Order Code RL32260
CRS Report for Congress
.Received through the CRS Web
U.S. Foreign Assistance to the Middle East:
Historical Background, Recent Trends,
and the FY2006 Request
Updated June 13, 2005
Jeremy M. Sharp
Middle East Policy Analyst
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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U.S. Foreign Assistance to the Middle East:
Historical Background, Recent Trends,
and the FY2006 Request
Summary
This report is an overview of U.S. foreign assistance to the Middle East from
FY2002 to FY2005, and of the FY2006 budget request. It includes a brief history of
aid to the region, a review of foreign aid levels, a description of selected country
programs, and an analysis of current foreign aid issues. It will be updated periodically
to reflect recent developments. For foreign aid terminology and acronyms, please see
the glossary appended to this report.
Congress both authorizes and appropriates foreign assistance and conducts
oversight of executive agencies’ management of aid programs. As a region, the
Middle East is the largest annual recipient of U.S. economic and military aid. With
Iraq in need of long-term reconstruction assistance, many analysts expect Iraq to
become a regular recipient of U.S. foreign aid once the United States has transferred
sovereignty to an Iraqi national body.
For policymakers, foreign assistance plays a key role in advancing U.S. foreign
policy goals in the Middle East. The United States has a number of interests in the
region, ranging from support for the state of Israel and Israel’s peaceful relations with
its Arab neighbors, to the protection of vital petroleum supplies and the fight against
international terrorism. U.S. assistance helps to maintain the 1979 Camp David peace
accords between Israel and Egypt and the continued stability of the Kingdom of
Jordan, which signed its own peace treaty with Israel in 1994. U.S. funding also
works to improve Palestinian civil society, and aid officials have worked to ensure
that U.S. aid to the West Bank and Gaza Strip is not diverted to terrorist groups.
Since the attacks of September 11, 2001, the United States has established new
region-wide aid programs to promote democracy and encourage socio-economic
reform in order to undercut the forces of radicalism in some Arab countries.
According to the 9/11 Commission Report, “A comprehensive U.S. strategy to
counter terrorism should include economic policies that encourage development,
more open societies, and opportunities for people to improve the lives of their
families and to enhance prospects for their children’s future.”
U.S. aid policy has gradually evolved from a focus on preventing Soviet
influence from gaining a foothold in the region and from maintaining a neutral stance
in the Arab-Israeli conflict, to strengthening Israel’s military and economy and using
foreign aid as an incentive to foster peace agreements between countries in the
region. When adjusted for inflation, annual U.S. assistance to the Middle East in the
decades following World War II was only a small fraction of current aid flows.
However, beginning in the early 1970s, the United States dramatically increased its
foreign assistance to the Middle East. After the U.S. withdrawal from South Vietnam,
the Middle East as a whole began to receive more U.S. foreign aid than any other
region of the world, a trend that has continued to today.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Foreign Aid to Support Key U.S. Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Assistance to the Middle East Since 1950 . . . . . . . . . . . . . . . . . . . . . . . 3
1950-1970 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1971-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Recent Trends in Foreign Aid to the Middle East . . . . . . . . . . . . . . . . . . . . 7
Country Summaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Economic Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Military Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Other Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Economic Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Military Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Economic Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Military Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Palestinians — West Bank/Gaza
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Economic Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The FY2005 Supplemental Appropriations Act (P.L. 109-13) . . . . . . 16
Other Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Other Recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Foreign Aid Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Restrictions on Aid to the Palestinians . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Use of Presidential Waiver for FY2005 Supplemental Funds . . . . . . . 20
State Sponsors of Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
The Response to 9/11: U.S. Assistance to Promote Development,
Democracy, and Reform in the Middle East . . . . . . . . . . . . . . . . . . . . 22
The 9/11 Commission Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Legislative Response to the 9/11 Commission Recommendations . . . 22
The Broader Middle East and North Africa Initiative . . . . . . . . . . . . . 22
The Middle East Partnership Initiative . . . . . . . . . . . . . . . . . . . . . . . . 23
Foreign Aid to Promote Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Altering U.S. Assistance to Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Appendix A. Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

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List of Tables
Table 1. Total U.S. Foreign Assistance to the Middle East, 1950-1970 . . . . . . . . 4
Table 2. Total U.S. Assistance to the Middle East: 1971-2001 . . . . . . . . . . . . . . 7
Table 3. Total U.S. Assistance to the Middle East: FY2002-FY2006 Request . . 8
Table 4. U.S. Funds for Iraq Reconstruction and Iraqi Opposition,
FY2003-FY2006 Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 5. U.S. Assistance to Israel, FY2002-FY2006 Request . . . . . . . . . . . . . . 12
Table 6. U.S. Assistance to Egypt, FY2002-FY2006 Request . . . . . . . . . . . . . . 13
Table 7. U.S. Assistance to Jordan, FY2002-FY2006 Request . . . . . . . . . . . . . 14
Table 8. U.S. Assistance to the Palestinians, FY2002-FY2006 Request . . . . . . 17
Table 9. Other Regional Recipients, FY2002-FY2006 Request . . . . . . . . . . . . . 18
Table 10. International Assistance to the Palestinian Authority for
Calendar Year 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 11. Middle East Partnership Initiative Appropriations,
FY2002-FY2006 Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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U.S. Foreign Assistance to the Middle East:
Historical Background, Recent Trends,
and the FY2006 Request
Introduction
This report is an overview of U.S. foreign assistance to the Middle East from
FY2002 through the FY2006 budget request .1 It includes a brief historical review
of foreign aid levels, a description of specific country programs, and an analysis of
current foreign aid issues.2 Congress both authorizes and appropriates foreign
assistance and conducts oversight on executive agencies’ management of aid
programs. As the largest regional recipient of U.S. economic and military aid, the
Middle East is perennially a major focus of interest as Congress exercises these
responsibilities.
In the Middle East, the United States has a number of strategic interests, ranging
from support for the state of Israel and Israel’s peaceful relations with its Arab
neighbors, to the protection of vital petroleum supplies and the fight against
international terrorism. U.S. assistance was provided to support the 1979 Camp
David peace accords between Israel and Egypt and the continued stability of the
Kingdom of Jordan, which signed its own peace treaty with Israel in 1994. U.S.
funding also attempts to improve Palestinian civil society, and aid officials have
worked to ensure that U.S. aid to the West Bank and Gaza Strip is not diverted to
terrorist groups. Since the attacks of September 11, 2001, the United States has
established new region-wide aid programs that promote democracy and encourage
socio-economic reform in an attempt to undercut the forces of radicalism in some
Arab countries.
For readers seeking a general overview of U.S. foreign assistance, see CRS
Report 98-916, Foreign Aid: An Introductory Overview of U.S. Programs and Policy,
by Larry Nowels and Curt Tarnoff. For information on the FY2006 Foreign
Operations Bill, see CRS Report RL32919, Foreign Operations, State, and Related
Programs: FY2006 Appropriations, by Larry Nowels and Susan B. Epstein.
1 For the purposes of this report, the Middle East region, or Near East, is defined as an area
stretching from Morocco in the west to the Persian Gulf in the east, but not including
Turkey.
2 For assistance with foreign aid terminology and acronyms, please see the glossary
appended to this report.

