Order Code IB82008
CRS Issue Brief for Congress
Received through the CRS Web
Israel: Background and Relations
with the United States
Updated January 13, 2006
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 and Investment
Aid
Security Cooperation
Other Current Issues
Military Sales
Espionage-Related Cases
Intellectual Property Protection
U.S. Interest Groups

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Israel: Background and Relations with the United States
SUMMARY
On May 14, 1948, the State of Israel
officials resumed contacts after the November
declared its independence and was immedi-
2004 death of Yasir Arafat. Both sides have
ately engaged in a war with all of its neigh-
accepted the internationally-brokered frame-
bors. Armed conflict has marked every de-
work for achieving a two-state solution,
cade of Israel’s existence. Despite its unstable
known as the “Roadmap,” which has not been
regional environment, Israel has developed a
implemented. Israel “unilaterally” disengaged
vibrant parliamentary democracy, albeit with
from Gaza in summer 2005 and has been
relatively fragile governments.
constructing a security barrier to separate itself
from the Palestinians. Israel concluded a peace
Prime Minister Ariel Sharon formed a
treaty with Egypt in 1979 and with Jordan in
three-party coalition in January 2005 in order
1994, but never reached accords with Syria
to secure support for his plan to withdraw
and Lebanon. It unilaterally withdrew from
from the Gaza Strip and four small settlements
southern Lebanon in 2000. Israel’s relations
in the West Bank, which was successfully
with the European Union are important be-
implemented in August. In November, Amir
cause European countries collectively repre-
Peretz, the new Labor party leader, withdrew
sent Israel’s second largest trading partner and
his party from the government and called for
the EU is a participant in the peace process.
early elections. Sharon then resigned from the
Likud party to form a new party, Kadima. On
Since 1948, the United States and Israel
December 19, Likud chose former Prime
have developed a close friendship based on
Minister Benjamin Netanyahu to be its new
common democratic values, religious affini-
leader. On January 4, 2006, Sharon suffered
ties, and security interests. U.S.-Israeli bilat-
an incapacitating, severe stroke. Deputy Prime
eral relations are multidimensional. The
Minister Ehud Olmert became Acting Prime
United States is the principal proponent of the
Minister. The March 28 national election will
Arab-Israeli peace process, but U.S. and
proceed as previously scheduled.
Israeli views differ on various peace process
.
issues, such as the fate of the Golan Heights,
Israel has an advanced industrial, market
Jerusalem, and Israeli settlements. The United
economy in which the government plays a
States and Israel concluded a free-trade agree-
substantial role. The economy has recovered
ment in 1985, and the United States is Israel’s
from declines experienced due to the Palestin-
largest trading partner. Since 1976, Israel has
ian intifadah (uprising) against Israeli occupa-
been the largest recipient of U.S. foreign aid.
tion and the international high-tech crash.
The two countries also have very close secu-
rity relations.
Israel’s foreign policy is focused largely
on its region, Europe, and the United States.
Current issues in U.S.-Israeli relations
The government views Iran as an existential
include Israel’s military sales to China, inade-
threat due to its nuclear ambitions, and blames
quate Israeli protection of U.S. intellectual
Iran for supporting anti-Israel terrorists. Israel
property, and espionage-related cases.
negotiated a series of agreements with the
Palestinians in the 1990’s, but the Oslo peace
See also CRS Issue Brief IB91137, The
process ended in 2000, shortly after the begin-
Middle East Peace Talks and CRS Report
ning of the intifadah. Israeli and Palestinian
RL33222, U.S. Foreign Aid to Israel.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On December 18, 2005, Israeli Prime Minister Ariel Sharon suffered a minor stroke but
was then considered able to continue to carry out his duties. On January 4, 2006, however,
he suffered a second, serious stroke and subsequently underwent brain surgery three times.
In a peaceful transition under the terms of Basic Law Article 16 (b), Sharon was said to be
temporarily incapacitated, and Deputy Prime Minister Ehud Olmert became Acting Prime
Minister for up to 100 days or, in practice, until parliamentary elections on March 28.
