Order Code IB82008
CRS Issue Brief for Congress
Received through the CRS Web
Israel: Background and Relations
with the United States
Updated July 25, 2005
Carol Migdalovitz
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Historical Overview of Israel
Government and Politics
Overview
Current Political Situation
Economy
Overview
Current Issues
Foreign Policy
Middle East
Iran
Palestinian Authority
Egypt
Jordan
Syria
Lebanon
Other
European Union
Relations with the United States
Overview
Issues
Peace Process
Trade
Aid
Security Cooperation
Other Current Issues
Military Sales
Espionage-related Cases
Intellectual Property Protection
U.S. Interest Groups
Map of Israel

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Israel: Background and Relations with the United States
SUMMARY
On May 14, 1948, the State of Israel
rael’s vision of a Palestinian state remains
declared its independence and was immedi-
unclear. Israel concluded a peace treaty with
ately engaged in a war with all of its neigh-
Egypt in 1979 and with Jordan in 1994, but
bors. Armed conflict has marked every de-
never reached an agreement with Syria or
cade of Israel’s existence. Despite its unstable
Lebanon. It unilaterally withdrew from south-
regional environment, Israel has developed a
ern Lebanon in 2000.
vibrant parliamentary democracy, albeit with
relatively fragile governments. Prime Minis-
Israel’s relations with the European
ter Ariel Sharon formed the current three-party
Union are important because the European
coalition in January 2005 in order to secure
countries collectively represent Israel’s second
support for his plan to withdraw from the
largest trading partner and a participant in the
Gaza Strip and four small settlements in the
peace process. However, Israel considers the
West Bank, now scheduled to be implemented
EU to be biased in favor of the Palestinians
after August 15. Some observers are already
and objects to its assuming an even larger role
predicting an early national election some
in the peace process.
time after disengagement.
Since 1948, the United States and Israel
Israel has an advanced industrial, market
have developed a close friendship based on
economy in which the government plays a
common democratic values, religious affini-
substantial role. The economy has recovered
ties, and security interests. U.S.-Israeli bilat-
from declines experienced due to the Palestin-
eral relations are multidimensional. The
ian intifadah (uprising) against Israeli occupa-
United States is the principal proponent of the
tion and the international high-tech crash.
Arab-Israeli peace process, but U.S. and
Finance Minister Benjamin Netanyahu is
Israeli views differ on various peace process
attempting to liberalize the economy by cut-
issues, such as the fate of the Golan Heights,
ting the role of government.
Jerusalem, and Israeli settlements. The United
States and Israel concluded a free-trade agree-
Israel’s foreign policy is focused largely
ment in 1985, and the United States is Israel’s
on its region, Europe, and the United States.
largest trading partner. Since 1976, Israel has
The government views Iran as a strategic
been the largest recipient of U.S. foreign aid.
threat due to its nuclear ambitions, and blames
While the two countries do not have a mutual
Iran for supporting anti-Israel terrorists. Israel
defense agreement, they do have very close
negotiated a series of agreements with the
security relations.
Palestinians in the 1990’s, but the Oslo peace
process ended in 2000, shortly after the begin-
Current issues in U.S.-Israeli relations
ning of the intifadah. Israeli and Palestinian
include Israel’s military sales to China, inade-
officials resumed contacts after the death of
quate Israeli protection of U.S. intellectual
Yasir Arafat. Their immediate focus is on the
property, and espionage-related cases.
success of Israel’s disengagement from Gaza.
Both sides have accepted the internationally-
See also CRS Issue Brief IB85066,
brokered framework for achieving a two-state
Israel: U.S. Foreign Assistance and CRS Issue
solution, known as the “Roadmap.” Yet, Is-
Brief IB91137, The Middle East Peace Talks.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On July 11, Israeli press reported that Israel is requesting about $2.25 billion in special
aid in a mix of grants and loan guarantees over four years, with one-third to be used to
relocate military bases from the Gaza Strip to Israel in the disengagement from Gaza and the
rest to develop the Negev and Galilee regions of Israel and for other purposes, but none to
help compensate settlers or for other civilian aspects of the disengagement. On July 18, the
Israeli Knesset (parliament), by a wide margin, defeated bills to postpone the disengagement.
Finance Minister Benjamin Netanyahu and Education Minister Limor Livnat, who oppose
disengagement and have ambitions for higher office, were absent from the vote. Most other
members of Prime Minister Sharon’s Likud party voted against postponement. On the
following days, police and soldiers prevented anti-disengagement protesters led by the
Council of Jewish Communities in Judea, Samaria, and Gaza (Yesha Council) from
marching from southern Israel to the Gaza Strip. On July 22, Secretary of State Condoleezza
Rice visited Israeli Prime Minister Ariel Sharon at his ranch. She reportedly emphasized the
importance of coordinating the Gaza withdrawal with the Palestinian Authority (PA) and
using it to strengthen Palestinian President Mahmud Abbas. She also reiterated a desire to
see disengagement form the basis of a renewed diplomatic process based on the Roadmap.