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CRS-2
Background
Foreign Aid to Support Key U.S. Interests
Despite changing geopolitical conditions, U.S. foreign aid to the Middle East
has historically been a function of U.S. national security interests in the region. The
United States has pursued a foreign policy that seeks stability in a region with
abundant energy reserves but volatile interstate relationships. Policymakers have
often employed foreign aid to achieve this objective. Foreign aid has been used as
leverage to encourage peace between Israel and her Arab neighbors, while
strengthening bilateral relationships between the United States and Israel and
between the United States and moderate Arab governments. Foreign aid has worked
to cement close military cooperation between the United States and governments in
the region, discouraging local states from engaging in uncontrollable arms races.
Economic aid also has had an underlying strategic rationale, as U.S. funds have been
employed to promote development in an attempt to undercut radicalism in partner
countries.
The degree to which foreign assistance has contributed to the achievement of
U.S. objectives in the Middle East is difficult to measure, but the consensus among
most analysts seems to be that U.S. economic and security aid has contributed
significantly to Israel’s security, Egypt’s stability, and Jordan’s friendship with the
United States. The promise of U.S. assistance to Israel and Egypt during peace
negotiations in the late 1970s enabled both countries to take the risks needed for
peace, and may have helped convince both countries that the United States was
committed to supporting their peace efforts. Excluding Iraq, Israel and Egypt are the
largest two recipients of U.S. aid respectively.
There is debate over using foreign aid more aggressively to pursue various
objectives in the Middle East. Some critics of U.S. policy would like to see additional
conditions placed on U.S. aid to Egypt, for example, to achieve greater respect for
democracy and human rights in that country. Others favor using the aid program
more assertively as leverage to restart the Middle East peace process. Some might
urge that aid should be conditioned on demonstrable progress in extending full
political and economic rights to women. Others, however, assert that the overt use
of aid — or the threat of aid reductions — to promote democracy and reform in the
Middle East region could lead to a backlash against the United States. The debate
over promoting democracy in the Middle East remains vigorous.
Critics of U.S. aid policy, particularly some in the Middle East, have argued that
U.S. foreign aid exacerbates tensions in the region. Many Arab commentators insist
that U.S. assistance to Israel indirectly causes suffering to Palestinians by supporting
Israeli arms purchases. Another common argument asserts that U.S. foreign aid
bolsters autocratic regimes with similar strategic interests to the United States. Some
observers have called U.S. aid policy “contradictory,” accusing the United States of
bolstering its ties with autocratic regimes through military assistance, while
advocating liberalization in the region with less funds dedicated to reform and
development aid. As noted above, however, other analysts believe aid has helped
protect Israel’s security and stabilize the region.

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CRS-3
U.S. Assistance to the Middle East Since 1950
1950-1970. Even when adjusted for inflation, annual U.S. assistance to the
Middle East in the decades following World War II was only a small fraction of
current aid flows to the region. Under vastly different geopolitical circumstances,
U.S. policy was geared toward supporting the development of oil-producing
countries, maintaining a neutral stance in the Arab-Israeli conflict, and preventing
Soviet influence from gaining a foothold in Iran and Turkey. U.S. policymakers used
foreign aid in the 1950s and 1960s to support these objectives.
U.S. aid to Israel was far less in the 1950s and 1960s than in later years.3
Although the United States provided moderate amounts of economic aid (mostly
loans) to Israel, at the time, Israel’s main patron was France, which supported Israel
by providing it with advanced military equipment and technology.4 In 1962, Israel
purchased its first advanced weapons system from the United States (Hawk
antiaircraft missiles).5 In 1968, a year after Israel’s victory in the Six Day War, the
Johnson Administration, with strong support from Congress, approved the sale of
Phantom fighters to Israel, establishing the precedent for U.S. support for Israel’s
qualitative military edge over its neighbors.6
Between 1950 and 1970, the United States frequently courted Egypt using
foreign aid as a bargaining chip. Cold War competition for Egypt was fierce during
this time period, as Egypt received a steady stream of surplus U.S. wheat shipments
under the Food for Peace Program (P.L.480). Despite these measures, offers of
additional economic aid failed to convince Egypt to abandon a parallel relationship
with the Soviet Union, as Egypt pursued a strict Arab nationalist and neutral policy
that shunned close alliances with Western powers and cooperation and peace with
Israel. Internationally, after 1955, Egypt obtained military aid mainly from the Soviet
Union.
Beginning in 1965, foreign assistance levels to the region began to decline
considerably, culminating in an almost 80% drop in economic aid to the Middle East
by 1970. A host of factors, most notably the June 1967 War and the rising cost of the
war in Vietnam, led Congress to cut funding for a number of countries. Egypt, which
had already seen its annual aid reduced, lost food aid entirely after it severed relations
with the United States during the 1967 War. Jordan and other Arab states also saw
their aid reduced. By 1970, annual appropriations to Iran were close to being phased
3 In 1948, President Harry Truman, who sympathized with the plight of Israel in its early
days, placed an arms embargo on Israel and her Arab neighbors in order to keep the United
States neutral in the ongoing Arab-Israeli conflict.
4 France supplied Israel with military equipment mainly to counter Egyptian power in the
region. In the 1950s and early 1960s, Egypt antagonized France by providing arms and
training to Algerian fighters in Algeria’s war for independence against France.
5 “America’s Staunchest Mideast Ally,” Christian Science Monitor, August 21, 2003.
6 Section 651 of P.L. 90-554, The 1968 Foreign Assistance Act, expresses the sense of
Congress to see the United States negotiate the sale of supersonic aircraft to Israel.

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CRS-4
out, as many policymakers considered Iran to be a middle-income state that was
economically self-sufficient.
Table 1. Total U.S. Foreign Assistance to the Middle East,
1950-1970
(Loans & Grants; Current Year $ in millions)
Country/Region
Economic Military
Total
Iran
$750.9
$1,396.7
$2,147.6
Israel
$986.0
$277.3
$1,263.3
Egypt
$884.1
0.0
$884.1
Jordan
$601.0
$95.0
$696.0
Libya
$220.6
$17.4
$238.0
Lebanon
$111.0
$9.6
$120.6
Iraq
$45.2
$50.0
$95.2
Total Near East
(including other
$5,610.4
$2,244.4
$7,854.8
recipients not listed)
Source: U.S. Agency for International Development (USAID), Overseas Loans and Grants,
Obligations and Loan Authorizations July 1, 1945 - September 30, 2001. The report is commonly
known at USAID as “The Greenbook.”
1971-2001. The decade of the 1970s witnessed a dramatic increase in U.S.
foreign assistance to the Middle East. After the U.S. withdrawal from South Vietnam,
the Middle East as a whole began to receive more U.S. foreign aid than any other
region of the world, a trend that has continued to today. U.S. foreign aid programs
became more comprehensive in nature driven by large assistance packages to Israel
and later to Egypt and other Arab governments.
Large-scale U.S. assistance for Israel increased considerably after a series of
Arab-Israeli wars created a sense among many Americans that Israel was continually
under siege.7 Consequently, Congress, supported by broad U.S. public opinion,
committed to strengthening Israel’s military and economy through large increases in
foreign aid. In 1971, the United States provided Israel with military loans of $545
million, up from $30 million in 1970. Also in 1971, Congress first designated a
specific amount of aid for Israel (an “earmark”). Economic assistance changed from
project aid, such as support for agricultural development work, to the Commodity
7 Between 1967 and 1973, Israel and its Arab neighbors fought the June 1967 War, the
ensuing War of Attrition (1969), and the October 1973 War. Israel also was engaged in
continual low level guerrilla warfare with the Palestinian Liberation Organization and other
guerilla groups, which had bases in Jordan and later in Lebanon. The 1974 emergency aid
for Israel, following the 1973 war, included the first U.S. military grant aid.

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CRS-5
Import Program (CIP) for the purchase of U.S. goods.8 In effect, the United States
stepped in to fill the role that France had relinquished after French President Charles
De Gaulle refused to supply Israel with military hardware to protest its preemptive
launch of the June 1967 War. Israel became the largest recipient of U.S. foreign
assistance in 1976. From 1971 to the present, U.S. aid to Israel has averaged over $2
billion per year, two-thirds of which has been military assistance.
Just as Israel’s long-standing relationship with the United States was in its
incipient stages, Egypt, its economy in desperate need of investment and capital after
two wars, began to look to the United States to help stimulate economic growth.
Egypt’s new leader, Anwar Sadat, who had been eager to rid Egypt of excessive
Soviet influence and embark on a program of economic liberalization, improved
U.S.-Egyptian relations in the mid 1970s, leading to a resumption in economic aid
in 1975, and the signing of two disengagement agreements with Israel concerning
the Sinai desert. To a lesser extent, the United States significantly increased its
economic and military aid to Jordan after the 1970-1971 civil war, in which the
Jordanian Armed Forces expelled Palestinian guerrillas from Jordan where they had
seriously threatened stability.
The 1979 Camp David Peace Treaty between Israel and Egypt ushered in the
current era of U.S. financial support for peace between Israel and her Arab neighbors.
In exchange for a complete cessation of hostilities and Israel’s return of the Sinai
Peninsula, the United States provided a total of $7.5 billion to both parties in 1979.
The “Special International Security Assistance Act of 1979” (P.L. 96-35) provided
both military and economic grants to Israel and Egypt at a ratio of 3 to 2,
respectively.9 From the Egyptian standpoint, U.S. funds helped to subsidize its
bloated defense budget and upgrade its aging Soviet hardware. Egypt became the
second largest recipient of U.S. aid after 1979.
Since the Camp David Accords, U.S. assistance levels have remained relatively
consistent, and the United States has continued to support the peace process and the
strengthening of Israel. Israel, Egypt, and Jordan have been the top three regional
recipients of U.S. aid for more than two decades. Notable events involving
significant transfers of U.S. aid since the 1979 Camp David Accords include the
following:
! In 1985, Congress approved a $2.25 billion supplemental funding
package for Israel, Egypt, and Jordan to help stabilize their
deteriorating economies.
! In 1991, Egyptian support for the U.S.-led international coalition
against Iraq’s invasion of Kuwait led Congress to authorize the
cancellation of Egypt’s $6.7 billion military debt. Congress also
8 The Commodity Import Program for Israel ended in 1979 and was replaced with direct,
unconditional cash transfers.
9 This ratio is not found in the text of the 1978 and 1979 Camp David agreements. U.S.
officials have not officially recognized the ratio. The Egyptian government claims that a 3
to 2 ratio between Israel and Egypt was established during the negotiations.

