, but singled Israel out as being potentially responsible for ―perpetuating a waterfall of blood.‖ [21] This section was written by Jim Zanotti, Analyst in Middle Eastern Affairs. [22] The Palestinian Federation of Industries estimates that 98% of Gaza‘s industrial operations are now inactive. See TheWorld Bank, Palestinian Economic Prospects: Aid, Access and Reform: Economic Monitoring Report to the Ad HocLiaison Committee, September 22, 2008. [23] Daoud Kuttab, ―Has Israel Revived Hamas?‖ Washington Post, December 30, 2008. [24] This section was written by Casey L. Addis, Analyst in Middle Eastern Affairs. [25] Israel has dropped leaflets, made phone calls and sent SMS (text) messages to warn thousands of civilians ofimpending attacks in their vicinity, but the damage done to a broad array of potential shelters (including mosques and U.N. buildings) have led some to question whether safe havens from the fighting exist. [26] United Nations Office for the Coordination of Humanitarian Affairs Field Updates on Gaza, January 10-11, 2009 and January 14, 2009. Available online at http://www.ochaopt.org/gazacrisis/admin/output/files/ ocha_opt_gaza_situation_report _2009_01_11_english.pdfandhttp://www.ochaopt.org/gazacrisis/admin/output/files/och a_opt_gaza_humanitarian_situation_report_2009_01_14_engl ish.pdf.

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[27] United Nations Office for the Coordination of Humanitarian Affairs Field Update on Gaza, January 10-11, 2009. Available online at http://www.ochaopt.org/g azacrisis/admin/output/files/ocha_opt_gaza_situation_report_2009_01_11_english.pdf. [28] See International Committee of the Red Cross News Release, ―Gaza: ICRC Demands Urgent Access to Wounded as Israeli Army Fails to Assist Wounded Palestinians,‖ January 8, 2009. [29] Amos Harel, ―Sources: Hamas Leaders Hiding in Basement of Israeli-Built Hospital in Gaza,‖ Ha’aretz, January 12, 2009. [30] United Nations Office for the Coordination of Humanitarian Affairs Field Update on Gaza, January 14, 2009.Available online athttp://www.ochaopt.org/gazacrisis/admin/ou tput/files/ocha_opt_gaza_humanitarian_situation_report_2009_01_14_english.pdf. [31] Yanir Yagna, ―Gaza Militants Fire at Least 14 Rockets into Southern Israel,‖ Ha’aretz, January 14, 2009. [32] Israeli Embassy Press Release, January 10, 2009. Available online athttp://Israel emb.org/Operation%20Cast%20Lead/Website4.htm. [33] Richard Cohen, ―A Conflict Hamas Caused,‖ Washington Post, January 6, 2009. [34] This section was written by Casey L. Addis, Analyst in Middle Eastern Affairs. [35] Sudarsan Raghavan, ―Israeli Forces Push Deeper Into Gaza Strip,‖ Washington Post, January 5, 2009. [36] UNSC Resolution 1860, adopted January 8, 2009. [37] ―Rice Shame-Faced by Bush Over UN Gaza Vote: Olmert,‖ Agence France Presse, January 12, 2009. [38] Ibid. However, on January 9, a day after the U.N. vote and three days before Olmert publicly claimed to have personally influenced the U.S. vote, Palestinian Authority Foreign Minister Riad Malki voiced his surprise that the United States had not voted in favor of Resolution 1860. Malki said he had been told that the Americans would vote infavor, but that just prior to the vote, Secretary Rice came into the Security Council chamber and apologeticallyinformed the Saudi foreign minister that she would abstain, but would clarify later that she supported the resolutionnonetheless: ―What happened in the last 10 or 15 minutes, what kind of pressure she received, from whom, this is reallysomething that maybe we will know about later.‖ Barak Ravid, ―State Department: Olmert Never Told U.S. to Abstain from U.N. Vote on Gaza,‖ haaretz .com, January 13, 2009. [39] UNSC Document SC/9596, January 8, 2009. Andrew Whitley, director of UNRWA‘s New York office, said in aJanuary 13 panel discussion in Washington that the United States and other members of the UNSC were responsible forremoving provisions from Resolution 1860 that were in the original Arab League proposal, which would have called for an end to the blockade of Gaza and for all sides to pay more attention to the needs of civilians and to international humanitarian law. Remarks by Andrew Whitley, Americans for Peace Now panel discussion, ―Prospects for Progress Toward IsraeliPalestinian Peace Under the Obama Administration and in the Wake of the Gaza War,‖ Washington,DC, January 13, 2009. [40] United States Open Source Center (OSC) Document GMP20090111754002, ―IDF Reserves Poised; Egypt Waits forHamas to Seek Deal; Davutoglu in Cairo,‖ Ma’ariv Electronic Edition, Tel Aviv, January 9, 2009. [41] Ibid.

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[42] U.S. Open Source Center (OSC) Document—GMP20081229950075—―World Leaders Call for Calm in Gaza Conflict,‖ December 29, 2008. [43] ―Al-Qaida: Attack Western Targets to Avenge Gaza,‖ jpost.com, January 7, 2009. [44] Alan Cowell and Graham Bowley, ―Bin Laden, on Tape, Urges Holy War Over Gaza,‖ New York Times, January 14, 2009. [45] In citing the U.S. response to the conflict in Gaza as what he perceived to be another example of bias towards Israel, former Saudi ambassador to the United States Prince Turki al Faisal, at a forum on U.S.-Gulf state relations being held in Washington on January 6, openly challenged President-elect Obama to change U.S. policy in the Middle East. Prince Turki also said, ―Enough is enough, today we are all Palestinians and we seek martyrdom for God and for Palestine, following those who died in Gaza.‖ [46] U.S. Open Source Center (OSC) Document—GMP20081229869001—―Saudi Clerics Urge Support for Gazans, Egypt to Keep Rafah Crossing Open,‖ December 29, 2008. [47] This section was written by Jim Zanotti, Analyst in Middle Eastern Affairs, except where otherwise specified. [48] For more information on the Arab-Israeli conflict and peace process, see CRS Report RL33530, Israeli-Arab Negotiations: Background, Conflicts, and U.S. Policy, by Carol Migdalovitz; and CRS Report R40092, Israel and the Palestinians: Prospects for a Two-State Solution, by Jim Zanotti. [49] See CRS Report R40092, Israel and the Palestinians: Prospects for a Two-State Solution, by Jim Zanotti. [50] Israeli journalist Tom Segev has written: ―I find myself among the new majority of Israelis who no longer believe in peace with the Palestinians. The positions are simply too far apart at this time.... Rather than design another fictitious ‗road map‘ for peace, the Obama administration may be more useful and successful by trying merely to manage the conflict, aiming at a more limited yet urgently needed goal: to make life more livable for both Israelis and Palestinians.‖ Tom Segev, ―Peace Is No Longer in Sight,‖ Washington Post, January 11, 2009. [51] ―Gaza Raids Boost Hamas, Undermine Abbas on Palestinian Street,‖ Agence France Presse (with the Daily Star (Beirut)), January 1, 2009. A Hamas spokesman has even accused Abbas of ―having formed a secret cell of Fatah supporters in Gaza to collect information on the whereabouts of Hamas leaders,‖ with the intention of giving this information to the Israeli military. Griff Witte, ―Israel‘s Attacks on Gaza Deepen Palestinian Rift,‖ Washington Post, January 1, 2009. [52] This subsection was written by Jeremy M. Sharp, Specialist in Middle Eastern Affairs and Acting Research Manager, Middle East and Africa Section. [53] Some experts note that those talks had already been suspended in anticipation of Israeli elections and a new U.S.administration. [54] This subsection was written by Jeremy M. Sharp, Specialist in Middle Eastern Affairs and Acting Research Manager, Middle East and Africa Section. [55] For more information on the history and politics of the Egypt-Gaza border, see CRS Report RL34346, The Egypt-Gaza Border and its Effect on Israeli-Egyptian Relations, by Jeremy M. Sharp. [56] Caversham BBC Monitoring, ―Egyptians Condemn Hezbollah Leader as ‗Little Ayatollah‘ Over Gaza Remarks,‖ Open Source Center, December 30, 2008, Document ID# GMP20081230950091.

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[57] ―Egyptian paper: Hamas leaders partially responsible for Gaza assault,‖ Ha'aretz, December 29, 2008. [58] Nona el Hennawy, ―Egypt: Under a torrent of Gaza anger, Cairo defends itself,‖ Los Angeles Times Online, December 30, 2008. Available at: http://latimesblogs.latimes.c om/babylonbeyond/2008/12/egypt-media-cam.html [59] This subsection was written by Carol Migdalovitz, Specialist in Middle Eastern Affairs. [60] Barak was prime minister from May 1999 to March 2001, a period including the 2000 Camp David summit which failed to achieve an Israeli-Palestinian peace agreement and led to the bloody five-year-long (second) Palestinian intifada or uprising against Israeli occupation. [61] Teleseqer poll, published in Ma’ariv, January 2, 2009, Open Source Center Document GMP20090103739004. [62] Geocartographia poll, published in Globes Online, January 1, 2009, ibid. [63] Israeli governments invariably are coalitions because of the fractured multi-party nature of the political spectrum. [64] Gil Hoffman, ―Conducting a Military Campaign During a Political One,‖ Jerusalem Post, January 2, 2009. [65] This section was written by Jim Zanotti, Analyst in Middle Eastern Affairs, except where otherwise specified. [66] Howard LaFranchi, ―Obama Plans Major Speech in Muslim World to ‗Reboot‘ America‘s Image Abroad,‖ ChristianScience Monitor, December 11, 2008. [67] Paul Richter, ―What Now for Obama‘s Peace Plan?‖ Chicago Tribune, December 29, 2008. [68] ―Obama Vows to ‗Engage Immediately‘ on Mideast Once Inaugurated,‖ Ha’aretz, January 7, 2009. [69] This subsection was written by Jeremy M. Sharp, Specialist in Middle Eastern Affairs and Acting Research Manager, Middle East and Africa Section. [70] Within the Israeli defense establishment, there is debate over how effective the Iron Dome system will be in protecting Israeli cities and towns from Qassam and Grad-style Katyusha rocket attacks fired from the Gaza Strip. Some Israeli defense experts assert that Iron Dome kinetic interceptors will take too long to destroy crude rockets fired from close range to Israeli towns such as Sderot. Reuven Pedazur, an Israeli expert in ballistic missiles, claims that each Tamir missile fired from the Iron Dome system will cost $100,000, while a system based on laser beam interception, would cost between $1,000 and $3,000 per strike. Nevertheless, Israeli officials argue that solid laser technology needs more time to develop. See, ―Rocket, Missile Shields in Works; Iron Dome, David's Sling eye attacks from Gaza, Lebanon, Iran,‖ Washington Times, August 8, 2008. According to one source, ―Neither the missile interceptors nor the lasers will provide 100-percent coverage, which is why they will have to both be in use.‖ See, ―Defense Officials View Laser as Future of Anti-Missile Technology, Ha’aretz, March 24, 2008. [71] ―U.S. Eyes Joint Anti-Rocket Effort With Israel; Mulls $200M Investment To Speed Iron Dome,‖ Agence France Presse, June 9, 2008. [72] ―U.S.-Israel To Develop David's Sling Missile Defense,‖ DefenseNews.com, August 7, 2008.