BACKGROUND AND ANALYSIS
Historical Overview of Israel1
The quest for a modern Jewish homeland was launched with the publication of
Theodore Herzl’s The Jewish State in 1896. The following year, Herzl described his vision
at the first Zionist Congress, which encouraged Jewish settlement in Palestine, then part of
the Ottoman Empire. In 1917, the British government issued the Balfour Declaration,
supporting the “establishment in Palestine (which had become a British mandate after World
War I) of a national home for the Jewish people.” Britain also made conflicting promises to
the Arabs concerning the fate of Palestine, which had an overwhelmingly Arab populace.
Nonetheless, Jews immigrated to Palestine in ever greater numbers and, following World
War II, the plight of Jewish survivors of the Nazi holocaust gave the demand for a Jewish
home greater poignancy and urgency. In 1947, the U.N. developed a partition plan to divide
Palestine into Jewish and Arab states, with Jerusalem under U.N. administration. The Arab
states rejected the plan. On May 14, 1948, the State of Israel proclaimed its independence
and was immediately invaded by Arab armies. The conflict ended with armistice agreements
between Israel and its neighbors: Egypt, Jordan, Lebanon, and Syria. Israel engaged in armed
conflict with some or all of these countries in 1948, 1956, 1967, 1973, and 1982. Since the
late 1960’s, it also has dealt with the asymmetric threat of terrorism from Palestinian groups.
In 1979, Israel concluded a peace treaty with Egypt, the predominant Arab country, thus
making another multi-front war unlikely. Israel’s current relations with its neighbors are
discussed in Foreign Policy below.
1 For more, see Howard M. Sachar, A History of Israel: From the Rise of Zionism to Our Time, New
York, Knopf, 1996.
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Government and Politics
Overview
Israel is a parliamentary democracy in which the President is chief of state and the
Prime Minister is chief of government. The President, Moshe Katzav, is elected by the
unicameral parliament (the Knesset) for
a seven-year term. The Prime Minister,
Ariel Sharon, is the leader of the Likud
Parties in the Knesset
party with the most seats in parliament.
Party
Seats
The Israeli political spectrum is highly
Likud
40
fragmented, with small parties
Labor/Meimad
19
exercising disproportionate power due to
Shinui
15
the low vote threshold for entry into
Shas
11
parliament and the need for their
National Union
7
numbers to form coalition governments.
National Religious Party (NRP)
6
Meretz/Yahad
6
National elections must be held at least
United Torah Judaism (UTJ)**
5
every four years, but are often held
Am Ehad
3
earlier due to difficulties in holding
Hadash/Ta’al
3
coalitions together. The average life
National Democratic Assembly/Balad
3
span of an Israeli government is 22
United Arab List
2
months. The peace process, the role of
religion in the state, and political
* Elected as Yahad/Democratic Choice
scandals have caused coalitions to break
**Elected as Agudat Yisrael, 3, Degel Hatorah, 2
apart or produced early elections.
As a result of the January 2003 national elections, there are currently 17 parties or blocs
represented in the 120-seat Knesset. Sharon’s first government was a coalition of the right
wing Likud, secularist Shinui, far-right
National Union, and the orthodox
Key Cabinet Officers
National Religious Party (NRP).
Ministers from National Union and
Ariel Sharon, Prime Minister
NRP resigned or were ousted because
(also holds Social Welfare and
of their opposition to Sharon’s plan to
Science and Technology portfolios)
disengage (withdraw) from the Gaza
Shimon Peres, Vice Premier
Strip and four northern West Bank
Ehud Olmert, Vice Premier and Minister of
settlements. Shinui was forced out after
Industry, Trade, and Labor
it voted against a budget to increase
Silvan Shalom, Deputy Prime Minister and
funding for religious services and
Foreign Minister
schools designed to attract other
Shaul Mofaz, Minister of Defense
religious parties to a new coalition.
Benjamin Netanyahu, Minister of Finance
Limor Livnat, Minister of Education, Culture,
and Sport
On January 10, 2005, Sharon
Tzipi Livni, Minister of Immigrant Absorption
formed a new government to ensure
and Minister of Justice
approval of his disengagement plan.
Ophir Pines-Paz, Minister of the Interior
Because a third (13 members) of his
o w n L i k u d p a r t y o p p o s e
disengagement, Sharon had to build a
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coalition large enough to overcome the loss of their votes. The present coalition includes
Likud, Labor, and the orthodox United Torah Judaism. The government was narrowly
approved by a vote of 58-56, only because opposition leftist and Arab parties which favor
disengagement abstained. The next national election is scheduled to be held in November
2006, but many analysts predict an early national election for various reasons: due to
difficulties with disengagement, to enable Sharon to ride a wave of disengagement success,
or to ease or postpone expected international pressure on Israel to take additional steps in the
peace process after disengagement.
Israel does not have a constitution. Instead, 11 Basic Laws lay down the rules of
government and enumerate fundamental rights; two new Basic Laws are under consideration.
The Basic Laws may eventually become chapters in a constitution. Israel has an independent
judiciary, with a system of magistrates courts and district courts topped by a Supreme Court.
There is an active civil society. Some political pressure groups are especially
concerned with the peace process, including the Yesha Council, which represents local settler
councils in the West Bank and Gaza Strip and opposes any withdrawal from occupied Arab
territories, and Peace Now, which opposes settlements, the security barrier in the West Bank,
and seeks territorial compromise. Both groups have U.S. supporters.