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CRS-6
provided Israel $650 million in emergency ESF grants to pay for
damage and other costs from the war. In addition, Israel was given
Patriot missiles during the Persian Gulf war. Aid to Jordan was
reduced significantly (nearly 75% overall decrease) after the late
King Hussein was unwilling to join the allied coalition against Iraq.
! In October 1992, Congress approved $10 billion in loan guarantees
for Israel to help it absorb a massive influx of Jews from the former
Soviet Union.10 The approval of the loan guarantees was delayed due
to disagreements between the first Bush Administration and Israel
over use of U.S. funds in the West Bank and Gaza Strip. Of the $10
billion authorized, the United States deducted $774 million as a
penalty for Israeli settlement construction in the West Bank and
Gaza Strip, leaving $9.226 billion available to cover Israeli loans.
! In September 1993, after Israel and the Palestinian Liberation
Organization (PLO) agreed to a Declaration of Principles intended
to lead to a future peace agreement, the United States offered $500
million ($125 million in loans or loan guarantees and $375 million
in grants) over five years for economic development of the
Palestinian entity.11
! In 1994, in recognition of Jordan’s signing a peace treaty with Israel,
President Clinton asked Congress to pass legislation to forgive
Jordan’s $702.3 million debt to the United States (approximately
10% of Jordan’s worldwide debt). Congress appropriated a total of
$401 million in subsidies, which under pertinent budgetary
procedures were sufficient to forgive the entire $702.3 million owed
to the United States at the time.
! In November 1999, Congress approved $400 million in grants for
the Palestinians, $300 million for Jordan, and $1.2 billion for the
Israelis in 2000 to fund the implementation of the Wye River
Agreement.12
10 The U.S. loan guarantee to Israel is not a direct transfer of U.S. government funds to
Israel’s treasury. Rather, it is a guarantee on a commercial loan between the borrower
(Israel) and a private lender. A U.S. subsidy may be appropriated and set aside in a Treasury
account, held against a possible default or may be paid by the borrower (Israel). The subsidy
usually is a percentage of the total loan based in part on the credit rating of the country.
11 See CRS Issue Brief IB91137, The Middle East Peace Talks, by Carol Migdalovitz.
12 Signed on October 23, 1998, the Wye River Memorandum delineated steps to complete
the implementation of 1993 Oslo Peace agreement between Israelis and Palestinians. See
CRS Issue Brief IB91137, The Middle East Peace Talks, by Carol Migdalovitz.

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CRS-7
Table 2. Total U.S. Assistance to the Middle East: 1971-2001
(Loans & Grants; Current Year $ in millions)
Country/Region
Economic
Military
Total
Israel
$28,402.9
$50,505.7
$78,908.6
Egypt
$25,095.8
$27,607.0
$52,702.8
Jordan
$2,440.1
$2,137.2
$4,577.3
Lebanon
$470.5
$273.7
$744.2
Palestinians
$703.4
$0.0
$703.4
Syria
$539.0
$0.0
$539.0
Total Near East
(including other
$62,449.8
$82,519.2
$144,969.0
recipients not listed)
Source: U.S. Agency for International Development (USAID), Overseas Loans and Grants,
Obligations and Loan Authorizations July 1, 1945 - September 30, 2001. The report is commonly
known at USAID as “The Greenbook.”
Recent Trends in Foreign Aid to the Middle East
In the past five years, overall U.S. assistance to Middle Eastern countries has
increased moderately (excluding funds for Iraq reconstruction).13 This increase has
largely been a result of U.S. contributions to regional partners in the war on terror,
U.S. commitments to regional participants in the peace process,14 and U.S. support
for new development and democracy-promotion programs in the Middle East.
Supplemental Appropriations Acts in FY2003 (P.L. 108-11) and FY2005 (P.L. 109-
13) were the primary funding vehicles for recent increases.
Additional assistance for Israel and Egypt, which receive almost 93% of all
annual funding to the region, has fueled the increase in aid to the Middle East over
the last several years. Before the renewal of Arab-Israeli violence in 2000, the
September 11, 2001 terrorist attacks, and the Iraq war, annual aid to Israel and Egypt
was trending downward.15 However, the FY2003 Emergency Supplemental
Appropriations Act (P.L. 108-11) included $9 billion in loan guarantees over three
13 Although not part of the traditional foreign aid package to the region, Iraq reconstruction
appropriations, when taken into account, dramatically alter the assistance picture for the
Middle East. In FY2004, foreign aid to Iraq was more than three times the total U.S.
assistance package to the rest of the Middle East.
14 Following the peace talks at the Wye River Plantation in October 1998, President Clinton
proposed an aid package of $1.2 billion for Israel, $300 million for Jordan, and $400 million
for the Palestinians. Congress added $25 million for Egypt.
15 In 1998, Israel and the United States agreed to reduce U.S. economic assistance by $120
million per year and increase U.S. military assistance by $60 million per year over a 10-year
period beginning in 1999. A similar formula for reducing economic aid was applied to
Egypt, but Egypt did not receive an increase in military assistance.

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CRS-8
years for Israel’s economic recovery and $1 billion in military grants. For Egypt, the
United States agreed to allow $655 million in FY2002 economic aid to be
redistributed to help Egypt recover from a steep drop in tourism after 9/11.16 The
FY2003 Supplemental Act also allocated an additional $300 million in Economic
Support Funds (ESF) and $2 billion in loan guarantees for Egypt.
Although aid to Israel and Egypt accounts for most aid to the region, recent
increases to some smaller Arab states have been significant. For example, the
Kingdom of Jordan, which had already seen steady increases in aid throughout the
late 1990s, received an annual average of $780 million in economic and military aid
between FY2002 and FY2005 (including supplemental funding), up from an average
of $246 million per year between FY1996 and FY2001. In FY2005, aid to Morocco
was nearly doubled and was almost four times as large as its aid package in FY2002.
U.S. officials have praised Morocco for undertaking political and economic reforms
and have pledged to assist the Moroccan government in combating terrorism. In
November 2004, Morocco was declared an eligible candidate for Millennium
Challenge Account funding.17
Table 3. Total U.S. Assistance to the Middle East:
FY2002-FY2006 Request
(Regular & Supplemental Appropriations; Current Year $ in millions)
Near East
FY2002
FY2003
FY2004
FY2005
FY2006
Region
Actual
Actual
Actual
Estimate
Request
Totals
$5,567.810
$8,410.000
$5,556.383
$5,748.727
$5,464.090
When including funds for Iraq Reconstruction:
Near East
FY2002
FY2003
FY2004
FY2005
FY2006
Region
Actual
Actual
Actual
Estimate
Request
Totals
$5,567.810
$10,646.000
$23,995.383
$11,448.727
$5,878.264
w/Iraq
16 The tourism industry is one of Egypt’s primary sources of foreign exchange.
17 See CRS Report RL32427, Millennium Challenge Account: Implementation of a New
Foreign Aid Initiative, by Larry Nowels.