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Jim Zanotti, Jeremy M. Sharp, Casey L. Addis et al.

[73] This subsection was written by Christopher M. Blanchard, Analyst in Middle Eastern Affairs. For more information about oversight of the use of U.S. defense articles and services by foreign purchasers, see CRS Report RL30982, U.S.Defense Articles and Services Supplied to Foreign Recipients: Restrictions on Their Use, by Richard F. Grimmett. [74] Yaakov Katz, ―IAF uses new US-supplied bunker-buster smart bomb,‖ Jerusalem Post, December 29, 2008. See U.S. Defense Security Cooperation Agency Transmittal No. 08-82, September 9, 2008, available at: [http://www.dsca.mil/PressReleases/36b/2008/Israel_08-82.pdf]. According to a memorandum accompanying the notification of the proposed sale to congressional defense committees, the GBU-39 ―is designed to destroy a wide variety of targets from ranges of 40 nautical miles, such as fuel depots and bunkers, and penetrate over 1.2 meters of steel reinforced concrete while inflicting minimum collateral damage.‖ [75] The White House, Office of the Press Secretary, ―Transcript: President Bush Meets with First Vice President of the Government of National Unity of the Republic of Sudan and President of the Government of Southern Sudan Salva Kiir Mayardit,‖ January 5, 2009. [76] Another resolution, S.Res. 6, which expressed ―solidarity with Israel in Israel‘s defense against terrorism in the Gaza Strip,‖ was introduced and referred to the Committee on Foreign Relations on January 6 but not passed. [77] Sean McCormack, U.S. Department of State Spokesman, Daily Press Briefing, Washington, DC, January 29, 2007. [78] For more information on all U.S. assistance figures listed in this subsection (including in Table 2) and the next subsection, see CRS Report RS22967, U.S. Foreign Aid to the Palestinians, by Jim Zanotti. See also ―PA Receives $150 Million from US,‖ jpost.com, October 22, 2008. [79] See H.R. 2712 (United Nations Transparency, Accountability, and Reform Act of 2007) from the 110th Congress, Sec. 309 (―Limitations on United States Contributions to UNRWA‖), as an example of legislation that has been proposed to limit contributions to UNRWA (Referred to House Committee on Foreign Affairs, June 14, 2007). See also H.Con.Res. 428: ―Expressing the sense of Congress that the United Nations should take immediate steps to improve the transparency and accountability of the United Nations Relief and Works Agency for Palestinian Refugees (UNRWA) in the Near East to ensure that it is not providing funding, employment, or other support to terrorists‖ (Referred to House Committee on Foreign Affairs, September 24, 2008); and H.Res. 939: ―Condemning the glorification of terrorism and the continuing anti-Israel and antiSemitic rhetoric at the United Nations‖ (Referred to House Committee on Foreign Affairs, January 23, 2008). [80] CRS correspondence with senior Western official in the region, January 4, 2009. [81] This section was written by Jim Zanotti, Analyst in Middle Eastern Affairs, and Carol Migdalovitz, Specialist in Middle Eastern Affairs. [82] See Griff Witte and Sudarsan Raghavan, ―‗All-Out War‘ Declared on Hamas,‖ Washington Post, December 30, 2008. [83] In a Washington Post interview, Israeli Foreign Minister Tzipi Livni, when asked if Israel has the backing of the Arab moderates, said, ―I don't want to embarrass anybody, but I know I represent their interests as well. It is no longer the Israeli-Palestinian or the

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Israel and Hamas: Conflict in Gaza (2008-2009)

[84] [85] [86] [87]

Jewish-Arab conflict, but it is a conflict between moderates and extremists. This is the way this region is now divided.‖ Lally Weymouth, ―‗Israel Is Not Going to Show Restraint,‘‖ Washington Post, January 10, 2009. Such statements could amplify charges within Arab/Muslim circles that Mahmoud Abbas, Hosni Mubarak, and certain other Arab leaders are inappropriately colluding with Israel. On the other hand, the statements could be a sign that productive cooperation between Israel and the Arab moderates to whom Livni alluded might be possible in the wake of the Gaza conflict. See CRS Report RL34346, The Egypt-Gaza Border and its Effect on Israeli-Egyptian Relations, by Jeremy M. Sharp. Karin Laub, ―Border Monitors Key Issue in Israel-Hamas Cease-Fire,‖ Associated Press, June 6, 2009. Roula Khalaf, ―Hamas Rejects Deployment of Peacekeepers,‖ Financial Times, January 6, 2009. Barak Ravid, ―Israel Defers Vote on Expanding Gaza Ground Op Amid Growing Truce Bids,‖ haaretz.com, January7, 2009. See Sharp, op. cit.

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[88]

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INDEX

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A Abbas, Mahmud, viii, 35, 37, 44, 45, 79 abuse, 174 ACC, 27 access, 11, 18, 31, 32, 59, 60, 73, 81, 90, 93, 94, 97, 103, 124, 160, 164, 181, 190 accommodation, 205 accountability, 129, 172, 212 accreditation, 68 acts of aggression, 201 adaptability, 19 administration, xii, 88, 180, 194, 198, 199, 210 administrative, 24, 29 advancement, 19 advertisements, 197 Afghanistan, v, vii, xii, 169, 170, 171, 172, 173, 174, 175, 176, 177 Africa, 37, 84, 90, 207, 208, 210, 211 age, 14, 19, 20, 21, 24, 28, 75, 114 agencies, 3, 4, 22, 31, 96, 113, 132, 141, 161, 163, 190 agents, 22 aggregate demand, 24 aggression, 37, 38, 68, 193, 201 aging, 93 agricultural, 20, 90, 94 agricultural exports, 164 agricultural sector, 94 agriculture, 6, 21, 85, 88, 90, 92, 94, 95, 131 Ahmadinejad, Mahmoud, 85 Ahmadinejad, President Mahmoud, 193 aid, 175, 176, 184, 188, 190, 194, 203, 204 air, 180, 181, 185, 192, 193, 202 Air Force, 36, 41, 42, 62, 91, 92, 166 Al Qaeda, 146, 154, 163, 175, 193, 194 alcohol, 91, 185 Algeria, 13, 76, 134 allies, 185, 193

alternatives, 194 amendments, 201 analysts, ix, 83, 91, 93, 98, 100, 107, 111, 184, 185, 191, 196, 198 appointments, 171, 172 appropriations, x, xi, 121, 122, 123, 124, 125, 126, 127, 129, 130, 131, 132, 136, 138, 146, 156, 200, 203, 204 Appropriations Act, 71, 72, 124, 130, 132, 137, 138, 140, 155, 160, 166, 200 appropriations bills, 200 Arab countries, 42, 53, 74, 97, 149, 198 Arab world, 196 Arabia, xii, 84, 93, 95, 99, 106, 118, 180, 188, 191, 205 Argentina, 67 argument, 189 Ariel, 197 armed forces, 151, 161, 162, 173 armed groups, 47, 66 arms sales, 2, 202 Asia, 14, 17, 87, 90, 102, 114, 116, 117 Asian, 93, 97, 101, 105, 108, 117 Asian countries, 101, 105, 108 assassination, xi, 60, 65, 145, 146, 149, 153 assault, 64, 170, 174, 181, 197, 211 assessment, 39, 59, 111 assets, 9, 86, 91, 92, 97, 103, 106, 139, 154, 157, 158, 159, 172, 200 assumptions, 199, 204 ATC, 31 atmosphere, xi, 145 attacks, xii, xiii, 175, 179, 180, 181, 182, 184, 186, 188, 189, 191, 193, 194, 196, 198, 201, 202, 205, 208, 211 Attorney General, 172, 175 attractiveness, 96 audit, 125 audits, 90, 96, 125 Australia, 107, 110

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Index

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Austria, 107, 108, 110, 165 authorities, viii, 2, 10, 12, 44, 96, 107, 130, 148, 151, 163, 164, 206 authority, 2, 19, 27, 39, 48, 69, 72, 73, 132, 133, 156, 157, 158, 161, 166, 169, 182, 205 availability, 25, 32, 33 Ayman al Zawahiri, 193 Azerbaijan, 100, 102, 117

Bush, President, ix, xi, 8, 35, 37, 39, 41, 43, 44, 45, 46, 47, 48, 50, 52, 53, 54, 55, 56, 61, 63, 71, 75, 78, 79, 104, 124, 125, 126, 145, 156, 157, 158, 192, 193, 194, 201, 212 business cycle, 24 business environment, 87, 103, 111 businesses, 18, 28, 39, 91, 92, 94, 95, 96, 98, 103, 104, 105, 106, 112, 113, 134, 157, 159, 160, 161

B

C

back, 106, 184, 195 background information, viii, 2 Bahrain, 76, 107, 108, 118, 119, 134 ballistic missile, 97, 200, 211 ballistic missiles, vii, 2, 9, 211 ban, 71, 94, 103, 111, 123, 154, 155, 156, 157 bank account, 105, 172 banking, 28, 29, 87, 95, 98, 105 banks, 30, 89, 90, 92, 94, 95, 96, 97, 103, 104, 105, 108, 117, 134, 159 Barack Obama, xii, 180, 193, 194, 198, 208 bargaining, 22, 32, 194 base, 2, 5, 31, 54, 89, 98, 100, 103, 105, 134, 152, 161, 163, 170, 172, 181, 188, 203 benefits, viii, 12, 17, 18, 26, 91, 102, 112, 174 bilateral aid, 127 bilateral relationship, xi, 12, 146 bilateral trade, 103 Bin Laden, 210 black market, 98 blame, 147, 191, 196, 205, 208 blaming, 184 bomb, 212 border crossing, 37, 38, 39, 41, 55, 57, 70, 134, 181, 188, 189, 194, 195, 205, 206 border security, 6, 127 borrowing, 18 brain, 88 brain drain, 88 Brazil, 134 breakdown, 146, 181 breeding, 205 bribes, 172 Britain, 37, 86, 104, 166, 206 British Petroleum, 108 brokerage, 22, 23, 30 budget deficit, 88, 160 building blocks, 123 buildings, 180, 181, 184, 208 Bush administration, 208 Bush Administration, 84, 172, 202, 208 Bush, George W., 41