Olmert, a 60-year-old lawyer, was elected to parliament in 1973 at the age of 28, served as
mayor of Jerusalem for 10 years and as head of several cabinet ministries, and was one of
Sharon’s closest associates and the first to call for Israel’s withdrawal from Gaza. Despite
Sharon’s incapacity, his new party, Kadima, has held together and kept a large lead over the
Likud and Labor parties in opinion polls, although that may change as the election nears.
(See also Current Political Situation, below.) President Bush telephoned Olmert on January
12 to offer support to Israel this time and wishes for Sharon.
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 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 head of state and the Prime
Minister is head of government. The unicameral parliament (the Knesset) elects a president
for a seven-year term. The incumbent is Moshe Katzav. The Prime Minister is the leader of
the party with the most seats in parliament. The Israeli political spectrum is highly
fragmented, with small parties exercising disproportionate power due to the low vote
threshold for entry into parliament and the need for their numbers to form coalition
governments. In the next election, the threshold to enter parliament will be raised from 1%
to 2% of the vote, which may bar some smaller parties from parliament. National elections
must be held at least every four years, but are often held earlier due to difficulties in holding
coalitions together. The average life span of an Israeli government is 22 months. The peace
process, the role of religion in the state, and political scandals have caused coalitions to break
apart or produced early elections.
As a result of the January 2003
national elections, 17 parties or blocs
Parties in the Knesset*
were represented in the 120-seat
Seats
Party
Knesset.
40
Likud
19
Labor/Meimad
Prime Minister Ariel Sharon’s first
15
Shinui
government, in 2003, was a coalition
11
Shas
of the right wing Likud, secularist
7
National Union
Shinui, far-right National Union, and
6
National Religious Party (NRP)
the orthodox National Religious Party
6
Meretz/Yahad**
(NRP). Ministers from National Union
5
United Torah Judaism (UTJ)***
and NRP resigned or were ousted be-
3
A m Ehad
cause of their opposition to Sharon’s
3
Hadash/Ta’al
plan to disengage (withdraw) from the
3
Nat’l. Democratic Assembly/Balad
Gaza Strip and four northern West
2
United Arab List
Bank settlements. Shinui was forced
out after it voted against a budget to
*Until November 2005 political upheaval.
** Elected as Yahad/Democratic Choice.
increase funding for religious services
***Elected as Agudat Yisrael, 3, Degel Hatorah, 2.
and schools designed to attract other
religious parties to a new coalition.
On January 10, 2005, Sharon formed a new government to ensure approval of his
disengagement plan. Because a third (13 members) of his own Likud party opposed
disengagement, he had to build a coalition large enough to overcome the loss of their votes.
A coalition of Likud, Labor, and the orthodox United Torah Judaism was narrowly approved
by a vote of 58-56, only because opposition leftist and Arab parties which favored
disengagement abstained.
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.
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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 Council of Judea, Samaria, and Gaza (Yesha
Council), which represents local settler councils 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
As reflected in different polls, a fluctuating majority of Israelis favored disengagement
from Gaza. Sharon argued the case for disengagement in demographic terms on June 28,
2005: “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.”
As noted above, disengagement
split Likud, and intraparty politics be-
Key Cabinet Officers
came heated in anticipation of a contest
for party leader and the next national
election. The strongest challenge to
The cabinet has been in a state of flux since
Sharon’s party leadership came from
Labor and Likud ministers resigned. Acting
former Prime Minister and former Fi-
Prime Minister Ehud Olmert is now also
nance Minister “Bibi” Netanyahu, who
acting head of at least 11 ministries. He is
resigned from the government on August
expected to name some new ministers shortly.
7, 2005, to protest disengagement and
declared his candidacy for chairman of
Likud on August 30.
Opponents of disengagement and of Sharon forced the convening of the 3,000-person
Likud Central Committee, which is more right-wing than the general Likud electorate, to call
an early party leadership primary to depose Sharon. On September 26, the Central Committee
met but refused to schedule an early primary by a narrow vote of 1,433 to 1,329. On
November 7, eight of Sharon’s opponents in Likud joined the opposition to defeat Knesset
approval of the (package) appointments of Ehud Olmert as Finance Minister (a position in
which he was Acting), Roni Bar-On as Ministry of Industry and Trade, and Zeev Boim as
Minister of Immigration and Absorption. The Likud dissidents considered the latter two
appointments compensation for supporting Sharon on disengagement. In a later, separate
vote, the Knesset approved Olmert’s appointment.