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CRS-9
Country Summaries
The following section provides funding details on the largest regular aid
recipients in the Middle East: Iraq, Israel, Egypt, Jordan, and the Palestinians. Each
country section features a table with a more elaborate breakdown of aid by foreign
aid account.
Iraq18
With Iraq in need of long term development and military assistance, many
analysts expect Iraq to become a regular recipient of U.S. foreign assistance at levels
possibly reaching those received by the leading American aid recipients. The FY2006
budget request seeks annual (not supplemental) foreign operations appropriations for
the Iraqi government for the first time since 1973.19 The Administration is requesting
$360 million in economic support funds to carry out traditional development
programs in the democracy, agriculture, and private sectors and $26 million in
International Narcotics Control and Law Enforcement account funds for rule of law-
related activities. Previously, these programs were funded by emergency
supplementals under the Iraq Relief and Reconstruction Fund (IRRF) account. In
another departure from existing practice, P.L. 109-13, the FY2005 Emergency
Supplemental Appropriations Act, provides $5.7 billion for a new Defense
Department account — the Iraq Security Forces Fund — supporting the training and
equipping of Iraqi security forces. Currently, most security training funds are
provided out of the IRRF, policy responsibility for which, although originally held
by the White House and delegated to the CPA (under DOD authority), has moved
to the State Department since the end of the occupation in June 2004.
18 For more detailed information on Iraq reconstruction, see CRS Report RL31833, Iraq:
Recent Developments in Reconstruction Assistance, by Curt Tarnoff or CRS Report
RL31339, Iraq: U.S. Regime Change Efforts and Post-Saddam Governance, by Kenneth
Katzman.
19 From 1998-2003, Congress appropriated an estimated $88 million in assistance for the
Iraqi opposition.

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CRS-10
Table 4. U.S. Funds for Iraq Reconstruction and Iraqi Opposition,
FY2003-FY2006 Request
(Regular & Supplemental Appropriations; Current Year $ in millions)
Account
FY2003
FY2004
FY2005
FY2006
Actual
Estimate
Estimate
Request
ESF
-
-
-
$360.000
INCLE -
-
-
$26.474
NADR (anti-
-
-
-
$27.000
terrorism)
IMET
-
-
-
$.700
Iraqi Relief and
$2,475.000
$18,439.000
-
-
Reconstruction
Fund
Iraq Security
-
-
$5,700.000
Forces Fund
Total
$2,475.000 $18,439.000
$5,700.000
$414.174
Source: CRS Report RL31833, Iraq: Recent Developments in Reconstruction Assistance, by Curt
Tarnoff.
Israel20
Overview. Since 1976, Israel has been the largest annual recipient of U.S.
foreign assistance and is the largest cumulative recipient since World War II. Strong
congressional support for Israel has resulted in Israel’s receiving benefits that may
not be available to other countries. For example, Israel can use U.S. military
assistance for research and development in the United States and for military
purchases in Israel.21 In addition, all U.S. foreign assistance earmarked for Israel is
delivered in the first 30 days of the fiscal year. Other recipients normally receive their
aid in staggered installments at varying times. The United States gives all Economic
Support Funds (ESF) directly to the government of Israel as a grant cash transfer
rather than allocating funds for specific development projects.22
20 In addition to U.S. foreign assistance, Israel also receives funds from annual defense
appropriations to support the research and development of new military technologies such
as the Arrow anti-missile system.
21 In FY1977, the Israeli government, for the first time, received special permission to use
FMF for research and development in Israel on the Merkava tank. After this precedent was
established, Israel has been allowed to spend a set percentage of its annual FMF inside
Israel.
22 Other governments, such as Egypt and Jordan, receive a percentage of their economic aid
as a grant cash transfer.

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CRS-11
Economic Assistance. Former Israeli Prime Minister Binyamin Netanyahu
told Congress on July 10, 1996, that Israel would end its dependency on U.S.
economic assistance. At the time, Israel was receiving $1.2 billion in grant economic
assistance and $1.8 billion in grant military assistance annually. In 1998, Israel and
the United States agreed to reduce U.S. economic assistance by $120 million per year
and increase U.S. military assistance by $60 million per year over a 10-year period
beginning in 1999.23 Israel received $357 million in ESF for FY2005, down from
$477 million in FY2004. The Administration has requested $240 million in ESF for
Israel in FY2006.
Military Assistance. Congress has taken measures to strengthen Israel’s
security and maintain its technological advantage over neighboring militaries. Annual
Foreign Military Financing (FMF) grants to Israel represent about 20% of the Israeli
defense budget and FMF levels are expected to increase incrementally by $60 million
a year to a level of $2.4 billion by 2008.24 Israel also is eligible to receive Excess
Defense Articles under section 516 of the Foreign Assistance Act. For FY2006, the
Administration has requested $2.28 billion in FMF for Israel.
Since FY1988, Congress has allowed Israel to use approximately a quarter of
its FMF funds as cash grant to pay for Israeli defense purchases in Israel ($550
million for FY2005). Since 1990, Congress has provided for Israel to receive its FMF
aid in a lump sum during the first month of the fiscal year, which allows Israel to
invest the funds in U.S. Treasury notes and earn interest similar to ESF early
disbursements.
Other Assistance. The FY2003 Emergency Supplemental Appropriations
Act (P.L. 108-11) provided $9 billion in loan guarantees for Israel. On November 26,
2003, the United States announced that the first tranche of $3 billion in loan
guarantees would be reduced by $289.5 million because of Israeli settlement activity
and the continued construction of the security barrier through Palestinian areas
beyond Israel’s 1967 border.
23 This agreement is noted in the conference report for the Security Assistance Act of 2000,
H.R. 4919/P.L. 106-280, October 6, 2000.
24 “U.S. to phase out economic, boost military aid to Israel,” CNN.com, January 19, 2001.
Available at [http://www.cnn.com/2001/WORLD/meast/01/19/us.israel/]

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CRS-12
Table 5. U.S. Assistance to Israel, FY2002-FY2006 Request
(Regular & Supplemental Appropriations; Current Year $ in millions)
FY2002
FY2003
FY2004
FY2005
FY2006
Account
Actual
Actual
Actual
Estimate
Request
ESF
$720.000
$596.100
$477.168
$357.120
$240.000
FMF
$2,040.000
$3,086.350
$2,147.255
$2,202.240
$2,280.000
Refugees
$60.000
$60.000
$50.000
$50.000
$40.000
Other*
$28.000
n/a
n/a
n/a
-
Total
$2,848.000
$3,742.450**
$2,674.423
$2,609.360
$2,560.000
Source: U.S. State Department
*This category includes funds for counter terrorism, border control, and technical cooperation.
** This figure does not include $9 billion in U.S. loan guarantees.
Egypt25
Overview. Since 1979, Egypt has been the second largest recipient of U.S.
foreign assistance, receiving an annual average of over $2 billion in economic and
military aid. Congress typically earmarks foreign assistance for Egypt in the Foreign
Operations Appropriations bill. The annual earmark has included a statement that
Egypt should undertake further economic reforms in addition to reforms taken in
previous years.
Economic Assistance. In January 1998, Israeli officials negotiated with the
United States to reduce economic aid and increase military aid over a 10-year period.
A 3 to 2 ratio similar to U.S. aid to Israel and Egypt was applied to the reduction in
aid ($60 million reduction for Israel and $40 million reduction for Egypt), but Egypt
did not receive an increase in military assistance. Economic aid has dropped in
annual $40 million increments from $815 million in FY1998 to $495 million in ESF
for the FY2006 request. In FY2005, as has been the case in previous years, $200
million in ESF was provided for the Commodity Import Program (CIP), which
provides hard currency for the Egyptian private sector to import U.S. goods.
In early January 2002, the United States agreed to accelerate Egypt’s aid
delivery, releasing $655 million in FY2002 ESF and $304 million in the foreign aid
“pipeline” to help Egypt overcome economic problems exacerbated by the fall in
tourism after September 11, 2001. The FY2003 Emergency Supplemental
Appropriations Act (P.L. 108-11) included $300 million in ESF for Egypt, which
could be used to cover the costs of up to $2 billion in loan guarantees. The loan
guarantees are to be issued over three years.
Military Assistance. The Administration has requested $1.3 billion in FMF
for Egypt in FY2006 — the same amount it received in FY2005. Almost all of
25 For additional information on U.S. aid to Egypt, see CRS Issue Brief IB93087, Egyptian-
United States Relations, by Clyde Mark. For details on USAID’s Egypt program, see
[http://www.usaid-eg.org/].