Cabinet, 38, 75, 76, 176, 208 Cairo, 133, 192, 209, 211 calculus, 196 Camp David, viii, 35, 41, 42, 43, 76, 211 Canada, 84, 93, 110, 174 cancer, 163 candidates, 46, 89, 175, 176, 196 capacity building, 131 capital flight, 108 capital goods, 85, 99 carpets, 85, 98 case study, 19 cash, 71, 72, 88, 89, 103, 107, 134 category a, 177 Catholic, 203 Caucasus, 117 caviar, 94, 104 CDC, 176 ceasefire, xii, 57, 137, 180, 182, 192 Census, 104, 113 Census Bureau, 104, 113 Central Asia, 87, 101, 108, 114 central bank, 96, 97, 117 Central Bank, 87, 88, 95, 96, 97, 106, 118 Central Intelligence Agency, 85 certification, 12, 126, 132, 138, 155 chain of command, 136 challenges, 18, 54, 84, 95, 97, 101, 105, 111, 140, 163, 197, 204 Chamber of Commerce, 27, 54, 102 chaos, 52 charities, 46 checks and balances, 90 chemical, 14, 85, 103, 158, 160 children, 56, 75, 190 China, x, 83, 86, 95, 98, 99, 100, 101, 102, 105, 107, 108, 111, 112, 134 Chirac, Jacques, 146 Christians, 74, 165, 174 CIA, 73, 82, 85 cities, xii, 42, 43, 44, 69, 97, 179, 181, 185, 188, 201, 211 citizens, 40, 72, 156, 189, 196, 205

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Index City, 34, 181, 182, 183, 184, 190, 207 civil liberties, 160 civil service, 71, 126 civil society, 122, 151, 163 civilian, 172, 174, 181, 184, 189, 190, 198, 199, 205 clarity, 55 climate, 18, 94, 104, 123, 195 climate change, 94 Clinton Administration, 146 Clinton, Hillary Rodham, 128, 129 Clinton, William, 41 Co, 105, 109, 120, 175, 212 coalitions, xii, 169, 211 coastal areas, 185 Cold War, 18, 195 collateral, 212 collateral damage, 212 collective bargaining, 22, 32 collusion, 196 colonialism, 18 color, iv commerce, 29, 39, 90 commercial, 2, 4, 11, 12, 14, 57, 59, 86, 90, 91, 92, 95, 96, 97, 103, 112, 148, 164, 166, 205 commercial bank, 92, 95, 96, 97 commercial ties, 12, 103 commodities, 87, 98 commodity, 94, 159 communication, 16 communities, 131, 171, 185, 208 community, 28, 34, 37, 39, 47, 51, 53, 89, 103, 125, 131, 136, 146, 151, 160, 161, 162, 191, 193, 195, 205, 207 compensation, 20, 21, 22, 33, 54, 58 competence, 28 competing interests, 111 competition, xii, 19, 26, 91, 93, 105, 134, 169 competitors, 12, 23 complement, xii, 31, 169 complexity, 176 compliance, 41, 54, 155, 156, 202 components, 174 composition, 106, 142 computer, 23, 28 conference, ix, 9, 35, 39, 40, 41, 42, 48, 59, 62, 72, 77, 78, 129, 133, 193, 194, 195, 203, 207 Conference Report, 73 confidence, xii, 18, 89, 96, 119, 169, 172 conflict, x, xi, xii, 2, 37, 38, 39, 40, 41, 43, 49, 59, 61, 66, 70, 121, 122, 123, 127, 129, 134, 135, 139, 141, 142, 145, 180, 181, 182, 183, 184, 185, 186, 189, 193, 194, 195, 196, 197, 198, 199, 202, 203, 204, 205, 207, 210, 213

215

consensus, xi, 110, 111, 122, 129, 135, 136, 170, 177, 197 consent, 74, 193, 201 Consolidated Appropriations Act, 71, 72, 124, 138 consolidation, 170 construction, 5, 12, 26, 44, 45, 46, 54, 57, 62, 66, 71, 90, 91, 94, 95, 134, 141, 146, 152, 159, 163, 186, 206 consulting, 5 consumer goods, 99 Consumer Price Index, 87 consumers, 100, 105, 110 consumption, 3, 56, 86, 87, 93, 100 consumption rates, 100 Container Security Initiative, 10 containers, 24 contamination, 190 contiguity, 43, 44, 46, 49, 50, 58 contracts, 22, 32, 91, 92, 100, 108, 201 control, 19, 91, 95, 112, 171, 174, 181, 182, 195, 204, 206 controversial, 174, 184 convention, 2, 171 cooperation, vii, viii, xi, 1, 2, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 22, 37, 45, 52, 53, 54, 69, 70, 117, 122, 130, 152, 154, 163, 174, 200, 206, 213 coordination, viii, 2, 10, 39, 40, 42, 68, 190 corruption, xii, 90, 158, 169, 172, 173, 174 cost, 4, 23, 24, 25, 29, 32, 33, 87, 88, 98, 102, 105, 114, 115, 160, 176, 185, 186, 200, 211 cost-effective, 98 costs, 23, 32, 33, 93, 103, 111, 112, 186 cost-sharing, 200 Council of Ministers, 2 counsel, 128, 139 counseling, 30, 31 counter-terror, 170 counterterrorism, 2 credentials, 197 credibility, 22, 205 credit, 28, 86, 89, 90, 95, 97, 103, 105, 197 credit market, 89 credit rating, 97 criticism, 107, 171, 172, 174, 194 crops, 173 cross-border, 185 crowding out, 93 CRS report, ix, 36 crude oil, ix, 4, 83, 90, 93, 99 cruise missiles, 200 currency, 106, 154 current account, 98, 106 current account balance, 98

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Index

current account deficit, 106 current account surplus, 98 current prices, 115 curriculum choice, 28 cycles, 131, 195

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D data collection, 22, 112 database, 118 Dead Sea, 58 death, 20, 174, 196 death penalty, 151, 174 death sentence, 174 deaths, 37, 49, 56, 75, 181 defense, xii, 170, 179, 186, 200, 201, 202, 208, 211, 212 deficiencies, 97 deficits, 88, 106 definition, 22, 26 degradation, 94 delivery, 102, 107, 173, 184, 192, 202 democracy, xi, 44, 48, 71, 126, 146, 160, 164, 176 Democrats, 118 demography, 31 demonstrations, 65, 198, 204 Denmark, 110 Department of Commerce, 9, 148, 160, 164 Department of Defense, 166 Department of Energy, 10, 14 Department of Justice, 9, 15 Department of State, 91, 203, 212 destruction, 47, 49, 69, 90, 91, 123, 156, 160 detainees, 163, 174 detection, 11, 97 deterrence, 36, 152, 205 developed countries, 22 developing countries, 105 development assistance, 109, 166, 203 Development Assistance, 109 diplomacy, 39, 67, 150, 199, 207 diplomas, 28 diplomatic efforts, 49 diplomatic engagement, 146, 147, 148 direct investment, 106 directives, xi, 18, 145, 154, 164 directors, 125 disabilities, 20 disability, 20 disabled, 90 disappointment, 51 disaster, 109 disaster relief, 109 discretionary spending, 89

discrimination, 27, 174 diseases, 20, 28 displaced persons, 190 displacement, 181 disputes, xii, 169, 170 dissidents, 164 distribution, 26, 102 diversification, 88, 93, 106 divestiture, 113 division, 26, 27, 195 Doha, 147, 148, 150 domestic demand, 95 domestic economy, 90, 151 domestic policy, 99 donors, 40, 47, 72, 129, 173, 203 DOP, viii, 35, 42 draft, 5, 11, 34, 49, 59, 173 drawing, 88, 89, 176 drought, 94, 160 droughts, 94 drugs, 138 dual-use items, 9, 10, 11 duration, 171 duties, 90, 204, 206

E early retirement, 20 early warning, 5 earnings, 19, 98, 99, 116 economic activity, 4, 18, 92, 100, 112 economic assistance, x, 121, 122, 125, 136, 203, 204 economic cooperation, 53 economic crisis, 114, 160 economic development, xi, 25, 33, 53, 122, 124, 129, 135 economic downturn, 85, 89, 99, 142 economic growth, ix, 31, 83, 85, 86, 87, 89, 111, 131, 135, 160 economic growth rate, 85, 86 economic incentives, 105 economic indicator, 113 economic performance, ix, 83 economic power, 90 economic problem, 21 economic progress, 38 economic reform, 164 economic reforms, 164 economic relations, ix, 69, 83, 103 economic security, 19 Economic Support Fund, 176, 203 education, 21, 22, 25, 27, 28, 29, 30, 31, 33, 88, 124, 127, 131, 141, 202 Education, 19, 21, 34, 173, 175

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Index educational background, 25 educational experience, 28 educational institutions, 28, 137 educational quality, 29, 33 Egypt, xii, 13, 36, 37, 38, 39, 41, 42, 43, 50, 51, 52, 55, 57, 61, 63, 70, 79, 84, 106, 127, 129, 133, 134, 135, 138, 139, 141, 180, 181, 182, 185, 189, 191, 194, 195, 196, 205, 206, 209, 210, 211, 213 election, xii, 42, 47, 64, 69, 87, 89, 96, 103, 137, 169, 172, 176, 177, 196, 197, 198, 205 electricity, 3, 4, 55, 151, 190 embargo, 51, 66, 91, 103, 123, 134, 141, 148, 182 embassy, 12, 72, 86, 151, 164 emergency, x, 52, 55, 71, 122, 123, 134, 154, 157, 163, 166, 175, 202 Emergency Refugee and Migration Assistance, 203 emigration, 88 employees, 20, 21, 26, 27, 29, 30, 31, 56, 90, 128, 131, 138 employers, 20, 22, 25, 26, 27, 30, 31, 32, 33, 93 employment, 18, 19, 20, 21, 22, 23, 24, 26, 27, 28, 30, 31, 32, 33, 54, 93, 129, 212 employment opportunities, 20, 32 empowerment, viii, 35 energy, vii, ix, 1, 3, 4, 5, 6, 13, 67, 83, 84, 86, 87, 89, 90, 91, 94, 99, 100, 106, 107, 108, 110, 111, 116, 119, 153, 159, 160, 173 energy consumption, 3, 100 Energy Information Administration, 115, 117 Energy Information Administration (EIA), 117 energy prices, 173 enforcement, viii, xiii, 2, 10, 20, 22, 111, 125, 127, 166, 180, 206 engagement, 102, 109, 187, 188, 195 engineering, 90, 91 England, 165 enterprise, 25, 33, 96 enthusiasm, 177 environment, 6, 18, 22, 27, 32, 67, 87, 88, 96, 103, 106, 111, 137, 146, 195 environmental degradation, 94 environmental issues, 53 equipment, x, 4, 7, 11, 13, 102, 103, 122, 126, 127, 131, 155, 156, 157, 201, 202 EU, 44, 55, 119, 134, 139, 148, 164, 206 Europe, 90, 94, 97, 100, 107, 112, 119, 138, 142, 150, 163, 164 European Commission, 134, 139 European Community, 42 European Union, viii, 35, 44, 55, 70, 86, 97, 102, 104, 105, 130, 142, 146, 148, 188, 206 evacuation, 190