As for Labor, Shimon Peres, the 82-year-old former Prime Minister and Nobel Prize
winner, served as acting leader since months after the party’s loss in the 2003 national
election. Peres’s advocacy of joining the government to support disengagement subordinated
his party’s leftist social and economic positions to Likud’s liberal economic agenda and
received a mixed reception among the party rank and file. On November 10, Peres ran for
party leader in a primary against Histadrut labor federation leader Amir Peretz and
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Infrastructure Minister Benjamin Ben Eliezer. Peretz defeated Peres and immediately called
for early parliamentary elections. Peretz insists that the next election will be decided by
socioeconomic issues, but his first action was to submit a bill on November 14 to offer
compensation to any West Bank settlement if 60% of its residents agreed to leave
voluntarily, declaring that Israel should leave the West Bank and accelerate negotiations for
a permanent peace with the Palestinians. Peretz has since claimed that the Roadmap, the
international framework for the peace process, is “a formula for utter political stagnation...
(and)... a waste of our time.” He said that he wants to finish negotiations with the
Palestinians within a year and implement a final status accord within three years. Peretz
pledged to remove illegal outposts and to stop funding settlement expansion in order to shift
funds to socioeconomic programs and to developing the Negev and Galilee. He also
promised not to consider granting the Palestinian refugees a “right of return” to Israel.
.
On November 20, Labor voted to withdraw from the coalition government, depriving
Sharon of his parliamentary majority. On November 21, Sharon resigned from the Likud to
found a new “centrist” party, Kadima (Forward), and asked President Katzav to dissolve
parliament and schedule an early election. Sharon said that he was no longer willing to
“waste time” dealing with Likud rebels. Some 18 Likud Members of the Knesset
(parliament), including several ministers (Finance Minister Ehud Olmert, Justice Minister
Tzipi Livni, and Defense Minister Shaul Mofaz), the chairman of the Likud Central
Committee Tzachi Hanegbi, several Labor MKs, players in other political parties, and
prominent personalities joined Kadima. Former Labor leader Peres supported Sharon and,
after the latter’s stroke in January 2006, announced his support for Olmert. Kadima’s
platform affirms a commitment to the Roadmap, the international framework for achieving
a two-state solution to the Israeli-Palestinian conflict, in order to preserve a Jewish majority
in Israel, but also calls for Israel to keep settlement blocs, the security barrier, and a united
Jerusalem while demarcating permanent borders.

Netanyahu won a Likud primary to replace Sharon as party leader on December 19;
Foreign Minister Shalom came in second and far-right Jewish Leadership faction leader
Moshe Feiglin placed third. Netanyahu launched an effort to bar Feiglin and “criminal
elements” from the Likud Knesset list. Netanyahu calls for “defensible borders,” including
the Jordan Valley, the Golan Heights, an undivided Jerusalem, settlement blocs, and hilltops.
Economy
Overview
Israel has an advanced industrial, market economy in which the government plays a
substantial role. Most people enjoy a middle class standard of living. Per capita income is
about the same as that in Cyprus, one of the wealthier, new European Union members.
Despite limited natural resources, the agricultural and industrial sectors are well-developed.
An advanced high tech sector includes aviation, communications, computer-aided design and
manufactures, medical 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 substantially recovered since 2003, has
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regained pre-intifadah levels of growth
and personal income, and is growing at
Basic Facts
a pace not seen since the 1990s. Most
economic indicators are positive: infla-
Population
6.2 million (2005 est.)
tion is low, employment and wages are
Population
1.39% (2003 est.)
Growth Rate
rising, and the standard of living is
rising. Former Finance Minister
— Jewish 80.1% (1996)
Ethnic
Netanyahu claims credit for the im-
Groups
— non-Jewish (mostly Arab)
19.9% (1996)*
provement. Under his leadership, the
GDP Growth
government attempted to liberalize the
3.9 (2004 est.)