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CRS-13
Egypt’s FMF is committed to payments on a $3.2 billion arms agreement with the
United States, through which Egypt purchased 24 F-16 aircraft, 200 M-1 tanks, and
a Patriot missile battery. Egypt also receives excess defense articles worth hundreds
of millions of dollars annually from the Pentagon.
Table 6. U.S. Assistance to Egypt, FY2002-FY2006 Request
(Regular & Supplemental Appropriations; Current Year $ in millions)
FY2002
FY2003
FY2004
FY2005
FY2006
Account
Actual
Actual
Actual
Estimate
Request
ESF
$655.000
$911.002*
$571.608
$530.720
$495.000
FMF
$1,300.000
$1,291.550
$1,292.330
$1,289.600
$1,300.000
IMET
$1.217
$1.232
$1.369
$1.200
$1.200
P.L.480 Title
$3.839
$2.347
-
-
-
II
Total
$1,960.056
$2,206.131
$1,865.138
$1,836.200
$1796.200
Source: U.S. State Department
*$300 million of which could be used to draw on $2 billion in loan guarantees.
Jordan26
Overview. The United States has markedly increased aid to Jordan since the
mid-1990s to help Jordan strengthen its economy, maintain domestic stability, and
pursue normalization of its relations with Israel. Between FY1998 and FY2002,
annual U.S. economic and military aid levels to Jordan were approximately $150
million and $75 million, respectively. Further increases in U.S. aid to Jordan began
in FY2003, in view of Jordan’s support for the war against terrorism. Since FY2003,
Jordan’s total assistance package has averaged over $920 million per fiscal year. This
higher figure is due in part to large allocations for Jordan in the FY2003 Emergency
Supplemental Appropriations Act (P.L. 108-11) and the FY2005 Supplemental
Appropriations Act (P.L. 109-13).
Economic Assistance. For FY2006, the Administration has requested $250
million in ESF for Jordan. In fiscal years FY2004 and FY2005, Jordan received $350
million in ESF each year: $250 million from annual foreign operations appropriations
and $100 million from supplemental appropriations. The Administration has granted
Jordan additional economic assistance for its participation in training new Iraqi
police forces. In FY2003, Jordan received an additional supplemental ESF grant of
$700 million, on top of the $250 million in ESF grants from the FY2003
Consolidated Appropriations Resolution (P.L. 108-7). In FY2002, Jordan received
$100 million in supplemental ESF funds (to support U.S. efforts in the war on
26 For details on USAID’s Jordan program, see [http://amman.usembassy.gov/USAID/
Extamm-March2004.htm].

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CRS-14
terrorism) in addition to the $150 million in appropriations from the FY2002 Foreign
Operations Act (P.L. 107-115).
The United States provides economic aid to Jordan as both a cash transfer and
for USAID programs in Jordan. The Jordanian government uses these transfers to
service its foreign debt (approximately $7.6 billion). In FY2005, Jordan used $118
million in ESF for debt relief and $129 million for USAID programs.
Military Assistance. Jordan’s assistance in the war on terrorism and the
rebuilding of the Iraqi security forces has been recognized by U.S. policymakers.
The FY2005 Supplemental Appropriations Act (P.L. 109-13) provides $100 million
in FMF for Jordan in addition to its FY2005 FMF appropriation of $204 million.
Jordan has received four separate grants of FMF funds in the last three fiscal years:
$75 million from FY2002 Foreign Operations Act (P.L. 107-115), $25 million from
FY2002 Supplemental (P.L. 107-206), $198 million under the FY2003 Consolidated
Appropriations Resolution (P.L. 108-7), and $406 million from the Emergency
Wartime Supplemental Appropriations Act (P.L. 108-11). Under the FY2004
Consolidated Appropriations Act (P.L. 108-199), Jordan received $206 million in
FMF funds for FY2004 - the same amount it received in FY2005. Jordan is eligible
in FY2005 to receive U.S. Excess Defense Articles (EDA) under section 516 of the
Foreign Assistance Act.
Table 7. U.S. Assistance to Jordan, FY2002-FY2006 Request
(Regular & Supplemental Appropriations; Current Year $ in millions)
FY2002
FY2003
FY2004
FY2005
FY2006
Account
Actual
Actual
Actual
Estimate
Request
ESF
$250.000
$948.000
$348.525
$348.000
$250.000
FMF
$100.000
$604.000
$204.785
$304.352
$206.000
IMET
$2.012
$2.400
$3.225
$3.000
$3.000
Total
$352.012
$1,554.400
$556.535
$655.352
$459.000
Source: U.S. State Department
Note: This table does not include NADR/EXBS funds or peace corps funds.

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CRS-15
Palestinians — West Bank/Gaza27
Overview. Since the signing of the Oslo Accord in 1993, the U.S. government
has committed more than $1.8 billion in economic assistance to the Palestinians.28
Approximately 80% of U.S. funding for the Palestinians has been channeled through
USAID contractors and 20% through private voluntary organizations (PVOs).
According to annual foreign operations legislation, congressionally approved funds
for the West Bank and Gaza Strip cannot be used for the Palestinian Authority (PA),
unless the President submits a waiver to Congress citing that it is in the interest of
national security.29 Regular U.S. assistance to the Palestinians has been averaging
about $75 million per year since the Oslo accords in the early 1990s. There is no
current congressional earmark in annual appropriations bills for economic aid to the
Palestinians.
The United States has provided direct assistance to the Palestinian Authority on
only four occasions. In1993-1994, the United States provided $36 million through
the Holst Fund at the World Bank for direct assistance to the Palestinian Authority,
and an additional $5 million in cash and equipment for the Palestinian police. From
1995-2002, no U.S. assistance went to the Palestinian Authority or any of its
constituent bodies. On July 8, 2003, the United States announced that it would
provide $20 million out of a $50 million FY2003 Supplemental allocation as direct
aid to the PA for infrastructure projects. On December 8, 2004, President Bush again
approved $20 million in direct assistance to the PA. The $20 million was used to pay
off overdue Palestinian utility bills to Israeli companies. Following PA President
Mahmoud Abbas’ May 2005 visit to the White House, President Bush announced
that the United States would transfer an additional $50 million from unobligated ESF
funds to the Palestinian Authority.
Economic Assistance. With the passing of Palestinian leader Yasir Arafat
and the election of Mahmoud Abbas as the new President of the Palestinian
Authority, there is renewed hope for restarting the dormant Middle East peace
process. The United States has signaled its commitment to playing an active role by
sending Secretary of State Condoleezza Rice to the region and by increasing its
assistance to the Palestinians in order to strengthen Abbas’s efforts to consolidate
power inside the PA. In his February 2005 State of the Union Address, President
Bush indicated that the United States would provide $350 million to the Palestinians,
a substantial increase from previous years.
The President’s FY2006 Budget Request seeks $150 million in Economic
Support Funds (ESF) for the West Bank and Gaza Strip, which is double the recent
27 For details on USAID’s program in the West Bank and Gaza Strip, see [http://www.usaid.
gov/wbg/].
28 The USAID program in the West Bank and Gaza Strip provides assistance to the
Palestinian people through contractors and charities. The PLO, which represents the
Palestinian diaspora, has never received funds from the U.S. government.
29 See H.R. 4818 (P.L. 108-447), Consolidated Appropriations Act, FY2005, Limitation on
Assistance to the Palestinian Authority, sec. 550.

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CRS-16
amount of economic aid for USAID programs for the Palestinians. In addition, the
White House recently announced its intention to reprogram $41 million in assistance
(which had been reserved for a desalinization facility in the Gaza Strip) for programs
in health, education, and private sector development.
The FY2005 Supplemental Appropriations Act (P.L. 109-13). The
FY2005 Supplemental Appropriations Act provides an additional $200 million in
ESF for the Palestinians with several restrictions and resource allocation
requirements including the following.
! $60 million for economic revitalization projects (job creation, trade
promotion, and agriculture).
! Of the total amount, $50 million will support Israeli-built
checkpoints aimed at reducing the bottlenecks at these checkpoints
and facilitate the movement of Palestinian people and goods in and
out of Israel.
! Of the total amount, up to $5 million shall be made available for an
audit of expenditures by the Palestinian Authority by an outside
accounting firm.
! The measure further recommends $3.5 million for the Holy Family
Hospital in Bethlehem and $2 million for healthcare activities
undertaken by Hadassah, the Women’s Zionist Organization of
America. The Hadassah Medical Organization has been nominated
for the 2005 Nobel Peace Prize for its equal treatment of Palestinians
and Israelis patients.
Other Assistance. The United Nations Relief and Works Agency (UNRWA)
provides food, shelter, medical care, and education for many of the three million
Palestinian refugees from the 1948-1949 Arab-Israeli war. U.S. contributions to the
UNRWA are part of annual U.S. contributions to the United Nations.30 U.S. support
for UNRWA is not treated as bilateral economic aid to the Palestinians, which is
managed by USAID. U.S. contributions to UNRWA have been averaging around
$80 million per year with an additional $20 million annual contribution to meet crisis
needs.
30 See CRS Report RS21668, United Nations Relief and Works Agency for Palestine
Refugees in the Near East (UNRWA), by Rhoda Margesson.