evidence, 19, 24, 28, 31, 33, 67, 73, 96, 104, 111, 152, 162, 173, 183 evolution, 85, 196 exchange rate, 88, 90, 94 exchange rates, 88 exclusion, 151 execution, 162, 167 executive branch, 132 Executive Order, 9, 10, 91, 157, 158, 164 exercise, 2 exile, xi, 145, 149, 163, 173 expenditures, 72 expertise, 91 exploitation, 32 explosives, 49, 185 export control, viii, 2, 6, 9, 10, 12, 13, 102, 103, 107 export controls, 102, 103, 107 export market, 2, 99, 100 exporter, 93, 99, 102 Export-Import Bank, 110 exports, viii, 2, 4, 9, 10, 18, 71, 89, 90, 93, 95, 98, 99, 100, 101, 102, 103, 105, 109, 111, 112, 119, 152, 155, 156, 157, 159, 164, 166 expulsion, 171 extremists, 213 eye, 197, 211

F F-16, 200, 202 facilitators, 154, 182 factor cost, 115 factories, 36, 159 failure, 30, 197 faith, 12, 172, 174 families, 21, 127, 134, 202 family, 26, 27, 28 family members, 134 FDI inflow, 106 fear, 173, 202, 205 fears, 12, 196 February, 18, 107, 114, 116, 118, 119, 173, 177, 186, 188, 195, 196, 198 Federal Register, 15, 138, 156 females, 19, 21, 24 fertilizer, 185 fighters, 170, 174, 181 finance, ix, 28, 83, 84, 89, 95, 98, 111, 113, 115 financial, ix, x, 9, 24, 28, 36, 83, 84, 86, 89, 90, 93, 94, 95, 96, 97, 98, 103, 104, 106, 108, 111, 112, 126, 139, 150, 153, 154, 156, 157, 158, 159, 174, 188 financial crisis, x, 84, 89, 96, 106, 126 financial institution, 86, 96, 97

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Index

financial institutions, 86, 97, 154, 157, 158 financial intermediaries, 95 financial resources, 86 financial sector, 95, 96, 153 financial support, 150, 174 financial system, 96, 97, 98, 106, 154 financing, 90, 96, 97, 98, 105, 108, 109, 111, 200 Finland, 110 fire, xii, 179, 180, 181, 184, 185, 188, 189, 190, 191, 192, 197, 200, 206 firms, 18, 21, 22, 23, 26, 28, 32, 103, 113 fiscal policy, 24, 88, 95 flow, 25, 106, 188, 190 flow of capital, 25 fluctuations, ix, 27, 31, 83, 84, 88, 89 fluid, xii, 169 food, 55, 87, 88, 94, 95, 99, 114, 127, 131, 157, 166, 184, 190, 202, 203 food aid, 203 food commodities, 94 food products, 94, 99 force, 6, 7, 13, 16, 19, 20, 21, 22, 24, 25, 28, 29, 31, 33, 44, 52, 61, 72, 84, 92, 159, 163, 206 forecasting, 113 foreign affairs, 72 foreign aid, vii, x, 121, 122, 123 foreign assistance, xi, 109, 122, 125, 154, 156, 166 foreign banks, 105 Foreign Broadcast Information Service, 76 foreign companies, ix, 83, 92, 95, 110, 159 foreign direct investment, 106 Foreign Direct Investment, 118 foreign exchange, 84, 89, 90, 98, 106, 154 foreign firms, 29 foreign investment, ix, 18, 83, 88, 90, 93, 102, 106, 108, 111, 160, 204 foreign policy, ix, 36, 62, 84, 112, 147, 150, 153, 154, 171, 198 foreigners, 26, 32, 107 formation, vii, viii, 35, 71, 170, 198 formula, 49 foundations, 52, 90, 195 France, 5, 12, 37, 60, 79, 80, 86, 95, 100, 101, 104, 109, 110, 112, 142, 146, 148, 191, 206, 209, 210, 211 free trade, 2, 93, 102, 164 freedom, 39, 50, 52, 163, 174 freedoms, 204 freezing, 45, 158 friction, 45, 48 frictional unemployment, 23 fuel, 86, 95, 100, 109, 114, 185, 190, 212 full employment, 23

fund transfers, 97 funding, 63, 125, 129, 131, 133, 137, 138, 139, 176, 200, 206, 212 funding authorization, 131 funds, x, 29, 40, 50, 71, 72, 77, 89, 106, 121, 123, 124, 125, 126, 130, 131, 137, 138, 139, 140, 142, 155, 174

G GAO, 108, 111, 118, 119, 120 gas, 84, 85, 86, 87, 91, 92, 93, 94, 98, 99, 106, 107, 108, 110, 111, 119 gasoline, ix, 83, 84, 88, 91, 98, 99, 100, 110 gauge, 112 Gaza, xii, 179, 180, 181, 182, 183, 184, 185, 186, 187, 188, 189, 190, 191, 192, 193, 194, 195, 196, 197, 198, 199, 200, 201, 202, 203, 204, 205, 206, 207, 208, 209, 210, 211, 212, 213 Gazprom, 107, 119 GCC, 105, 118 GDP, 85, 86, 87, 88, 89, 90, 93, 98, 109, 115, 160 General Accounting Office, 129, 139 general fund, 203 generation, 22 generators, 190 George Mitchell, 38, 74, 136 Germany, 37, 86, 95, 100, 101, 104, 107, 108, 109, 110, 169 gift, 193 global economy, 18, 19 Global Insight, 113, 114, 115, 116, 117, 118, 119 Golan Heights, 59, 60, 61, 62, 149, 150 gold, 97 governance, x, xii, 121, 122, 123, 131, 160, 169, 173, 176 government, ix, xii, 18, 19, 22, 24, 28, 31, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 95, 96, 97, 99, 100, 104, 105, 106, 108, 110, 111, 112, 113, 169, 170, 171, 172, 173, 174, 176, 180, 184, 187, 188, 191, 192, 193, 194, 196, 197, 198, 200, 201, 205, 208, 211 government policy, 4, 44, 111, 173 government spending, ix, 83, 84, 86 governments, vii, 1, 3, 6, 13, 41, 59, 62, 142, 149, 156, 162, 163, 170, 194, 201, 211 governor, 173, 174 governors, 170, 173 grades, 33 grants, 110, 125, 203 greed, ix, 36, 59, 60, 65, 66, 73, 86, 105 Gross Domestic Product, 85 Gross Domestic Product (GDP), 85

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Index groups, 19, 21, 27, 29, 30, 89, 110, 181, 185, 189, 191, 200, 201, 203 growth, viii, ix, 17, 18, 22, 24, 25, 31, 32, 53, 83, 85, 86, 87, 89, 94, 95, 103, 111, 131, 135, 160 growth rate, 85, 86 guerrilla, 181 guidelines, 48 guiding principles, 3 Gulf war, viii, 35, 40, 41

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H handling, 102, 173 health, 24, 124, 141, 166, 170, 184, 190 health care, 124, 184, 190 heating, 100 hegemony, 18, 119 height, xiii, 146, 151, 180 helicopters, 200 Hezbollah, ix, xi, xii, 36, 56, 60, 61, 62, 63, 64, 65, 66, 67, 84, 92, 133, 145, 146, 147, 149, 150, 153, 158, 180, 181, 184, 186, 191, 194, 196, 197, 198, 200, 206, 210 high school, 28 higher quality, 29 high-tech, 112 hip, 196 history, 19, 23, 44, 85, 100, 105, 169, 210 holding company, 159 homes, 36, 40, 57, 134, 141, 180, 189, 191 Hormuz, Strait of, 99 hospital, 190 hospitals, 189 host, x, 14, 121 hostage, 86 hostilities, xii, 66, 67, 127, 179, 182, 187 hotel, 43 House, 7, 8, 13, 33, 39, 43, 45, 48, 49, 57, 60, 63, 73, 74, 79, 112, 113, 116, 120, 126, 128, 129, 133, 137, 139, 140, 141, 155, 156, 175, 193, 202, 212 House of Representatives, 120, 155 household, 22, 185 housing, 38, 46, 54, 57, 87, 88, 151, 186, 190 hub, 2, 9, 103 human, 5, 6, 22, 23, 27, 29, 30, 73, 148, 160, 163, 173, 174, 177, 189 human capital, 5, 22, 23, 27, 29, 30 Human Development Report, 137 human resource development, 29 human resources, 5, 73 human right, 148, 160, 163, 173, 174, 177 human rights, 148, 160, 163, 173, 174, 177 humanitarian, xii, 109, 179, 180, 183, 184, 189, 190, 191, 192, 193, 194, 203, 207, 208, 209

humanitarian aid, 39, 40, 184, 194 husband, 161 hydrocarbon, 108 hysteresis, 19

I IAEA, 86, 113, 116 ice, 203 IDA, 109 identification, 75 ideology, 188, 205 image, 172, 199 IMF, 85, 88, 99, 101, 102, 106, 113, 114, 115, 116, 117, 118, 119 immersion, 189 implementation, 18, 30 import prices, 87 importer, 93, 94 imports, ix, 4, 24, 83, 84, 92, 94, 95, 98, 99, 100, 102, 103, 104, 105, 106, 109, 110, 118, 164 inactive, 208 inauguration, 69, 170 incendiary, 182 incentive, 100 incentives, 19, 30 income, 22, 26, 85, 106, 155, 161 income transfers, 22 incomes, viii, 17, 18, 19, 23 independence, 24, 38, 51, 106, 151 India, 98, 99, 100, 102, 107, 110, 111, 112, 134, 173 individuals, 23, 26, 47, 51, 90, 91, 97, 98, 113, 125, 156, 157, 158, 160, 175, 185 industrial, 20, 21, 22, 28, 99, 103, 208 industrial relations, 20 industrial sectors, 153 industries, 21, 24, 28, 90, 92, 94, 108 industry, 5, 6, 12, 18, 24, 27, 85, 88, 93, 95, 105, 115 inefficiency, 84 inflation, ix, 83, 84, 85, 87, 88, 89, 96, 99, 151 inflationary pressures, 89, 95 informal sector, 21, 22, 26, 28, 32 Information Age, 117 Information System, 27 Information Technology, 27 infrastructure, vii, 1, 6, 36, 91, 93, 94, 97, 124, 130, 140, 141, 180, 190, 194, 204 infringement, 206 ingredients, 185 injections, 93 injuries, 20, 28, 184, 190 inspection, 22, 30, 86, 105 instability, 89