Current Political Situation
On June 8, the Israeli Supreme Court ruled that the plan to disengage from Gaza and
laws to compensate evacuated settlers are legal, clearing the way for disengagement to
proceed as scheduled after August 15. As reflected in different polls, a fluctuating majority
of Israelis favors disengagement. Settler groups and their supporters have seemed to define
the terms of the public debate, while supporters have been less vocal. Some settler groups
are protesting evacuation by civil disobedience — disrupting traffic and harassing or
encouraging members of the security forces to disobey orders. Others, such as Members of
the ultranationalist Kach movement, may protest violently. Oil and nails have already been
poured on roads during rush hour and threats have been made against Sharon and some
ministers. On June 29, after clashes between opponents of disengagement and soldiers and
Palestinians, Sharon vowed to end extremist violence and not “allow a lawless gang to take
control of life in Israel.”
Sharon has been arguing the case for disengagement more frequently. On June 28, he
explained, “We will leave the Gaza Strip, an area where there is no chance of establishing
a Jewish majority and which everybody realizes will not be part of the State of Israel under
any permanent arrangement. At the same time, we will concentrate our efforts on the areas
most important to ensure our existence: the Galilee, the Negev, greater Jerusalem, the
settlement blocs, and security zones.” In a televised speech on June 30, the Prime Minister
declared that disengagement will have “a decisively positive influence” on security, the
economy, and quality of life in the country, help moderate Palestinian forces, and bolster ties
with the United States and Egypt. Often, however, Sharon’s has been a lone voice. Many
Labor, leftist, and Israeli Arab supporters of disengagement appear reluctant to join a man
they have opposed for many years.
As noted above, disengagement from Gaza has split the Likud and intraparty politics
are becoming even more heated in anticipation of the next national election. Sharon has
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several possible challengers/successors with a range of views on disengagement. Probably
the strongest challenge comes from former Prime Minister and Finance Minister Netanyahu,
who has shifted his position from reluctant supporter to opponent of withdrawal. Deputy
Prime Minister Olmert had floated the trial balloon for disengagement before Sharon’s
December 2003 speech and still supports it. Netanyahu and Olmert are public rivals.
Foreign Minister Shalom often hedges his views, voting for disengagement while voicing
doubts. Defense Mofaz is not a Knesset member and is responsible for implementing
disengagement, which may determine his political future. Opponents of disengagement have
submitted signatures to force the convening of a Likud Central Committee meeting to call
an early leadership primary in which they will try to defeat Sharon. The meeting will
probably take place after the Gaza disengagement. Some question whether Likud could
survive a leadership contest intact. Sharon has charged that “extremists are seizing control
of Likud.”
For its part, Labor has indefinitely postponed a leadership primary due to irregularities
in a massive new member registration drive. Shimon Peres, the 82-year-old former Prime
Minister and Nobel Prize winner, has served as acting leader since months after the party’s
loss in the 2003 national election. He wants to implement elements of the Roadmap peace
process framework as an incentive to get the Palestinians to fight terror, differing from
Sharon who has made the fight against terror a precondition for the next stage of the peace
process. Peres’s advocacy of joining the government to support disengagement has
subordinated his party’s social and economic positions to Likud’s liberal economic agenda
and has received a mixed reception among the party rank and file. He is running for party
leader against four challengers. They are Histadrut labor federation leader Amir Peretz,
former Prime Minister Ehud Barak, Infrastructure Minister Benjamin Ben Eliezer, and
Minister without Portfolio Matan Vilna’i. Barak and Peretz want to pull out of the
government, and Peretz, who projects
himself as champion of the working
class, is promoting a social welfare
agenda.
Basic Facts
Population . . . . . . . . . . 6.2 million (2005 est.)
Economy
Population growth rate . . . . . 1.39% (2003 est.)
Ethnic Groups . . . . . . . . Jewish 80.1% (1996)
Overview
. . . . non-Jewish (mostly Arab) 19.9% (1996)*
Gross Domestic Product growth rate . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 (2004 est.)
Israel has an advanced industrial,
GDP per capita . . . . . . . . . $20,400 (2004 est.)
market economy in which the
Inflation rate . . . . . . . . . . . . . . . 0% (2004 est.)
government plays a substantial role.
Unemployment rate . . . . . . . 10.7% (2004 est.)
Most people enjoy a middle class
Foreign debt . . . . . . . $74.46 billion (2004 est.)
standard of living. Per capita income is
Imports . . . . . crude oil, grains, raw materials,
about the same as that in Cyprus, one of
military equipment
the wealthier, new European Union
Exports . . . . . . cut diamonds, high-technology
members. Despite limited natural
equipment, fruits and vegetables
resources, the agricultural and industrial
Main Trading Partners . . . . . . . United States,
sectors are well-developed. An
Belgium, Germany, United Kingdom
advanced high tech sector includes
Sources: CIA, The World Factbook, 2004; and the
aviation, communications, computer-
Israeli government.
aided design and manufactures, medical
*within 1967 borders
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electronics, and fiber optics. Israel greatly depends on foreign aid and loans and
contributions from the Jewish diaspora.