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CRS-17
Table 8. U.S. Assistance to the Palestinians,
FY2002-FY2006 Request
(Regular & Supplemental Appropriations; Current Year $ in millions)
FY2002
FY2003
FY2004
FY2005
FY2006
Account
Actual
Actual
Actual
Estimate
Request
ESF
$72.000
$124.500
$74.558
$274.400
$150.000
P.L.480 Title II
-
$9.984
-
-
-
Total
$72.000
$134.484
$74.558
$274.400
$150.000
Source: U.S. State Department
Other Recipients31
Excluding Israel, Egypt, Jordan, and the Palestinians, the eight remaining
Middle Eastern recipients of U.S. foreign aid receive on average just 2% of the total
bilateral assistance to the region.32 The United States grants military education and
training funds (IMET), which typically do not exceed more than a million dollars a
year, to a number of states including Algeria and Saudi Arabia. Other wealthy states,
such as Oman and Bahrain, receive modest amounts of FMF funds to upgrade
weapons systems and maritime defense capabilities. The United States also provides
funding to Morocco, Tunisia, and Yemen for counter-terrorism training and for the
purchase of border surveillance and communications equipment. Since the U.S.S.
Cole bombings in Yemen in 2000 and the September 11 attacks, each of these three
countries has seen steady increases in their FMF aid.
Morocco, Lebanon, and Yemen have active USAID programs that address
development challenges such as illiteracy, malnutrition, and unemployment. In
Morocco, USAID is implementing job training and structural adjustment programs
to transition its economy following the October 2004 signing of the U.S.-Moroccan
Free Trade Agreement. In Lebanon, with its large middle class, U.S. economic aid
helps subsidize American educational institutions like the American University of
Beirut.33 In Yemen, one of the world’s poorest and fastest growing countries, USAID
31 For details on USAID programs in Morocco, Lebanon, and Yemen, see USAID’s website
at [http://www.usaid.gov/locations/asia_near_east/countries/countries.html].
32 For FY2005, Algeria, Bahrain, Lebanon, Morocco, Oman, Saudi Arabia, Tunisia, and
Yemen received a total of $138 million.
33 Section 1224 of P.L. 107-228 stated that $10 million of the funds available for FY2003
and subsequent years could not be obligated until the President certified to Congress that
Lebanese Armed Forces had deployed to the internationally recognized Lebanon-Israel
border and that Lebanon was asserting its authority over the border area. The amendment
was added to compel Lebanon to exercise control over the border area, displacing Hizballah
forces. Lebanon refused to move to the border until Israel evacuated the Shabaa Farms
disputed area. The $10 million was held in an escrow account pending negotiations among
(continued...)

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CRS-18
is focusing economic aid on Yemen’s five most remote and rural governorates in the
hopes of improving underlying socio-economic conditions.
Table 9. Other Regional Recipients, FY2002-FY2006 Request
(Regular & Supplemental Appropriations; Current Year $ in millions)
FY2002
FY2003
FY2004
FY2005
FY2006
Country/Account
Actual
Actual
Actual
Estimate
Request
Algeria (IMET)
$.067
$.612
$.722
$.850
$.750
Bahrain Total
$28.895
$90.448
$25.250
$19.498
$19.650
FMF
$28.500
$90.000
$24.682
$18.848
$19.000
IMET
$.395
$.448
$.568
$.650
$.650
Lebanon Total
$36.168
$35.470
$35.894
$40.920
$35.700
ESF
$35.000
$34.770
$34.794
$39.720*
$35.000
DA
$.600
-
$.400
$.500
-
IMET
$.568
$.700
$.700
$.700
$.700
Morocco Total
$10.307
$13.119
$17.337
$42.843
$60.875
ESF
-
-
-
$19.840
$35.000
FMF
$3.500
$4.900
$9.940
$15.128
$18.000
DA
$5.766
$6.644
$5.400
$6.000
$6.000
IMET
$1.041
$1.575
$1.997
$1.875
$1.875
Oman Total
$25.481
$81.567
$25.675
$20.940
$21.100
FMF
$25.000
$81.000
$24.850
$19.840
$20.000
IMET
$.481
$.567
$.825
$1.100
$1.100
Saudi Arabia
$.024
$.022
$.024
$.025
$.025
IMET
Tunisia Total
$4.513
$6.400
$11.726
$11.795
$11.875
FMF
$3.500
$4.900
$9.827
$9.920
$10.000
IMET
$1.013
$1.500
$1.899
$1.875
$1.875
Yemen Total
$28.488
$14.436
$27.228
$25.900
$41.100
FMF
$20.000
$1.900
$14.910
$9.920
$10.000
DA
-
$2.000
-
-
-
ESF
$8.000
$9.898
$11.432
$14.880
$30.000
IMET
$.488
$.638
$.886
$1.100
$1.100
* The FY2005 Supplemental Appropriations Act (P.L. 109-13) provides $5 million in ESF to Lebanon for
support of democracy and political part development.
33 (...continued)
the United States, Israel, Lebanon, and Members of Congress. The funds were eventually
released in March 2004 after the Secretary of State certified to Members of Congress that
appropriate action had been taken.

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CRS-19
Foreign Aid Issues
Restrictions on Aid to the Palestinians
Annual Foreign Operations Appropriations measures include several limitations
on funding for Palestinian organizations and institutions. Congressionally approved
funds for the West Bank and Gaza Strip cannot be used for the Palestinian Authority
(PA), unless the President submits a waiver to Congress citing that it is in the interest
of national security. Nevertheless, some lawmakers are concerned that a lack of
transparency and overall lack of governing authority in the West Bank and Gaza Strip
could indirectly lead to U.S. funds being siphoned off for use by terrorist groups or
for Palestinian uprising activities. A Palestinian audit in 1996 reportedly found that
some 40% of the PA’s budget had been wasted or misused.34 Some lawmakers are
concerned that U.S. donations to the United Nations Refugee Works Administration
(UNRWA), which has provided services to Palestinian refugees since 1948, could
be used for terrorist activities.35 In a 2002 letter to U.N. Secretary General Kofi
Annan, Representative Tom Lantos reportedly wrote that, “it is difficult to escape the
painful conclusion that UNRWA, directly or indirectly, is complicit in terrorism.”36
The United States is the largest donor to UNRWA, providing a third of its annual
budget.
USAID has taken several precautions to ensure that funds for Palestinian NGOs
in the West Bank and Gaza Strip are not used to support terrorism. According to a
USAID factsheet on aid to the Palestinians:
U.S. law prohibits transactions with, and the provision of resources and support
to, individuals and organizations associated with terrorism. USAID/WBG
ensures compliance with this prohibition in several ways. First, before awarding
any contract or grant to an organization, USAID/WBG reviews the list of
designated individuals and organizations involved with terrorism, to ensure that
the organization under consideration has not been so designated. Second, the
U.S. Government reviews the organization and its key personnel for possible
associations with terrorist organizations. Third, every contract and grant awarded
by USAID includes a clause reminding the recipient of its legal obligation to
comply with the prohibition stated above. These three measures offer a high
degree of confidence that no USAID/WBG assistance is being provided to
individuals or organizations involved in terrorism.37
34 Judy Barsalou, “Missing the Mark: Foreign Aid to the Palestinians,” Middle East Policy,
Vol.X, No.4, Winter 2003.
35 On November 17, 2003, the General Accounting Office (GAO) released the results of its
investigation of UNRWA. It found that UNRWA does not have an arrangement with
authorities in the West Bank and Gaza to review local job applicants for UNRWA
employment. See [http://www.gao.gov/docdblite/details.php?rptno=GAO-04-276R].
36 “Lantos Call for Probe of UNRWA,” Ha’aretz, May 22, 2002.
37 “Frequently Asked Questions - USAID West Bank and Gaza Program,” The United States
Agency for International Development (USAID) website: [http://www.usaid.gov/
wbg/faq.htm#aa13].