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Index

institutions, viii, 17, 18, 22, 23, 27, 28, 30, 52, 53, 54, 56, 86, 90, 92, 97, 103, 122, 137, 154, 157, 158, 162, 172, 198 instruments, 95, 98, 103 insulation, 89 insurance, 20, 26, 28, 32, 92, 109 insurgency, xii, 169, 174 integration, 88, 102 integrity, 127, 131 intellectual property, 94 intelligence, 36, 37, 57, 63, 73, 90, 125, 146, 152, 158, 161, 162, 163, 165, 181 intentions, 86, 194, 199 interactions, 22, 98, 111 interest rates, 87, 96 interference, 103 intermediaries, 96, 97, 205 International Atomic Energy Agency, 3, 62, 73, 86, 152 International Atomic Energy Agency (IAEA), 86 International Bank for Reconstruction and Development, 109 international investment, 85, 93 international law, 45 International Monetary Fund, 113, 117, 135 International Narcotics Control, 125, 131, 203 International Narcotics Control and Law Enforcement, 203 international terrorism, xi, 145, 154, 155, 166 international trade, ix, 83, 84, 105 International Trade, 83, 98, 104 internship, 29 intervention, 95, 164, 192 interview, 199, 212 interviews, 27, 32, 178 intifada, x, 121, 122, 142, 185, 188, 198, 211 intimidation, 174 investment, viii, ix, x, 17, 18, 23, 24, 25, 83, 85, 87, 88, 90, 91, 93, 95, 102, 103, 104, 106, 107, 108, 111, 113, 116, 119, 135, 153, 160, 161, 204 investment bank, 161 investments, 20, 29, 93, 94, 102, 103, 113, 153, 159, 160 investors, 31, 94, 96, 107, 108, 109, 113, 159 Iran, v, vii, viii, ix, x, xi, xii, 1, 2, 3, 9, 10, 11, 13, 15, 16, 41, 60, 61, 62, 63, 64, 65, 66, 76, 77, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116,뫰117, 118, 119, 120, 134, 141, 145, 147, 148, 149, 150, 152, 153, 156, 160, 163, 165, 171, 176, 180, 184, 185, 191, 194, 195, 211 Iran Sanctions Act, 107, 108, 112, 119

Iraq, xi, 2, 61, 80, 84, 85, 90, 94, 98, 118, 145, 146, 147, 148, 151, 152, 153, 154, 156, 158, 162, 163, 165, 166, 202 Ireland, 110, 133 irrationality, 196 irrigation, 166 Islam, 49, 115, 154, 161, 163, 167, 170, 174, 175, 193 Islamic, ix, 33, 83, 84, 85, 90, 91, 99, 105, 113, 114, 115, 116, 117, 118, 119, 170, 171, 174, 175, 180, 185 Islamic law, 171 Islamic state, 85 Islamic world, 72 isolation, ix, 61, 83, 89, 91, 96, 106, 160, 188 Israeli-Palestinian conflict, 199 issues, iv, vii, viii, ix, x, xi, 10, 11, 12, 18, 24, 25, 29, 32, 35, 36, 39, 40, 42, 43, 45, 50, 51, 52, 53, 54, 56, 57, 59, 61, 63, 67, 68, 70, 71, 74, 84, 136, 140, 146, 149, 150, 154, 163, 171, 174, 199, 207 Italy, 37, 99, 100, 101, 110

J Japan, 4, 5, 12, 95, 98, 99, 100, 101, 109, 110, 134 Japanese, 94 Jerusalem, 119, 208, 211, 212 Jews, 42, 53, 67, 74, 78 Jirga, 170, 171, 175, 176 job matching, 30 jobs, 23, 26, 30, 31, 88, 93 Joint Economic Committee, 115 joint ventures, 5, 95 Jordan, v, viii, xii, 13, 17, 18, 19, 20, 21, 22, 23, 24, 26, 27, 28, 30, 31, 32, 33, 34, 35, 39, 41, 42, 43, 44, 46, 47, 48, 51, 52, 55, 57, 67, 68, 69, 78, 126, 127, 138, 180, 191, 202, 205 Jordanian, 18, 19, 20, 21, 22, 26, 28, 31, 32, 33, 193 journalists, 174, 182 judges, 174 judgment, 174 judiciary, 132 jurisdiction, 9, 69, 154 justice, 114, 169, 171, 172, 173 justification, 46, 86, 136, 189

K Kadima, 196, 197, 198 Karzai, Hamid, 169, 175 kidnapping, 46, 49, 65 killing, 183, 184, 189 King, 169, 175, 193 Knesset, 199

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Index Korea, 5, 12, 15, 73, 95, 99, 100, 101, 113, 134, 152, 159, 165 Kuwait, 76, 118, 134 Kyl, Senator John, 140

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L labor, ix, 83, 88, 171 labor market, 88 labour, viii, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 29, 30, 31, 32, 33 labour force, 19, 20, 21, 22, 24, 29, 31, 33 labour market, viii, 17, 18, 19, 22, 23, 24, 25, 26, 27, 29, 30, 31, 32, 33 lack of control, 134 land, 182, 186 Latin America, 117 laundering, 97 law, 20, 22, 24, 26, 32, 97, 103, 171, 172, 173, 174, 175, 176, 190, 204, 209 law enforcement, 125, 127 laws, 5, 26, 88, 112, 125, 155, 166 layoffs, 27, 29 lead, xi, 28, 33, 47, 48, 53, 58, 62, 63, 89, 122, 135, 142, 146, 176, 184, 192, 195, 196, 198, 202, 204, 206 leadership, 43, 68, 92, 135, 150, 170, 172, 180, 181, 185, 196, 197, 199 Lebanon, viii, ix, xi, 35, 36, 41, 42, 61, 62, 64, 65, 66, 67, 71, 81, 96, 127, 131, 134, 139, 145, 146, 147, 148, 149, 150, 151, 153, 156, 158, 165, 184, 191, 200, 202, 206, 211 legislation, viii, x, xi, 2, 3, 13, 20, 25, 112, 121, 122, 123, 124, 128, 129, 130, 131, 132, 146, 156, 157, 201, 212 legislative elections, 188 legislative proposals, viii, 2 lending, 95, 96, 109, 114, 119 letters of credit, 103, 105 level of education, 27 Libya, 112, 120, 192 light, vii, x, 1, 4, 6, 9, 11, 84, 86, 89, 95, 98, 100, 106, 110 Likud party, 195 links, 194 living conditions, 205 living standard, 19 living standards, 19 LNG, 107, 108, 119 loan guarantees, 110 loans, 87, 88, 89, 92, 96, 109 local community, 28 local government, 28 location, 181, 184, 190

London, 96 long work, 20 Los Angeles, 211 Louisiana, 108 low-interest loans, 88, 89 low-level, 91, 184 Luxembourg, 110

M machinery, 99, 103 macroeconomic, 23, 84 magnitude, 25, 90, 185 maintenance, 24 majority, 48, 60, 99, 151, 162, 171, 210 Malaysia, 10, 95, 107, 134, 153 males, 19, 21, 24 man, 67, 76 management, vii, 1, 4, 5, 12, 28, 201 manufacturer, 95 manufacturing, 92, 93, 94, 95, 99, 153 Margesson, Rhoda, 139 mark up, 93 market, viii, 17, 18, 19, 22, 23, 24, 25, 26, 27, 29, 30, 31, 32, 33, 88, 89, 92, 95, 96, 98, 100, 106, 109, 112 market capitalization, 96 market incentives, 32 market segment, 32 market structure, 18 marketing, 108 markets, 19, 22, 26, 27, 31, 93, 99, 100, 102 marriage, 88, 114, 153, 170 Maryland, 60 mass, 40, 46, 90, 91, 156, 160 materials, 10, 16, 62, 85, 99, 134, 137, 141, 157, 201 matter, iv, 32, 150, 163 Mauritania, 76 measures, 86, 96, 106, 108, 109, 110, 111, 112, 186, 202 media, 60, 152, 171, 174, 177, 182, 187, 189, 191, 194, 196, 197, 207, 211 mediation, 37, 62, 184, 188, 192 medical, 14, 90, 103, 127, 181, 183, 190, 202, 203 medical assistance, 183 medical care, 90, 127, 202 medicine, 6, 157 Mediterranean, 37, 47 membership, 105, 148, 162, 164, 167 memorandum of understanding, 107 memory, 30 men, 20, 175 merchandise, 100, 102, 103 merit-based, 172

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Index

messages, 61, 62, 208 metric, 107 Middle East, i, ii, iii, iv, vii, ix, xi, xiii, 2, 3, 6, 7, 11, 14, 16, 18, 36, 38, 41, 45, 54, 61, 63, 68, 74, 75, 76, 77, 78, 79, 80, 81, 83, 84, 87, 88, 90, 94, 95, 98, 101, 102, 106, 109, 114, 115, 116, 118, 119, 133, 136, 138, 141, 142, 145, 148, 152, 154, 161, 163, 167, 169, 179, 191, 193, 196, 198, 199, 207, 208, 209, 210, 211, 212 Migration and Refugee Assistance, 203 militant, xii, 179, 180, 181, 185, 188, 189, 191, 205 military, xi, xii, xiii, 2, 3, 9, 12, 36, 37, 44, 49, 50, 55, 56, 57, 59, 62, 63, 65, 66, 67, 73, 91, 92, 103, 112, 126, 127, 129, 145, 152, 154, 155, 156, 158, 159, 161, 162, 171, 176, 177, 179, 180, 181, 182, 184, 185, 186, 189, 190, 194, 196, 197, 200, 201, 202, 203, 205, 206, 210 militia, 91, 136, 170, 173, 185 militias, 64, 84, 171, 174 million barrels per day, 99 mines, 26, 171 mining, 90, 92, 95, 96 minorities, 170, 177 minority, 170, 174, 175 missile defense, 200 missiles, 200, 208 mission, 18, 43, 127, 170, 174 models, x, 95, 100, 121 moderates, 49, 51, 204, 212 modifications, xiii momentum, 40, 105, 194 monetary policy, 95 money, 88, 97, 98 money laundering, 71, 97, 98, 157 monopsony, 26 mood, 114 Moon, 182, 184, 193 moratorium, 174, 188 Morocco, 76, 134 motion, 188 motivation, 205 movement, 19, 108, 187, 195, 204 multilateral, 110, 111 multinational companies, 100 multinational corporations, 112 Muslim, 98, 196, 199, 205, 211, 213 Muslim state, 205 Muslim states, 205 Muslims, 42, 162, 193, 199