Rate
economy by controlling government
GDP Per Capita $20,400 (2004 est.)
spending, reducing taxes, and resuming
Inflation Rate
0% (2004 est.)
privatization of state enterprises. The
Unemploy-
chronic budget deficit decreased, while
10.7% (2004 est.)
ment Rate
the country’s international credit rating
Foreign Debt
$74.46 billion (2004 est.)
was raised, enabling a drop in interest
crude oil, grains, raw materials,
rates. Netanyahu’s critics, however,
Imports
military equipment
suggest that his program of cuts in
cut diamonds, high-technology
Exports
social spending widened the national
equipment, fruits and vegetables
income gap and increased the
Main Trading
United States, Belgium, Germany,
underclass. According to Israel’s Na-
Partners
United Kingdom
tional Insurance Institute, 20% of all
Sources: CIA, The World Factbook, 2004; and the Israeli
Israelis and 30% of Israeli children live
government.
below the poverty line.
*Within 1967 borders.
Current Issues
Sharon named Vice Premier Ehud Olmert as Acting Finance Minister to replace
Netanyahu, and Olmert vowed to continue Netanyahu’s economic policies. Olmert had
previously advocated both accelerated tax cuts and more attention to social and employment
issues. He requested Ministry staff to work with the Ministry of Industry and the Bank of
Israel to develop a plan to fight poverty.
Due to the required dissolution of parliament 90 days before the March 28 election, the
2006 budget, which has to be passed by March 2006, will not be approved on time.
Spending will remain at 2005 levels until the next Knesset approves a budget.
Foreign Policy
Middle East
Iran. Israeli officials state that Iran will pose an existential threat to Israel if it achieves
nuclear capability because the declared aim of the Iranian theocracy is the destruction of
Israel and Iran already has a missile, the Shahab-3, capable of delivering a warhead to Israel.
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
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need for Israeli military action. When 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, Mofaz said that U.S. and
European diplomatic and economic pressure could resolve the issue. Because Iran will
probably not be able to produce a nuclear bomb until 2008 to 2012, Israeli officials may not
assess the situation as sufficiently pressing to warrant a military strike in the near term. On
the other hand, some argue that the critical date may be earlier, when Iran is able to produce
fissile material. However, Israel itself has nuclear weapons, and the prospect of a
counterattack is seen as a deterrent against an Iranian attack. On December 1, Prime Minister
Sharon expressed support for the U.S. effort to prevent Iran from obtaining nuclear capability
and hope that the issue would be brought to the Security Council soon. He said that, because
of the global dangers posed, there is “no possibility” of Iran becoming a nuclear player.
Iran also provides financial, political, and/or military support to Hizballah, Hamas,
Palestinian Islamic Jihad, the Al Aqsa Martyrs’ Brigades, and the Popular Front for the
Liberation of Palestine-General Command — Palestinian terrorist groups that seek to
obstruct the peace process and destroy Israel. Of note is its policy of compensating families
of suicide bombers. Relations between Israel and Iran are unlikely to change as long as
theocrats hold power in Teheran. President Mahmud Ahmadinejad shares their views about
the illegitimacy of Israel and, quoting Ayatollah Khomeini, founder of Iran’s Islamic
revolution, on October 26, 2005, called for Israel to be “wiped off the map.” He later
described the Holocaust as a “myth” used as a pretext to create an “artificial Zionist regime”
and suggested that Europe, the United States, or Canada donate land for a Jewish state.
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
relations with the PA and its leaders have improved somewhat. 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 made some goodwill gestures toward the PA, and President Abbas
and 13 Palestinian factions agreed to an informal truce in March. Although Israeli officials
described the disengagement from the Gaza Strip as unilateral, they met with Palestinian
counterparts to coordinate aspects of implementation of the disengagement plan, notably
security and disposition of assets. (See also CRS Report RS22000, Israel’s Disengagement
from Gaza, by Carol Migdalovitz.)