After economic declines in 2001 and 2002 due to the effects of the Palestinian intifadah
(uprising) on tourism and the bursting of the global high-tech bubble, Israel’s economy has
recovered since 2003. Finance Minister Netanyahu claims credit for the improvement. Under
his leadership, the government has attempted to liberalize the economy by controlling
government spending, reducing taxes, and resuming privatization of state enterprises. The
chronic budget deficit has decreased, while the country’s international credit rating has been
raised, enabling a drop in interest rates. Netanyahu’s critics suggest that cuts in social
spending are widening the national income gap and increasing the underclass.
Current Issues
Prime Minister Sharon insists that disengagement from Gaza, despite its estimated $1.5
billion cost, will economically benefit the country because “optimism” in the political sphere
will result in a rise in tourism, foreign investments, and consumption.
Now on Netanyahu’s agenda are reforms to end domination of the banking sector by
two big banks, Hapoalim and Leumi. New legislation will require banks to divest
themselves of mutual funds and other holdings. The Knesset also is considering reforms to
decrease income tax rates and corporate taxes, while increasing capital gains taxes.
Foreign Policy
Middle East
Iran. Israeli officials state that Iran will pose a strategic threat to Israel if it achieves
nuclear capability because, in their view, the aim of the Iranian theocracy is the destruction
of Israel and the Jewish people. They add that they will not allow any country in the region
to arm itself with nuclear weapons, citing Israel’s bombing of Iraq’s reactor at Osirak in 1981
as a precedent. They have called on the international community to thwart Iran’s nuclear
ambitions to avert the need for Israeli military action. While U.S. Vice President Dick
Cheney warned in early 2005 that Israel might act pre-emptively against Iran, Israeli Defense
Minister Shaul Mofaz countered, urging a U.S. pre-emptive strike. In June 2005, however,
Mofaz said that U.S. and European diplomatic and economic pressure could resolve the
issue. Israeli officials also blame Iran for funding Hizballah and Palestinian terrorist groups
that seek to obstruct the peace process. Relations between Israel and Iran are unlikely to
change as long as theocrats hold power in Teheran; newly elected President Mahmud
Ahmadinejad shares their views about the illegitimacy of Israel.
Palestinian Authority. During the Oslo peace process of the 1990’s, Israelis and
Palestinians negotiated a series of agreements that resulted in the creation of a Palestinian
administration with territorial control over parts of the West Bank and Gaza Strip. After
Sharon came to power and during the intifadah, Israel refused to deal with the late
Palestinian leader Yasir Arafat. Since Arafat’s death in November 2004 and the election of
Mahmud Abbas as President of the Palestinian Authority (PA) in January 2005, Israel’s
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relations with the PA and its leaders have improved. Sharon and Abbas met at a summit in
Sharm al-Shaykh, Egypt, in February, and promised to end violence and to take other
measures. Israel has made some goodwill gestures toward the PA, such as releasing almost
900 prisoners, handing over two cities to PA control, showing some restraint in the targeting
of Palestinian terrorist group leaders, and easing a few of the many roadblocks and other
restrictions on Palestinian daily life. President Abbas and 13 Palestinian factions agreed to
an informal truce in March, and violence has abated. Although Israeli officials continue to
describe the disengagement from the Gaza Strip as unilateral, they have met with Palestinian
counterparts to coordinate implementation of the disengagement plan.
Israel has 242 settlements and other civilian land use sites in the West Bank, 25 in the
Gaza Strip, and 29 in East Jerusalem — all areas that the Palestinians view as part of their
future state. Currently, it also retains military control over much of the West Bank and Gaza
Strip, and is continuing to build a security barrier on West Bank territory to separate Israelis
and Palestinians and prevent terrorists from entering Israel. Palestinians object to the barrier
being built on their territory. Critics suggest that the barrier is taking the form of a future
border between Israel and Palestine.
The Israeli government accepted the Roadmap, the framework for a peace process
leading to a two-state solution, developed by the United States, European Union, U.N., and
Russia, reluctantly and with many conditions. Sharon has stated that he would like to “give”
the Palestinians a state, but he has not described his vision of one. The Palestinians fear that
he foresees a state on about 42% of the territory of the West Bank as he suggested shortly
after he became Prime Minister. Sharon contends that the Roadmap requires that the PA
fight terror, by which he means disarm militants and dismantle their infrastructure. Abbas
prefers to keep groups such as Hamas in the political system and refuses to disarm them. He
even invited Hamas to join the government, but it refused. Despite these differences, Sharon
is determined to implement his disengagement plan. He is likely to emphasize disarmament
when the international community pressures him to revive a robust peace process after
disengagement.