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CRS-20
In May 2002, Yasser Arafat appointed Salam Fayyad, a Palestinian economist
and former International Monetary Fund (IMF) representative to the PA, as Finance
Minister. Since then, Fayyad has been charged with overseeing the Palestinian
Investment Fund, a single account for all aid deposits held at the Arab Bank in Gaza
City.38 Some analysts have credited Fayyad with streamlining PA government
finances and making PA expenditures more transparent. Some U.S. policymakers
assert that Finance Minister Fayyad brought credibility to the Palestinian Authority
budget process.
Some Palestinian aid workers have expressed frustration with U.S. requirements
for aid disbursement. According to a 2004 Washington Times report, some
Palestinian organizations refused to sign a pledge promising that U.S. assistance will
not be used to support terrorism.39 The pledge is based on Executive Order 13224
that requires all recipients of U.S. aid to guarantee that their organization does not
support terrorism. The report indicated that the aid workers feel that the pledge’s
definition of terrorist-supporting activities would cover the majority of projects
underway in the West Bank and Gaza Strip.40
The following restrictions on aid to the Palestinians are found in H.R. 4818
(P.L. 108-447), the FY2005 Consolidated Appropriations Act:
! No U.S. assistance to the Palestinian Broadcasting Corporation
(PBC). Israel accuses the PBC of inciting violence against Israelis.
The PBC was originally designed to be an independent corporation.
! No direct U.S. assistance to the Palestinian Authority unless the
President submits a waiver to Congress citing that it is in the interest
of national security.
! No U.S. assistance to a future Palestinian state unless the Secretary
of State certifies, among other things, that the leadership of the new
state has been democratically elected, the new state is committed to
peaceful coexistence with Israel, and is taking appropriate measure
to combat terrorism.
! All U.S. assistance to the West Bank and Gaza Strip must be audited
on an annual basis to ensure that funds are not being diverted to
terrorist groups.
Use of Presidential Waiver for FY2005 Supplemental Funds. The
FY2005 Supplemental Appropriations Act (P.L. 109-13) does not include any direct
financing for the Palestinian Authority. Conferees state that the President’s waiver,
38 The Palestinians Authority depends on foreign aid for 60% of its annual budget revenues.
39 “Palestinian Groups Refuse Funds,” Washington Times, January 8, 2004.
40 To read more about Executive Order 13224 and review the U.S. Treasury Department’s
Office of Foreign Asset Control Terrorism Sanctions Regulations, see Treasury’s website
at [http://www.treas.gov/offices/enforcement/ofac/sanctions/t11ter.pdf].

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which he exercised in December 2004 to provide such direct aid to the PA with
FY2005 regular appropriations, does not extend to the supplemental funds. It
appears, however, that the President could issue a new waiver based on existing
authority (granted in the General Provisions of Division D of P.L. 108-447, the
FY2005 Consolidated Appropriations Act). During earlier consideration of the
FY2005 Supplemental bill (H.R. 1268), the House had prohibited use of any
supplemental funds for direct aid to the PA. The Senate bill had not included such
a restriction, although the Senate Appropriations Committee reminded the
Administration that existing conditions on West Bank/Gaza aid and PA restrictions
included in the FY2005 Consolidated Appropriations Act (P.L. 108-447) would
apply to supplemental funds as well. Unlike the House-passed measure, however,
the Senate provision would have allowed the President to use the national security
waiver authority provided in P.L. 108-447 for direct aid to the PA with supplemental
funds if he made such a determination in the future. However, the Administration
may be unwilling to act against the apparent intent of the conferees, as the latest U.S.
pledge of direct assistance to the PA is reportedly coming from unobligated FY2005
annual appropriations and not from FY2005 supplemental funds.
Table 10. International Assistance to the Palestinian Authority
for Calendar Year 2004
($ in millions)
Country/Organization
Donations
European Union
$105.800
World Bank
$92.344
Saudi Arabia
$76.999
United States
$20.000
Libya
$13.799
United Kingdom
$12.300
Norway
$12.000
Japan
$10.000
Canada
$7.000
Egypt
$3.317
Other
$6.647
Total
$360.206(est)
Source: USAID, PA Ministry of Finance
State Sponsors of Terrorism
Under the terms of the Export Administration Act of 1979 (P.L. 96-72; 50
U.S.C. app. 2405(j)(as amended)), countries listed by the Secretary of State as “state-
sponsors of terrorism”are prohibited from receiving foreign aid. In the Middle East,
Iran, Libya, and Syria have long been designated as sponsors of terrorism, though
there is some speculation that Libya may be removed from the list in the future. On

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October 7, 2004, Iraq was officially removed from the terrorism list, though a
Presidential Directive in May of 2003 had already lifted most restrictions. Congress
authorized the President to waive application of the terrorism-related sanctions and
other restrictions against Iraq in the Emergency Wartime Supplemental Act, 2003
(P.L. 108-11). Iraq had been listed as a “state-sponsor of terrorism”from 1979-1982
and then from 1990-2004. Iran, Iraq, Libya, and Syria were all recipients of U.S.
military and economic aid at one time or another in the distant past.
The Response to 9/11: U.S. Assistance to Promote
Development, Democracy, and Reform in the Middle East
The 9/11 Commission Report. After the September 11, 2001 terrorist
attacks, foreign aid to the Middle East was no longer seen as exclusively serving
regional security needs, but became part of an evolving U.S. national security
strategy in the war on terror. Although most experts agree that the underlying causes
of Islamic radicalism in the region are complex, many U.S. officials believe that
foreign aid used to promote economic development, educational reform, and
democratization can help eliminate terrorist breeding grounds. The 9/11 Commission
Report reiterated the importance of formulating policies that seek to expand
opportunities, particularly for young people in the Arab world and Muslim-majority
countries. According to the report, “A comprehensive U.S. strategy to counter
terrorism should include economic policies that encourage development, more open
societies, and opportunities for people to improve the lives of their families and to
enhance prospects for their children’s future.”41 Since 2001, several new
Administration initiatives have been designed to promote development, democracy,
and reform in the Middle East and in countries with significant Muslim populations.
Congress also has proposed legislation in response to the 9/11 Commission
recommendations.
Legislative Response to the 9/11 Commission Recommendations.
P.L. 108-458, the National Intelligence Reform Act of 2004, authorized the Secretary
of State to conduct a pilot program to make grants to American-sponsored elementary
and secondary schools in predominantly Muslim countries for the purpose of
providing scholarships to students from lower-and middle-income families of such
countries to attend such schools.
The Broader Middle East and North Africa Initiative. On June 8, 2004,
at the G-8 Summit meeting in Sea Island, Georgia, U.S., European, and Arab officials
unveiled the “Broader Middle East & North Africa Initiative,” a multilateral
development and reform plan reportedly aimed at fostering economic and political
liberalization in a wide geographic area of Arab and non-Arab Muslim countries.42
The initiative builds on a November 2003 speech by President Bush and follows
earlier Administration pledges to help spread democracy in Iraq and in other Arab
countries. On December 11, 2004, BMENA members convened in Rabat, Morocco
41 See “An Agenda of Opportunity,” The 9/11 Commission Report, section 12.3, p. 379.
42 See CRS Report RS22053, The Broader Middle East and North Africa Initiative: An
Overview, by Jeremy M. Sharp.