N nation, 24, 29, 31, 188 national emergency, 154, 157, 166

National Intelligence Estimate, 86 national interests, 68 National Public Radio, 141 national security, ix, 8, 72, 83, 84, 119, 125, 132, 154, 157, 162, 178 National Security Council, 132, 148, 164 National Security Strategy, 84, 113 nationalization, 95 NATO, 37, 170, 172, 174, 177 natural, 23, 93, 98, 100, 106, 107 natural gas, 4, 14, 93, 98, 100, 107, 153 natural rate of unemployment, 23 natural resources, 106 Near East, 182, 202, 203, 212 needy, 39 negotiating, 2, 12, 42, 47, 48, 51, 53, 54, 55, 58, 59, 61, 63, 142 Netherlands, 100, 109, 110, 142 network, 94, 180 New York, 33, 115, 117, 118, 119, 172, 178, 207, 208, 209, 210 New York Times, 115, 117, 118, 172, 178, 207, 208, 210 New Zealand, 110 next generation, 159 NGOs, 123, 125, 134 NIE, 86, 113 Nigeria, 119 North Africa, 84 North Korea, 15, 62, 73, 113, 152 Northern Ireland, 133 Norway, 69, 99, 109, 110 NPT, 4, 11, 16, 113 NSC, 86, 192 nuclear, ix, 83, 84, 86, 89, 96, 97, 100, 102, 105, 107, 108, 111, 118, 119, 202 nuclear energy, 86 nuclear power, 86 nuclear program, viii, 2, 3, 4, 5, 7, 10, 11, 16, 73, 86, 89, 96, 100, 105, 107, 111, 148, 152 nuclear reactor, 202 nuclear technology, 111 nuclear weapons, vii, ix, 2, 3, 4, 9, 10, 11, 14, 62, 73, 83, 84, 86, 119, 152, 160 null, 43 nuts, 85, 94, 104

O Obama, vii, viii, x, xi, xii, 1, 2, 8, 15, 38, 39, 40, 121, 122, 123, 127, 128, 132, 136, 140, 141, 146, 167, 172, 180, 193, 194, 195, 198, 199, 202, 204, 208, 209, 210, 211

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Index Obama Administration, vii, x, xi, 1, 8, 38, 39, 40, 121, 122, 123, 127, 128, 132, 136, 140, 141, 146, 195, 204, 209 Obama, Barack, xii, 180, 193, 194, 198, 208 obligation, 27 obligations, 190, 204 obstacles, 137 occupational, 20, 21, 23, 28, 29 occupational groups, 21, 29 occupied territories, 43, 153 Office of Management and Budget, 130, 131, 138 Official Development Assistance, 109 officials, viii, xi, xii, 2, 3, 4, 5, 8, 10, 11, 12, 19, 26, 36, 37, 44, 48, 49, 50, 52, 55, 56, 57, 61, 62, 65, 73, 90, 92, 97, 98, 103, 105, 107, 108, 126, 127, 128, 142, 146, 148, 150, 151, 152, 154, 157, 158, 162, 163, 164, 166, 169, 172, 180, 181, 184, 186, 189, 190, 192, 196, 201, 205, 208, 211 offshore, 97, 107 oil, ix, x, 2, 3, 4, 14, 18, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 96, 97, 98, 99, 100, 102, 106, 108, 109, 111, 115, 116, 117, 118, 156, 160, 161, 185 oil production, 85, 93, 160 oil recovery, 93 oil revenues, 161 Olmert, Ehud, ix, 36, 47, 181, 195, 196 Oman, 118 Omnibus Appropriations Act,, 124, 130, 132, 137, 140, 160 online, 118, 208, 209 OPEC, 18, 106 open markets, 191 operations, viii, xi, 2, 5, 9, 18, 19, 24, 32, 44, 46, 52, 55, 57, 64, 65, 66, 67, 91, 125, 126, 127, 129, 136, 138, 146, 157, 158, 172, 176, 177, 180, 182, 184, 185, 189, 193, 196, 197, 200, 201, 202, 203, 208 Operators, 21 opinion polls, 196 opportunities, x, 6, 18, 20, 32, 41, 84, 90, 93, 112, 153, 205 opportunity costs, 4 opposition, 96, 108, 170, 187, 196 optical, 103 Organization for Economic Cooperation and Development, 109 Organization of the Petroleum Exporting Countries, 86, 93 Organization of the Petroleum Exporting Countries (OPEC), 86, 93 organizational culture, 29 organize, 24, 64, 123, 135, 164, 207

orientation, xii, 180, 191 Osama bin Laden, 170, 193 outrage, 194, 198 outreach, 28, 57 overlap, 28 overseas investment, 116, 119 Overseas Private Investment Corporation, 113 oversight, ix, x, 36, 122, 128, 129, 140, 171, 212 ownership, 25

P PA, 186, 187, 188, 195, 196, 198, 203, 204, 205, 206, 212 Pacific, 14 Pakistan, 15, 107, 108 Palestine, 182, 187, 202, 210 Palestine Liberation Organization, 187 Palestinian Authority, viii, x, xii, 35, 37, 39, 40, 42, 69, 70, 71, 121, 123, 124, 125, 126, 131, 132, 133, 137, 138, 140, 180, 187, 192, 196, 203, 204, 205, 209 Palestinian Islamic Jihad, 126, 153, 185 Palestinian uprising, viii, 35 Parliament, 171, 175 participants, 19, 20, 62, 200 partnership, 196 Pashtun, 170, 173, 175, 177 passive, 186, 187 Patriot Act, 159 pay off, 30 payroll, 20, 71, 126, 163 peace, viii, ix, xi, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 47, 48, 50, 51, 52, 53, 54, 57, 58, 59, 61, 62, 63, 64, 66, 67, 68, 71, 72, 73, 74, 78, 119, 133, 145, 146, 148, 149, 150, 152, 170, 187, 193, 194, 195, 196, 198, 199, 202, 206, 207, 210, 211 peace accord, 44, 54, 63, 149 peace process, viii, xi, 35, 39, 41, 47, 50, 52, 61, 63, 68, 72, 74, 133, 145, 150, 193, 194, 196, 198, 199, 207, 210 peacekeepers, 206 Peacekeepers, 213 peacekeeping, 170, 206 penalties, 113, 151, 156 penalty, 174 per capita, 85, 109 per capita income, 85 perception, 102, 172, 197, 203 perceptions, xiii, 180, 205 permit, 22, 25, 27, 32, 43, 71, 132, 164 perpetrators, 55, 56 Persian Gulf, 102, 110 personal contact, 27, 48

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Index

personality, 197 pessimism, xii, 169 petrochemical, 85, 95, 96 Petrochemicals, 95, 116 petroleum, ix, 83, 84, 86, 93, 99, 100, 109, 110, 153, 160 Petroleum, 85, 86, 93, 108, 159 petroleum products, 99, 100, 109 pharmaceuticals, 103 phosphorus, 182 photographs, 60, 62, 152 planning, 193 plants, vii, 1, 3, 4, 5, 13, 94, 95, 107, 153, 159 plastic, 203 platform, 47 playing, 19, 32, 158 PLO, 187, 188, 194, 195 plutonium, 10, 11, 14, 73, 152 PM, 77, 78, 79, 80, 141 police, 36, 56, 58, 172, 173, 180 policy, ix, x, 3, 4, 5, 8, 10, 11, 16, 22, 24, 31, 36, 44, 46, 53, 61, 62, 63, 83, 84, 86, 88, 95, 96, 99, 100, 105, 111, 112, 113, 132, 133, 142, 146, 147, 148, 150, 151, 153, 154, 160, 162, 164, 169, 171, 172, 173, 192, 195, 196, 197, 198, 210 policy options, 84 policy reform, 84 policy responses, 142 policymakers, xi, 123, 145, 146, 147, 153, 163 political crisis, 57 political instability, 3 political leaders, 196 political legitimacy, 162 political opposition, 163 political parties, 170, 175, 177, 197 political party, 47, 163 political power, 196 political system, 158 political uncertainty, 108 politics, x, xi, 48, 121, 122, 145, 147, 159, 160, 189, 210 pollution, 95 poor, 29, 30, 87, 88, 89, 90, 96, 174 Popular Front, 153 population, 18, 20, 24, 25, 26, 29, 30, 31, 45, 46, 84, 88, 94, 111, 114, 134, 151, 161, 170, 183, 185, 189, 198, 199, 202, 203, 204 population growth, 31 populism, 114 populist policies, 95 portfolio, 23 portfolios, 96, 109 ports, 24, 26

Portugal, 110 poverty, ix, 20, 83, 84, 87, 88, 189 poverty line, 87, 189 power, 19, 85, 86, 90, 96, 170, 172, 175, 189, 195, 196, 205 power generation, 3, 153 power plants, vii, 1, 3, 4, 5, 13, 159 power sharing, 132 powers, 25, 171, 175, 176 PPP, 85 precedent, 11, 198 prejudice, 45, 64 presidency, 162, 175, 199 president, 2, 38, 72, 114, 118, 132, 159, 162, 170, 177 President Bush, 104, 192, 193, 194, 201, 212 President Clinton, viii, 35, 42, 59, 60, 70, 155, 156 President Obama, viii, 2, 38, 39 presidential elections, 176 presidential veto, 201 press, 113, 115, 116, 117, 171, 174, 193, 195, 200 pressure, xii, 84, 86, 88, 89, 94, 103, 105, 106, 108, 109, 110, 111, 112, 114, 117, 179, 182, 187, 189, 209 prestige, 161 prevention, 182 prices, ix, x, 19, 83, 84, 85, 86, 87, 89, 93, 94, 96, 98, 99, 106, 110, 114, 173 primacy, 162 primary function, 24 principles, 3, 40, 47, 48, 50, 52, 59, 63, 130, 132, 133, 136, 138, 140, 142 prior knowledge, 65 prisoners, 37, 38, 44, 47, 48, 49, 50, 52, 53, 57, 65, 66, 67, 68, 69, 70, 188 private banks, 95 private enterprises, 90, 92 private schools, 27 private sector, 21, 22, 88, 89, 91, 92, 99, 204 privatization, 19, 27, 31, 88, 90, 92, 95, 96 product market, 32 production, ix, 83, 85, 87, 93, 94, 95, 99, 107, 111, 116, 185 production technology, 3 productivity, 19, 31 profit, 29, 91, 93 profitability, 97 program, ix, 27, 29, 31, 83, 86, 89, 90, 96, 108, 109, 171, 174, 186, 200, 204 programming, 163 project, 4, 23, 29, 30, 33, 94, 107, 108, 123, 159, 200 projectiles, 200

Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

Index proliferation, vii, 1, 3, 6, 7, 9, 10, 11, 12, 14, 86, 90, 91, 92, 97, 111, 160 proposition, 23, 131 prosperity, 19, 85 prostate cancer, 163 protection, vii, 1, 6, 7, 208 provincial councils, 170, 175 public, xii, 18, 20, 27, 28, 30, 32, 85, 88, 89, 95, 100, 169, 177, 182, 184, 186, 193, 194, 196, 197, 198, 199, 202, 204 public concern, 202 public enterprises, 32 public figures, 186 public opinion, 194, 196 public sector, 18, 85, 88, 135, 141, 161 pulp, 103 punishment, 196 punitive, 106, 110, 111 purchasing power, 85 purchasing power parity, 85 PVS, 138

Q Qatar, 107, 118, 205 qualifications, 24 query, 14

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R Rab, 170 race, 197 radar, 65 radiation, 6 radicalization, 190 ramp, 94, 105, 110 range, 28, 176, 180, 185, 200, 208, 211 ratification, 2, 146 raw material, 85, 99 raw materials, 85, 99 Reagan Administration, 202 real estate, 159 real wage, 87 reality, 59, 66 recognition, 47, 48, 50, 78, 124, 130, 136 recommendations, iv, viii, 17, 30, 32, 61 reconcile, 171 reconciliation, 37, 147, 187, 193 reconstruction, 91, 109, 123, 130, 133, 134, 135, 140, 141, 176, 189, 194, 203, 206, 207 recovery, 85, 93, 125, 131, 141 re-export, 102, 112, 113 refinery capacity, 100 refining, ix, 83, 110

225

reform, x, 2, 18, 19, 88, 90, 121, 122, 123, 124, 126, 129, 135, 136, 140, 142, 161, 163, 169, 173, 204 Reform, 88, 129, 135, 141, 160, 167, 172, 208, 212 Reform Act, 212 reformers, 163 reforms, 52, 70, 71, 84, 88, 105, 148, 161, 164, 172 refugees, 39, 40, 42, 43, 44, 45, 47, 48, 49, 51, 52, 55, 56, 64, 71, 74, 127, 131, 139, 151, 171, 202 regional, x, xiii, 22, 84, 103, 108, 119, 173, 180, 187, 189, 192, 193, 194, 195, 205 regional policy, 22 regular, 19, 22, 28, 182 regulation, 93 regulations, viii, 2, 10, 20, 95, 156, 164, 166, 201 regulatory bodies, 3 relationship, 21, 26, 97, 102, 205, 206 relationships, 101 relatives, 27 reliability, 27 relief, 109, 130, 131, 139, 190 religions, 174 reprocessing, vii, 1, 5, 7, 9, 10, 11, 12, 14 Republican, 171 reputation, 28, 100 requirements, x, 6, 8, 9, 13, 16, 22, 23, 53, 54, 122, 137, 140 researchers, 31 resentment, 205 reserves, ix, 83, 84, 86, 89, 93, 100, 106, 109 reservoirs, 93 residential, 183, 186, 189, 208 resistance, 47, 48, 49, 51, 52, 64, 67, 88, 92, 107, 153, 181, 188 resolution, vii, xii, 1, 8, 15, 37, 40, 41, 66, 68, 111, 180, 192, 193, 201, 203, 212 resources, 5, 6, 58, 59, 73, 86, 93, 96, 106, 108, 127, 130, 135, 151, 203 response, ix, xii, 5, 35, 49, 51, 63, 76, 86, 89, 106, 125, 127, 152, 173, 179, 182, 186, 188, 191, 197, 198, 201, 202, 210 responsibilities, 24, 206 restoration, 64 restrictions, x, 24, 28, 52, 103, 122, 126, 135, 136, 155, 157, 163, 166, 171 retaliation, 189 retirees, 20 retirement, 20, 26 revenue, 4, 25, 50, 85, 87, 88, 89, 99 Revolutionary Guard, 9, 90, 91, 115 Reynolds, 27, 28, 33 rhetoric, 212 rice, 87, 95 Rice, Condoleezza, 45, 192, 193

Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.

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Index

Rice, Secretary of State Condoleezza, vii, 1, 6, 37, 41, 104, 202 rights, iv, 26, 45, 48, 53, 74, 148, 160, 163, 173, 174, 175, 177 risk, 8, 10, 11, 23, 109, 114, 115, 116, 118, 156, 187 Royal Dutch Shell, 108 rule of law, 126, 131, 176 rules, 19, 151 rural, 18, 87, 88 rural areas, 87 Russia, viii, x, 19, 33, 35, 70, 83, 84, 86, 90, 93, 99, 100, 101, 102, 105, 107, 108, 112, 130

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S SA, 33, 119 sabotage, 207 Saddam Hussein, xi, 145, 156, 162, 165, 166 safety, vii, 2, 3, 4, 6, 9, 21, 22, 157, 164, 190 salaries, 172, 204 sales, 95, 100, 110, 201, 202 sanctions, vii, ix, x, xi, 1, 83, 84, 86, 87, 89, 91, 93, 94, 95, 96, 97, 98, 99, 103, 104, 105, 106, 107, 108, 110, 111, 112, 113, 117, 118, 119, 145, 146, 148, 154, 155, 156, 157, 159, 160, 166 sanitation, 190 Saudi Arabia, xii, 6, 13, 39, 51, 76, 84, 93, 95, 99, 106, 118, 134, 141, 160, 180, 188, 191, 205 savings, 20, 87, 151 schizophrenia, 19 school, 22, 27, 28, 33, 36, 134, 184, 189, 191 schooling, 19, 23 scope, 3, 7, 90, 203 search, 30, 32, 33, 206 seasonal component, 23 secondary education, 21, 25 secondary schools, 27 secretariat, 171 Secretary of Commerce, 10, 15, 154, 164 Secretary of State, 104, 202, 203 Secretary of the Treasury, 158 Secretary-General, 182, 184, 193 security assistance, 54, 126, 203, 204 Security Council, xii, 86, 97, 113, 116, 118, 180, 182, 192, 207, 209 security forces, x, 42, 50, 54, 55, 122, 125, 126, 131, 132, 162, 174, 204 security guard, 44, 56 security services, 162 seeds, 173 segmentation, 25, 26, 27, 29, 30, 32 seminars, 7 Senate, 7, 8, 13, 38, 73, 74, 112, 113, 120, 155, 156, 159, 193, 202

Senate Foreign Relations Committee, 8, 13 sensing, 177 separation, 22, 195 September 11, 170, 175 series, 85, 88, 185, 186 services, iv, 5, 7, 18, 23, 26, 27, 30, 57, 85, 92, 93, 94, 122, 131, 155, 162, 172, 190, 201, 202, 212 SES, 166 settlements, viii, 35, 39, 42, 45, 46, 47, 48, 50, 53, 56, 57, 58, 59, 69, 185 severance pay, 32 shares, 90, 92, 94, 96, 108 sharing, 26, 200 Sharon, Ariel, viii, 35, 39, 42, 43, 55, 60, 197 Shell, 100, 108 shelter, 127, 184, 202 Shiite, 84, 176 Shiites, 165, 176 shipping, 86, 105, 108 short supply, 190 shortage, 25 shortages, 190 shortfall, 117 short-range, 200 short-term, 27, 111, 188, 199 showing, 19, 38, 62, 150, 185, 197 sign, 98, 119, 173, 213 signaling, 195 signs, 148 Sinai, 189 Singapore, 100, 134 sites, 177, 180, 181, 182, 187, 189, 191 skill acquisition, 28 skilled workers, 25, 26 skills, 23, 26, 27, 28, 29, 30, 31, 32, 199 small firms, 22, 26 SMS, 208 smugglers, 180 smuggling, 36, 37, 39, 67, 91, 138, 139, 182, 189, 193, 206 social change, 19 social justice, 114 social programs, 88 social safety nets, 22 social security, 19, 20, 26, 32 Social Security, 20, 29, 33 social services, 122, 131 social status, 28 society, 18, 23, 93, 122, 151, 161, 163, 164 solidarity, 100, 212 solution, xi, xiii, 4, 23, 39, 40, 41, 45, 46, 48, 49, 51, 52, 53, 56, 58, 59, 122, 136, 180, 194, 205 South Asia, 116

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Index South Korea, 12, 95, 99, 100, 101, 134, 152, 159 sovereignty, 39, 42, 44, 59, 60, 67, 146, 149, 158, 160, 206 Soviet Union, 19, 42 speculation, 47, 61, 62, 194, 195 speech, 61, 65, 76, 77, 78, 80, 81, 163, 192, 199 spending, ix, 73, 83, 84, 86, 88, 89, 92, 96, 99, 129 sponsor, ix, 83, 84 sporadic, 189 spot market, 100 stability, xi, 23, 39, 41, 63, 119, 122, 147, 154, 161, 163, 169, 198 stabilization, xii, 169 staff members, 128, 182 State Department, 107, 108, 119, 174, 175, 176, 177, 192, 193, 202, 203, 209 state intervention, 95 state of emergency, 52, 163 State of the Union, 199 statehood, viii, 35, 123 state-owned, 90, 96, 97, 107, 196 state-owned banks, 90, 96, 97 state-owned enterprises, 96 states, vii, 1, 3, 4, 5, 6, 9, 10, 11, 13, 16, 40, 43, 49, 51, 52, 55, 59, 86, 98, 106, 110, 118, 124, 132, 133, 134, 137, 139, 141, 146, 160, 164, 190, 196, 201, 205 statistics, 20, 23, 116, 151 steel, 93, 94, 212 stock, 88, 92, 96, 108 Strait of Hormuz, 99 strength, 170, 186 structural reforms, 88 structure, ix, 18, 31, 59, 83, 84 students, 22, 23, 27, 28, 30 style, 114, 126, 184, 185, 186, 196, 211 subsidies, 88, 89, 100 succession, 162 Sudan, 113, 212 suffering, 172 sugar, 185 suicide, 43, 44, 46, 47, 48, 55, 56, 158, 198 Sunni, 105, 175, 194, 195 supervision, 36, 90 supplemental, 175, 176 supplier, 10, 100, 111 suppliers, 3, 12, 22, 30, 100, 107, 111 supply, 30, 95, 107, 110 Supreme Council, 2, 5 Supreme Court, 171, 172, 174, 182 surplus, 88, 98 surprise, 180, 209 surveillance, 59

survival, 186, 198 suspects, 25, 31 Sweden, 110, 142 Switzerland, 100, 107, 108, 110, 119 sympathy, 208 synchronization, 23 synchronize, 31 Syria, v, viii, ix, xi, xii, 35, 36, 39, 40, 41, 42, 59, 60, 61, 62, 63, 64, 65, 66, 67, 73, 76, 80, 81, 82, 127, 145, 146, 147, 148, 149, 150, 151, 152, 153, 154, 155, 156, 157, 158, 159, 160, 161, 162, 163, 164, 165, 166, 167, 180, 188, 191, 194, 195, 198, 202