Egypt. After fighting four wars in as many decades, Israel and Egypt signed a peace
treaty in 1979. In 1982, Israel withdrew from the Sinai Peninsula, which it had taken in the
1967 war. Egypt and Israel established diplomatic relations, although Egypt withdrew its
ambassador during the four years of the second intifadah, 2001-2005, because it objected to
Israel’s “excessive” use of force against the Palestinians. Some Israelis refer to their ties
with Egypt as a “cold peace” because full normalization of relations, such as enhanced trade,
bilateral tourism, and educational exchanges, has not materialized. Egyptian President Hosni
Mubarak has visited Israel only once — for the funeral of former Israeli Prime Minister
Yitzhak Rabin. Outreach is often one way, from Israel to Egypt. Egyptians say that they are
reluctant to engage because of Israel’s continuing occupation of Arab lands. Israelis are
upset by some Egyptian media and religious figures’ anti-Israeli and occasionally anti-
Semitic rhetoric. Nonetheless, the Egyptian government often plays a constructive role in
the Arab-Israeli peace process, hosting meetings and acting as a liaison. In March 2005, it
helped secure the informal Palestinian truce and, in July, tried to prevent the truce from
breaking due to violence between Palestinian factions and Israel and between Palestinian
Authority security forces and the factions. Egypt wants Gaza to be peaceful after Israel’s
disengagement and has offered to deploy 750 military border guards to secure the Gaza-
Egyptian border (14 kilometers of land border and 3 km of sea). A memorandum of
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understanding reportedly will be signed shortly, and Egypt expects to deploy its forces by the
end of July. After one year, the two sides will jointly evaluate the mission. Israel refused
an Egyptian request to deploy military border guards, instead of police, for greater control
of smuggling along the entire border in Sinai, which some Israelis argue would require a
change in the military appendix of the 1979 peace treaty.
In December 2004, Egypt and Israel signed a Qualified Industrial Zone (QIZ)
Agreement under which jointly produced goods will enter the U.S. market duty free as part
of the U.S.-Israeli Free Trade Agreement (FTA). On June 30, 2005, Israel signed a
memorandum of understanding to buy 1.7 billion cubic feet of Egyptian natural gas for an
estimated U.S.$2.5 billion over 15 years, fulfilling a commitment first made in an addendum
to the 1979 peace treaty. The deal includes cooperation in construction of infrastructure and
may expand to other energy areas. Gas is not expected to flow before 2007. (See also, CRS
Issue Brief IB93087, Egypt-United States Relations, updated regularly.)
Jordan. Israel and Jordan signed a peace treaty in October 1994 and exchanged
ambassadors, although Jordan did not have an ambassador in Israel during most of the
intifadah. Relations have developed with trade, cultural exchanges, and water-sharing
agreements. Since 1997, Jordan and Israel have collaborated in creating 13 qualified
industrial zones (QIZs) to export jointly produced goods to the United States duty-free under
the U.S.-Israel Free Trade Agreement. Normalization of ties is not popular with the
Jordanian people, over half of whom are of Palestinian origin, although King Abdullah II has
attempted to control media and organizations opposed to normalization. The King is very
supportive of the peace process, wants the Roadmap to be implemented, and has hosted
meetings between Israeli and Palestinian leaders. He has offered to deploy Palestinian troops
based in Jordan to the West Bank to assist with security, but Israel has rejected the offer.
(See also, CRS Issue Brief IB93085, Jordan: U.S. Relations and Bilateral Issues, updated
regularly, and CRS Report RS22002, Qualifying Industrial Zones in Jordan: A Model for
Promoting Peace and Development in the Middle East? , January 26, 2005.)
Syria. Israel and Syria have fought several wars and, except for rare breaches, have
maintained a military truce along their border for many years. Yet, they failed to reach a
peace agreement in negotiations that ended in 2000. Since 1967, Israel has occupied Syria’s
Golan Heights and, in December 1981, effectively annexed it by making Israeli law
applicable there. There are 42 Israeli settlements on the Golan. Syrian President Bashar al-
Asad has said that he wants to hold peace talks with Israel, but Israeli officials demand that
he first meet several preconditions. They demand that he cease supporting the Lebanese
Hizballah militia, which attacks Israeli forces in the disputed Sheba’a Farms area of Lebanon
and communities in northern Israel and aids Palestinian militant groups. In addition, they
want Asad to expel Palestinian rejectionist groups, i.e., those who do not agree with the
Israeli-Palestinian peace process. Many Israelis, including Prime Minister Sharon, maintain
that some or all of the Golan is essential for their security, and suggest that any talks will be
aimed at securing Israel’s presence there. At this time, most observers believe that, without
significant progress in the Israeli-Palestinian talks, the Israeli-Syrian track will remain
moribund. (See also, CRS Issue Brief IB92075, Syria: U.S. Relations and Bilateral Issues,
updated regularly.)
Lebanon. Israeli forces invaded Lebanon in 1982 to prevent Palestinian attacks on
northern Israel. The forces were gradually withdrawn to a self-declared nine-mile “security
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zone,” north of the Israeli border. Peace talks in the 1990’s failed to produce a peace treaty,
mainly, as some observers suggest, because of Syria’s insistence that it first reach an accord
with Israel. Israel unilaterally withdrew from southern Lebanon on May 25, 2000. Lebanon
insists that the Israeli withdrawal is incomplete because of the continuing presence of Israeli
forces in the Sheba’a Farms area, in the region where Lebanon, Syria, and Israel meet. The
United Nations has said that Israel’s withdrawal was complete and treats the Sheba’a Farms
as part of Syria’s Golan occupied by Israel. Hizballah took control of the former “security
zone,” and attacks Israeli forces in Sheba’a and northern Israeli communities. The Lebanese
government considers Hizballah to be a legitimate resistance group and as a political party
represented in parliament. Israel views it solely as a terrorist group and wants the Lebanese
army to move into the south and to disarm Hizballah. (See also, CRS Issue Brief IB89118,
Lebanon, updated regularly, and CRS Report RL31078, The Shib’a Farms Dispute and Its
Implications, August 7, 2001.)