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for a ministerial level follow-up meeting to the G-8 Summit, in which specific
components of the BMENA initiative were outlined. The United States has pledged
$15 million over two years to help fund a BMENA program, and it is unclear what
additional resources G-8 countries will devote to the initiative.
The Middle East Partnership Initiative. On December 12, 2002, Secretary
of State Colin Powell announced the creation of The Middle East Partnership
Initiative (MEPI), a program to encourage reforms in Arab countries by
strengthening Arab civil society, encouraging micro-enterprise, expanding political
participation, and promoting women’s rights.43 MEPI represents an attempt to take
a more thematic approach to foreign aid in the Middle East by stressing its reform
elements. Although funding for MEPI represents only a small portion of total aid to
the region (2%), some U.S. officials stress that MEPI represents a philosophical
commitment to ensure that future U.S. economic aid encourages social, political, and
economic reforms in Arab countries. Some observers assert that if the MEPI reform
agenda were applied broadly to Middle East development projects, it might produce
difficulties or unforseen consequences.
Table 11. Middle East Partnership Initiative Appropriations,
FY2002-FY2006 Request
(Regular & Supplemental Appropriations; Current Year $ in millions)
FY2002
FY2003
FY2004
FY2005
FY2006
Actual
Actual
Estimate
Estimate
Request
$29.000
$90.000 $89.469*
$75.000
$120.000
*The FY2004 Iraq Reconstruction Relief Funds Supplemental (P.L. 108-106) specifies that $30
million in Iraq reconstruction funds may be transferred to MEPI for FY2004.
Congress also provides democracy-promotion funds to the State Department and
non-governmental organizations for programs in countries with significant Muslim
populations ($15 million in FY2005). The FY2005 consolidated appropriations bill
specifies that $3 million may be used for grants to educational, humanitarian and
non-governmental organizations and individuals inside Iran to support the
advancement of democracy and human rights. For FY2005, Congress also has
authorized funds for democracy promotion in Syria. The FY2005 Consolidated
Appropriations Act also provides $4 million to the National Endowment for
Democracy’s Muslim Democracy Program and $11 million to the State Department
for democracy promotion in the Muslim world.
43 See CRS Report RS21457, The Middle East Partnership Initiative: An Overview, by
Jeremy M. Sharp.

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Foreign Aid to Promote Human Rights
Congress at times may use foreign aid appropriations legislation as a vehicle to
protest human rights violations in some countries of the Middle East.44 Saad al-Din
Ibrahim is an Egyptian professor and a critic of the Egyptian government’s human
rights and democracy record who also holds U.S. citizenship. In 2001, he was
arrested for defaming Egypt by describing discrimination against Coptic Christians,
and for not reporting a donation from the European Union for a voter education
project. Ibrahim was acquitted by an Egyptian court in March 2003. In response to
Ibrahim’s detention, lawmakers inserted language into the FY2004 Consolidated
Appropriations Act (P.L. 108-199) specifying $1 million in ESF be made available
to support civil society organizations working for democracy in Egypt, including
Ibrahim’s organization, the Ibn Khaldun Center for Development.
Altering U.S. Assistance to Egypt45
Some lawmakers believe that U.S. assistance to Egypt has not been effective in
promoting political and economic reform and that foreign assistance agreements must
be renegotiated to include benchmarks that Egypt must meet to continue to qualify
for U.S. foreign aid. Others have periodically called for restrictions on U.S. aid to
Egypt on the grounds that Egypt indirectly supports Palestinian terrorism, suppresses
its own population, including minority Christians, and continues to procure long-
range missiles and other weapons systems from rogue states.46 An amendment
offered on July 15, 2004, to the House FY2005 foreign operations bill (H.R. 4818)
would have reduced U.S. military aid to Egypt by $570 million and increased
economic aid by the same amount, but the amendment failed by a vote of 131 to 287.
On January 29, 2005, Egyptian authorities arrested Ayman Nour, a member of
the Egyptian parliament and head of the opposition Tomorrow Party that espouses
secularism and supports women’s rights in Egypt. Nour was charged with perjury
and forging party membership applications despite the Egyptian government’s recent
legalization of his party in October 2004. Three weeks prior to his arrest, Nour
submitted a draft constitution to the Egyptian parliament calling for fully democratic
presidential elections. U.S. officials have protested the Egyptian government’s arrest
of Nour. At this time, his status is unknown.
Some U.S. officials assert that reducing Egypt’s military aid would undercut the
peace between Israel and Egypt.47 Overall, many U.S. observers believe that U.S.
support for Egypt stabilizes the region and extends U.S. influence in the most
populous Arab country.
44 Critics of U.S. Middle East Policy accuse the United States of supporting autocratic
governments that frequently commit human rights violations.
45 See CRS Issue Brief IB93087, Egypt-United States Relations, by Clyde Mark.
46 “U.S. Worries over Egypt-North Korea Missile Program,” Middle East Times, June 22,
2001, [http://www.metimes.com/].
47 “Aid to Egypt: Why the Current Mix Works,” MEI Perspective, Remarks by Ambassador
Edward S. Walker Jr., the Middle East Institute, March 8, 2002.

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For years, Congress has specified in annual foreign operations appropriations
that ESF funds to Egypt are provided with the understanding that Egypt undertake
certain economic reforms and liberalize its economy. USAID believes that its
programs have helped contribute to Egypt’s economic growth and macroeconomic
stability. Others note that Egypt still has a bloated public sector, and assert that U.S.
economic aid mainly helps subsidize Egypt’s social welfare and education budget.
U.S. policymakers have repeatedly suggested that trade with and investment in Egypt
may be as effective as aid in reforming the Egyptian economy. In 1994, then Vice
President Al Gore and Egyptian President Hosni Mubarak launched the United
States-Egyptian Partnership for Economic Growth and Development, a council of
private and public sector officials dedicated to enhancing trade between the two
countries.
The FY2005 Consolidated Appropriations Act (P.L. 108-447) stipulates that
U.S. funds for democracy and governance activities in Egypt are no longer subject
to the prior approval of the Egyptian government. At this point, it is unclear how this
provision will affect USAID programming in Egypt. USAID recently completed a
$32 million NGO Service Center in order to facilitate the growth of independent,
non-governmental organizations in Egypt.
H.R. 2601, the FY2006/FY2007 House Foreign Relations Authorization bill,
would reduce U.S. military assistance to Egypt by $40 million for each of the next
three fiscal years, while using the funds to promote economic changes, fight poverty,
and improve education in Egypt. Currently, there is no companion provision in the
Senate’s Foreign Relations Authorization bill (S. 600).

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Appendix A. Glossary
Bilateral assistance
Economic aid provided by the United States directly to a country or
through regional programs to benefit one or more countries
indirectly.
Development assistance
Aid provided under Chapters I and 10 of the Foreign Assistance Act
(DA)
primarily designed to reduce poverty and promote economic
growth.
Economic Support Fund
An appropriation account for funding economic assistance to
(ESF)
countries based on considerations of special economic, political or
security needs and U.S. interests.
Foreign Assistance Act,
The primary, permanent authorization for conducting U.S. foreign
1961 (FAA)
assistance programs.
Foreign Military
The major U.S. military aid program extending credits on a grant
Financing (FMF)
basis to finance U.S. overseas arms transfers.
International Military
A U.S. military aid program providing grant military training to
Education and Training
selected foreign military and civilian personnel.
(IMET)
Iraq Relief and
A catch-all development and security account controlled by the
Reconstruction Fund
President containing funds for reconstruction activities in Iraq.
(IRRF)
Middle East Partnership
A State Department program to encourage political, economic, and
Initiative (MEPI)
educational reforms in Arab countries.
Multilateral assistance
Assistance which the United States provides to developing nations
through multilateral development banks, United Nations agencies,
and other international organizations with development purposes.
Non-governmental
Organizations that are independent of government. NGOs are
organizations (NGOs)
frequently used to implement foreign aid programs.
Palestinian Authority
The Palestinian National Authority is a semi-autonomous quasi-state
institution nominally governing the Palestinians in West Bank and
the Gaza Strip
Pipeline
The amount of economic assistance that has been obligated by U.S.
agencies but has not yet been expended.
P.L. 480
Refers to the Agricultural Trade Development and Assistance Act of
1954, which governs administration of the U.S. food aid program.
The Department of Agriculture manages title I of P.L. 480 (food aid
provided on concessional loan terms) and USAID manages title II
(food grants provided for development and humanitarian purposes).
Private Voluntary
Non-profit, tax-exempt and nongovernmental organizations
Organizations (PVOs)
established and governed by a group of private citizens whose
purpose is to engage in voluntary charitable and development
assistance operations overseas.
United Nations Relief
UNRWA provides relief and social services, including food,
and Works Agency for
housing, clothing, and basic health and education to over 4.1 million
Palestine Refugees
registered Palestine refugees living mostly in the West Bank and
(UNRWA)
Gaza Strip, but also in Jordan, Lebanon, and Syria.
U.S. Agency for
An independent government agency under the direction of the
International
Secretary of State that manages most U.S. bilateral economic
Development (USAID)
assistance programs.

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