T tactics, 181 Tajikistan, 102, 117 takeover, ix, x, 35, 121, 135, 136, 142, 188, 189 Taliban, xii, 169, 170, 171, 172, 174, 176 tanks, 49, 180 target, ix, 36, 54, 62, 73, 83, 110, 113, 189, 191 targets, 180, 181, 190, 193, 199, 212 tariff, 25, 95, 164 tax policy, 88 tax rates, 26, 102 taxation, 90, 161 teams, 53, 63 technical assistance, vii, 1, 7, 12 techniques, 27 technocratic, 188 technologies, 10, 94 technology, vii, viii, xiii, 2, 3, 6, 9, 11, 12, 13, 15, 18, 93, 95, 111, 112, 152, 154, 155, 157, 180, 211 Tehran, 85, 86, 88, 89, 94, 96, 108, 114, 115, 116, 119 Tel Aviv, 209 telecommunications, 91, 157 tensions, xii, 32, 96, 102, 105, 111, 127, 139, 165, 176, 179, 188, 191 tenure, 123, 194 terminals, 12 territorial, viii, 35, 44, 49, 50, 58, 198, 206 territorial control, viii, 35 territory, 7, 39, 40, 41, 43, 46, 48, 58, 60, 61, 64, 66, 67, 152, 157, 182, 185, 189 terrorism, ix, xi, 36, 41, 47, 54, 68, 72, 83, 84, 96, 97, 109, 111, 126, 129, 140, 145, 153, 154, 155, 156, 160, 166, 170, 188, 212 terrorist, 86, 89, 92, 96, 97, 98, 105, 108, 111, 185, 197 terrorist activities, 92, 105 terrorist acts, 156 terrorist groups, x, 75, 89, 121, 125, 146, 149, 156, 185

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Index

terrorist organization, 37, 47, 48, 60, 61, 66, 74, 75, 86, 96, 111, 132, 137, 158 terrorists, 9, 44, 46, 61, 63, 67, 92, 125, 128, 129, 212 test scores, 33 testimony, 96, 111 Thai, 114, 117, 119 third party, 118 threat, 97, 119, 185, 197, 198, 205, 208 threatened, 100, 205 threats, 97, 109, 119, 120, 181, 200 Title I, 124, 138, 140, 154 Title II, 124, 138, 140, 154 Title V, 137, 138 tobacco, 94, 103, 171 torture, 174 total employment, 21 total revenue, 25 tourism, 18, 88, 90 tourist, 24 Toyota, 95 tracks, ix, 28, 36, 42, 51, 54, 59, 63, 198 trade, viii, ix, xi, 2, 18, 21, 39, 40, 83, 84, 85, 88, 92, 93, 94, 95, 98, 100, 101, 102, 103, 104, 105, 110, 111, 113, 118, 145, 146, 148, 151, 153, 154, 155, 159, 160, 164, 167, 172 trade agreement, 2, 105, 164 trade diversion, 103 trade liberalization, 88 trading, 88, 100, 101, 102, 103, 104 trading partners, 101, 104 traditions, 19 traffic, 206 trafficking, 37, 172, 175, 192 trafficking in persons, 175 Trafficking in Persons, 175 training, vii, x, 1, 5, 6, 7, 22, 23, 27, 28, 29, 30, 31, 33, 36, 55, 56, 63, 71, 72, 122, 125, 126, 127, 129, 131, 135, 161, 174, 181, 201 training programs, 27, 28 transactions, 91, 94, 97, 98, 103, 107, 108, 111, 154, 156, 157, 158, 159 transfer, 18, 32, 98, 201 transformation, 18, 161 transition, 19, 169, 185, 198 transmission, 3 transparency, 88, 96, 129, 152, 212 transport, 157 transportation, 90, 91, 92, 153 transshipment, 9, 10, 98, 103, 111 travel, 86, 102 Treasury, 9, 91, 96, 97, 108, 111, 115, 116, 117, 125, 153, 156, 157, 158, 159, 166

Treasury Department, 97, 108 treatment, 105, 190 trial, 151, 153, 165, 174 tribal, 171, 174 Turkey, ix, 7, 13, 14, 36, 40, 62, 63, 64, 100, 101, 102, 106, 107, 108, 117, 119, 134, 147, 150, 153, 165, 173, 174, 191, 195, 205 Turkmenistan, 100 turnover, 22, 26, 27, 28

U U.A.E., 118 U.N. Security Council, 37, 41, 54, 59, 65, 66, 68, 75, 81, 97, 156, 207 U.S. Agency for International Development, 203 U.S. assistance, x, xi, 72, 121, 122, 123, 129, 132, 135, 136, 200, 212 U.S. Department of Commerce, 9, 148, 160, 164 U.S. economy, x, 84, 106, 112 U.S. military, 112 U.S. policy, xi, 61, 84, 113, 123, 133, 145, 146, 147, 148, 150, 153, 163, 169, 172, 210 U.S. Secretary of Commerce, 10, 15 U.S. Treasury, 91, 97, 108, 111, 153, 158 UAE, 98, 101, 102, 103, 108, 111, 118 UK, 12, 76, 142, 167, 207, 208 UN, 39, 75, 77, 87, 116, 118, 139, 141, 148, 153, 207, 209 uncertainty, 108, 111, 194 underemployment, 19 underground economy, 91 unemployment, ix, 20, 21, 22, 23, 24, 25, 29, 32, 83, 84, 87, 88, 89, 99 unemployment insurance, 20, 32 unemployment rate, 21, 23, 24, 87 United Arab Emirates, x, 84, 98, 100, 101, 102, 118 United Kingdom, 5, 10, 12, 104, 110, 142, 159 United Nations, ix, xii, 10, 70, 81, 83, 84, 86, 107, 110, 111, 113, 118, 128, 129, 134, 139, 146, 150, 169, 180, 182, 184, 189, 190, 192, 202, 206, 208, 209, 212 United Nations Development Programme, 134 United Nations Office for the Coordination of Humanitarian Affairs, 208, 209 United Nations Relief and Works Agency, 182, 190, 202, 212 universities, 36 UNRWA, x, 122, 123, 124, 127, 128, 129, 130, 131, 139, 182, 183, 184, 190, 202, 203, 207, 209, 212 updating, 177 uranium, vii, ix, 1, 5, 6, 7, 9, 10, 11, 14, 62, 83, 84, 86, 89, 90, 108, 109, 152 uranium enrichment, ix, 83, 84, 86, 89, 90, 108, 109

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Index urban, 18, 153, 181, 182, 205 urban areas, 18 USA, 15, 33, 34, 78, 120, 157, 196 USA PATRIOT Act, 157

V value added tax, 161 values, 199 vehicles, 65, 95, 181, 184 Venezuela, 100, 106, 153 vessels, 2, 105 veto, 201 Vice President, 2, 65, 212 victims, 56, 173 violence, ix, xii, xiii, 35, 37, 38, 39, 42, 43, 45, 47, 48, 49, 51, 52, 53, 64, 68, 70, 123, 130, 147, 163, 179, 180, 183, 184, 188, 191, 192, 193, 194, 195, 198, 199, 204, 205, 207 vision, 38, 43, 53, 55, 63 Volkswagen, 95 vote, 37, 48, 73, 74, 114, 140, 173, 175, 192, 193, 197, 209 voters, 176, 177, 197, 198 voting, 151, 193, 198 vulnerability, 84, 99, 100, 177, 188

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W wage level, 22, 26, 32 wages, 19, 22, 25, 26, 31, 87 waiver, 71, 112, 125, 126, 132, 133, 155, 156, 157 Wall Street Journal, 118, 119 war, viii, xi, 35, 36, 40, 41, 46, 59, 61, 62, 65, 66, 67, 85, 90, 94, 127, 131, 137, 145, 146, 149, 155, 171, 181, 182, 186, 193, 195, 197, 198, 202, 206 Washington, 7, 14, 15, 42, 54, 60, 67, 76, 78, 117, 118, 138, 139, 141, 152, 161, 165, 166, 167, 192, 207, 208, 209, 210, 211, 212 Washington Post, 117, 118, 192, 207, 208, 209, 210, 212 water, vii, 1, 6, 11, 24, 53, 55, 56, 58, 59, 60, 63, 67, 124, 149, 151, 166, 190 water resources, 58, 59

water rights, 53 water supplies, 190 weakness, 173, 174 wealth, 18, 26, 85, 90 weapons, vii, ix, xi, 2, 3, 4, 9, 10, 11, 13, 14, 36, 37, 52, 55, 62, 66, 67, 73, 82, 83, 84, 86, 90, 91, 119, 146, 152, 156, 158, 160, 174, 180, 181, 187, 189, 200, 205, 206 weapons of mass destruction, 90, 91, 156, 160 welfare system, 31 wellbeing, 189 West Bank, viii, x, 35, 38, 39, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 68, 69, 70, 71, 72, 76, 78, 79, 121, 122, 123, 124, 125, 126, 127, 129, 131, 135, 136, 137, 138, 139, 140, 142, 188, 195, 198, 202, 203, 204, 206 Western countries, 101, 191 Western Europe, 142, 164 Western orientation, xii, 180, 191 wheat, 94 White House, 39, 43, 45, 48, 49, 57, 60, 63, 73, 79, 212 withdrawal, 37, 38, 39, 41, 42, 43, 58, 59, 60, 62, 63, 64, 65, 69, 149, 182, 192, 196, 197 WMD, xi, 9, 10, 15, 92, 97, 146, 156 women, 20, 28, 171, 174, 175, 176, 177, 190 wood, 103 work environment, 22, 27, 32 workers, 20, 21, 22, 23, 25, 26, 27, 31, 32, 33, 112, 188, 190 workforce, 25, 31, 32 working conditions, 22 World Bank, 87, 109, 114, 119, 134, 135, 141, 142 World Food Program, 203 World Trade Organization, 109, 148 worldwide, 99, 123, 125, 138, 172, 191, 199 WTO, 105, 118, 148

Y yield, 19 young people, 21, 23, 25, 28

Economic and Political Issues in the Middle East, edited by Cristina N. Parker, and Douglas M. Warde, Nova Science Publishers, Incorporated, 2011.