Other. Israel has diplomatic relations with Mauritania, and has interest or trade offices
in Morocco, Tunisia, Oman, and Qatar. The latter four suspended relations with Israel during
the intifadah.
European Union
Israel has complex relations with the European Union. Many Europeans believe that
the Israeli-Palestinian conflict is a root cause of terrorism and Islamist extremism among
their own Muslim populations and want it addressed urgently. The EU has ambitions to
exert greater influence in the Middle East peace process. The EU is a member of the
“Quartet” with the United States, U.N., and Russia which developed the Roadmap. EU
officials appear to share Palestinian suspicions that Sharon’s disengagement plan means
“Gaza first, Gaza only” and that it will not lead to the Roadmap process. They observe, with
concern, Israel’s ongoing settlement activity and construction of the security barrier in the
West Bank, which, according to the Europeans, contravene the Roadmap and prejudge
negotiations on borders. Israel is cool to EU overtures because it views many Europeans as
biased in favor of the Palestinians and hears an increasing number of European voices
questioning the legitimacy of the State of Israel. They contend that the basis of such views
is an underlying European anti-Semitism.
Some European representatives have met with or indicated their intention to meet with
local Hamas leaders elected in December 2004 to oversee European-funded local projects.
Israel asserts that the circumstances that led the EU to place Hamas on its list of terrorist
organizations are unchanged and opposes actions that grant Hamas legitimacy at the expense
of moderate Palestinian groups.
Israel participates in the EU’s Euro-Mediterranean Partnership Initiative, otherwise
known as the Barcelona Process, and in the European Neighborhood Policy (ENP). And
European countries combined are Israel’s second largest trading partner, after the United
States, but the EU bans imports from Israeli settlements in the occupied territories. (See also,
CRS Report RL31956, European Views and Policies Toward the Middle East, March 9,
2005, and CRS Report RL31017, The Barcelona Process: The European Union’s
Partnership with the Southern Mediterranean, June 12, 2001.)
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Relations with the United States
Overview
On May 14, 1948, the United States became the first country to extend de facto
recognition to the State of Israel. Over the years, the United States and Israel have developed
a close friendship based on common democratic values, religious affinities, and security
interests. Relations have been evolved through legislation, memorandums of understanding,
economic, scientific, military agreements, and trade.
Issues
Peace Process. The United States has been the principal international proponent of
the Arab-Israeli peace process. President Jimmy Carter mediated the Israeli-Egyptian talks
at Camp David which resulted in the 1979 peace treaty. President George H.W. Bush
convened the peace conference in Madrid in 1990 that inaugurated a decade of
unprecedented, simultaneous negotiations between Israel, Jordan, Syria, Lebanon, and the
Palestinians. President Clinton continued U.S. activism throughout his tenure in office and,
in particular, facilitated the Israeli-Jordanian peace treaty in 1994. He also hosted the Israeli-
Palestinian summit at Camp David in 2000 that failed to reach a peace settlement.
Secretary of State Condoleezza Rice has not named a Special Middle East Envoy and
has said that she will not get involved in direct Israeli-Palestinian negotiations of issues. She
prefers to have the Israelis and Palestinians work together. Israel reportedly rebuffed a U.S.
attempt to have Lt. Gen. William Ward, whom Rice assigned to assist with Palestinian
security reforms, also facilitate Israeli-Palestinian security coordination for the Gaza
disengagement.
All recent U.S. Administrations have disapproved of Israel’s settlement activity as
prejudging final status and possibly preventing the emergence of a contiguous Palestinian
state. At times of violence, U.S. officials have urged Israel not use disproportionate force
and to withdraw as rapidly as possible from Palestinian areas retaken in security operations.
The current Bush Administration has insisted that U.N. Security Council resolutions be
“balanced,” by criticizing Palestinian as well as Israeli violence and has vetoed resolutions
which do not meet that standard.
The United States has never recognized Israel’s annexation of the Golan Heights which
it views as a violation of international law. Former Secretary of State Warren Christopher
said that the United States might be willing to guarantee security arrangements for the Golan
in the context of a sound agreement. The current administration has not attempted to revive
Israeli-Syrian peace talks.
Since taking East Jerusalem in the 1967 war, Israel has insisted that Jerusalem is its
indivisible, eternal capital. Few countries have agreed with this position. The U.N.’s 1947
partition plan called for the internationalization of Jerusalem, while the Declaration of
Principles signed by Israel and the Palestine Liberation Organization in September 1993 says
that it is a subject for permanent status negotiations. U.S. Administrations have recognized
that Jerusalem’s status is unresolved by keeping the U.S. Embassy in Tel Aviv. However,
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in 1995, both houses of Congress mandated that the embassy be moved to Jerusalem, and
only a series of presidential waivers of penalties for non-compliance have delayed that event.
U.S. legislation has granted Jerusalem status as a capital in particular instances and sought
to prevent U.S. official recognition of Palestinian claims to the city. (See also CRS Issue
Brief IB91137, The Middle East Peace Talks.)
Trade. Israel and the United States concluded a Free Trade Agreement in 1985, and
all customs duties between the two trading partners have since been eliminated. The FTA
includes provisions that protect both countries’ more sensitive agricultural sub-sectors with
non-tariff barriers, including import bans, quotas, and fees. Israeli exports to the United
States have grown 200% since the FTA became effective. As noted above, qualified
industrial zones in Jordan and Egypt are considered to be part of the U.S.-Israeli free trade
area. The United States is Israel’s main trading partner. In 2004, the United States took
38.4% of its exports, while providing 15.6% of its imports. On the other hand, Israel took
only about 1.12% of U.S. exports and provided less than 1% of U.S. imports. The U.S.-
Israeli balance of trade favors Israel, with about a 8.41% U.S. deficit.2
Aid. Israel has been the largest recipient of U.S. foreign aid since 1976. In 1998,
Israeli, congressional, and Administration officials agreed to reduce U.S. $1.2 billion in
Economic Support Funds (ESF) to zero over ten years, while increasing Foreign Military
Financing (FMF) from $1.8 billion to $2.4 billion. The process began in FY1999, with P.L.
105-277, October 21, 1998. Separately from the scheduled cuts, however, Israeli has
received an extra $1.2 billion to fund implementation of the Wye agreement (part of the
Israeli-Palestinian peace process) in FY2000, $200 million in anti-terror assistance in
FY2002, and $1 billion in FMF in the supplemental appropriations bill for FY2003. For
FY2005, Israel will receive $357 million in ESF, $2.202 billion in FMF, and $50 million in
migration settlement assistance. For FY2006, the Administration has requested $240 million
in ESF and $2.28 billion in FMF. H.R. 3057, passed in the House on June 28, 2005, and in
the Senate on July 20, approves these amounts. H.Rept. 109-152 and S.Rept. 109-996 also
support $40 million for the settlement of migrants from the former Soviet Union and take
note of Israel’s plan to bring remaining Ethiopian Jews to Israel in three years.
Congress has legislated other special provisions regarding aid to Israel. Since the
1980s, ESF and FMF have been provided as all grant cash transfers, not designated for
particular projects, transferred as a lump sum in the first month of the fiscal year, instead of
in periodic increments. Moreover, Israel is allowed to spend about one-quarter of the
military aid for the procurement in Israel of defense articles and services, including research
and development, rather than in the United States. Finally, to help Israel out of its economic
slump, P.L. 108-11, April 16, 2003, provided $9 billion in loan guarantees over three years,
use of which has since been extended to 2008. As of July 2005, Israel had not used $4.9
billion of the guarantees. (For more details, see CRS Issue Brief IB85066, Israel: U.S.
Foreign Assistance, April 26, 2005, and CRS Report RL32260, U.S. Foreign Assistance to
the Middle East: Historical Background, Recent Trends, and the FY2006 Request, June 13,
2005.)
2 U.S. Department of Commerce, World Trade Atlas.
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Security Cooperation. Although Israel is frequently referred to as an ally of the
United States, there is no mutual defense agreement between the two countries. On
November 30, 1981, U.S. Secretary of Defense Caspar Weinberger and Israeli Minister of
Defense Ariel Sharon signed a memorandum of understanding (MOU), establishing a
framework for continued consultation and cooperation to enhance the national security of
both countries. In November 1983, the two sides formed a Joint Political Military Group to
implement most provisions of the MOU. The Group meets twice a year. Joint air and sea
military exercises began in June 1984, and the United States has constructed facilities to
stockpile military equipment in Israel. On May 6, 1986, Israel and the United States signed
an agreement (the contents of which are secret) for Israeli participation in the Strategic
Defense Initiative (SDI/ “Star Wars”). Under SDI, Israel is developing the “Arrow” anti-
ballistic missile with a U.S. financial contribution so far of more than $1 billion and
increasing annually. The Administration has requested $78 million for the program for
FY2006, and H.R. 2863, the defense appropriations bill, passed by the House on June 20,
2005, has recommended that the funding be approved. In 1988, under the terms of Sec. 517
of the Foreign Assistance Act of 1961, as amended, Israel was designated a “major non-
NATO ally,” which affords it preferential treatment in bidding for U.S. defense contracts and
access to expanded weapons systems at lower prices.
Other Current Issues
Military Sales. Over the years, the United States and Israel have regularly discussed
Israel’s sale of sensitive security equipment and technology to various countries, especially
China. Israel reportedly is China’s second major arms supplier, after Russia.3 U.S.
administrations believe that such sales are potentially harmful to the security of U.S. forces
in Asia. In 2000, the United States persuaded Israel to cancel the sale of the Phalcon, an
advanced, airborne early-warning system, to China. In 2005, the U.S. Department of
Defense has been angered by Israel’s agreement to upgrade Harpy Killer unmanned aerial
vehicles (UAVs) that it sold to China in 1999. China tested the weapon over the Taiwan
Strait in 2004. The Department has suspended technological cooperation with the Israel Air
Force on the future F-35 Joint Strike Fighter (JSF) aircraft as well as several other
cooperative programs, held up shipments of some military equipment, and refused to
communicate with Israeli Defense Ministry Director General Amos Yaron, whom Pentagon
officials believe misled them about the Harpy deal. According to Israel’s most reputable
military journalist, the U.S. Department of Defense has demanded details of 60 Israeli deals
Israeli with China, an examination of Israel’s security equipment supervision system, and a
memorandum of understanding about arms sales to prevent future difficulties.4
H.R. 1815, the Defense Authorization Act for FY2006, passed in the House on May
25, 2005, Sec. 1212, would prohibit the Secretary of Defense from purchasing goods or
services from any entity that knowingly transfers an item on the U.S. Munitions List to
China. The provision targets the European Union, which was considering lifting the arms
3 Ron Kampeas, “Israel-U.S. Dispute on Arms Sales to China Threatens to Snowball,” Jewish
Telegraphic Agency, June 8, 2005, citing a U.S.-China Economic and Security Review 2004 report.
4 Ze’ev Schiff, “US Imposes Sanctions on Joint Arms Projects, Israel Notes Desire to Settle Row,”
Ha’aretz, June 12, 2005, FBIS Document GMP20050612613002.
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embargo it had imposed on China in 1989, but does not specify the EU and, therefore, could
affect Israel.
On June 27, 2005, the Israeli press claimed that the United States and Israel had agreed
to resolve the issue. As part of the resolution, Israel reportedly will cancel the UAV deal
with China, and Defense Minister Mofaz will sign a memorandum of understanding to
prevent future disputes during a visit to Washington. (The visit has been delayed due to the
deteriorating security situation in Gaza.) In the meantime, an Israeli Foreign Ministry
department has been established to supervise security exports.
Espionage-related Cases. In November 1985, Jonathan Pollard, a civilian U.S.
naval intelligence employee, and his wife were charged with selling classified documents to
Israel. Four Israeli officials also were indicted. The Israeli government claimed that it was
a rogue operation. Pollard was sentenced to life in prison and his wife to two consecutive
five-year terms. She was released in 1990, and moved to Israel, where she divorced Pollard.
Israelis complain that Pollard received an excessively harsh sentence, and some Israelis have
made a cause of his plight. Pollard was granted Israeli citizenship in 1996, and Israeli
officials periodically raise the Pollard case with U.S. counterparts, although there is not a
formal request for clemency pending. (See, CRS Report RS20001, Jonathan Pollard:
Background and Considerations for Presidential Clemency.)
On June 13, 2005, Lawrence Franklin, a U.S. Department of Defense analyst, was
indicted for the unauthorized disclosure of classified information to a foreign diplomat.
Press reports have named Na’or Gil’on, a political counselor at the Israeli Embassy in
Washington, as the official. Gil’on has not been accused of wrongdoing and will return
home this summer. Israeli Foreign Minister Silvan Shalom strongly denied that Israel was
involved in any activity that could harm the United States, and its Ambassador to the United
States Daniel Ayalon declared that “Israel does not spy on the United States.” Franklin had
been charged earlier with disclosing classified national defense information to a person or
persons not entitled to receive it. Those persons have been identified as two former officials
of the American Israel Political Action Committee (AIPAC), who were fired in April and
have not been charged with a crime. Franklin has pleaded not guilty to all charges. He has
not been charged with espionage.
Intellectual Property Protection. The “Special 301” provisions of the Trade Act
of 1974, as amended, require the U.S. Trade Representative (USTR) to identify countries
which deny adequate and effective protection of intellectual property rights. In April 2005,
Israel was elevated from the “Watch List” to the “Priority Watch List” because the USTR
determined that it had implemented an “inadequate data protection regime” and intended to
pass legislation to weaken patent term adjustments. The USTR singled out for concern U.S.
biotechnology firms’ problems in Israel and a persistent level of piracy affecting the U.S.
copyright industry. Israel’s Minister of Industry, Trade, and Labor Ehud Olmert protested
the USTR decision, saying that Israel is acting energetically against violations of intellectual
property and that his country cannot be compared to others on the list, such as India, China,
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Russia, Egypt, Brazil, and Argentina. The Israeli newspaper Ma’ariv claimed that pressure
from U.S. pharmaceutical companies was responsible for Israel’s inclusion on the list.5
U.S. Interest Groups
An array of interest groups has varying views regarding Israel and the peace process.
Some are noted below with links to their websites for information on their policy positions.
American Israel Public Affairs Committee: [http://www.aipac.org]
American Jewish Committee: [http://www.ajc.org]
American Jewish Congress: [http://www.ajcongress.org]
Americans for Peace Now: [http://www.peacenow.org]
Anti-Defamation League: [http://www.adl.org]
Conference of Presidents of Major Jewish Organizations:
[http://www.conferenceofpresidents.org]
The Israel Project: [http://www.theisraelproject.org]
Israel Policy Forum: [http://www:ipf.org]
New Israel Fund: [http://www.nif.org]
Zionist Organization of America: [http://www.zoa.org]
5 David Lipkin, “ Olmert to US: Remove Israel from List of Intellectual Property Violators,”
Ma’ariv, June 8, 2005, p. 2, FBIS Document GMP20050608618003.
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Map of Israel
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