Israel still has 242 settlements, other civilian land use sites, and more than 100
unauthorized settlement outposts in the West Bank and 29 settlements in East Jerusalem —
all areas that the Palestinians view as part of their future state. Israel retains military control
over the West Bank 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 and also is intended to cut the
Palestinians off from East Jerusalem.
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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 stated that he would like to “give” the
Palestinians a state, but he did not describe his vision of one. Palestinians fear that he
envisioned a state on about 42% of the territory of the West Bank as he suggested shortly
after he became Prime Minister. Sharon contended that the Roadmap requires that the PA
first fight terror, by which he meant disarm militants and dismantle their infrastructure.
Olmert is continuing Sharon’s policies. Abbas prefers to include groups such as Hamas in
the political system and refuses to disarm them.
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 deployed 750 border guards to secure the
Gaza-Egyptian border (14 kilometers of land border and 3 km of sea) after Israel’s
disengagement from Gaza. 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 the infrastructure
and may expand to other energy areas. Gas is not expected to flow before 2007. (See also
CRS Report RL33003, Egypt: Background and U.S. Relations, by Jeremy Sharp.)
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 (FTA), although Jordanian companies are now said to
prefer arrangements under the U.S.-Jordan FTA over the QIZ. Normalization of ties is not
popular with the Jordanian people, over half of whom are of Palestinian origin, although
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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 offered to deploy the
Palestinian Badr Brigade from Jordan to the West Bank to assist with security, but Israel
rejected the offer. On August 3, 2005, in Jordan, Defense Minister Mofaz said, however, that
Israel would agree to allow the Brigade to train Palestinians in the West Bank. (See also
CRS Issue Brief IB93085, Jordan: U.S. Relations and Bilateral Issues, by Alfred Prados; and
CRS Report RS22002, Qualifying Industrial Zones in Jordan: A Model for Promoting Peace
and Development in the Middle East? by Mary Jane Bolle, et al.)
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 applying Israeli law 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 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. Prime Minister Sharon
said that the Golan is essential for Israel’s security and discussion of withdrawal would be
a mistake. (See also CRS Issue Brief IB92075, Syria: U.S. Relations and Bilateral Issues,
by Alfred Prados.)
Since Syria was implicated in the February 2005 assassination of former Lebanese
Prime Minister Rafiq Hariri, international pressure on the Asad regime has mounted. Israeli
officials have said that Israel is not interested in the fall of the regime, only in changing its
policies. Some reportedly fear that anarchy or extreme Islamist elements might follow Asad
and prefer him to stay in power in a weakened state. On December 1, Prime Minister Sharon
said that nothing should be done to ease U.S. and French pressure on Syria, implying that
Syrian-Israeli peace talks would do that.
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
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 from Lebanon 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 communi-
ties. Al Qaeda in Iraq’s claim of responsibility for firing rockets from Lebanon into northern
Israel in December 2005 has not been confirmed. Israeli officials questioned whether Al
Qaeda could act there without Hizballah knowledge and approval. 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;
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and CRS Report RL31078, The Shib’a Farms Dispute and Its Implications, both by Alfred
Prados.)
Other. Aside from Egypt and Jordan, Israel has diplomatic relations with Mauritania
and Turkey and has had interest or trade offices in Morocco, Tunisia, Oman, and Qatar. The
latter four suspended relations with Israel during the intifadah. Foreign Minister Shalom had
predicted that Israel’s relations with Arab and Muslim countries would improve due to its
disengagement from Gaza. The first diplomatic breakthrough was his September 1 meeting
in Istanbul with the Pakistani foreign minister, although Pakistani officials asserted that they
will not recognize Israel until after the establishment of an independent Palestinian state. On
September 14, 2005, Pakistan’s President Musharraf shook Prime Minister Sharon’s hand
in a “chance” meeting at the U.N. summit in New York. Pakistan agreed to accept Israeli
humanitarian aid after a devastating earthquake in October. Shalom met the Indonesian,
Qatari, Algerian, Moroccan, and Tunisian foreign ministers in New York. Also in September,
Bahrain ended its economic boycott of Israel, a move required by the World Trade
Organization and the Bahrain-U.S. Free Trade Agreement. Bahrain has vowed, however, not
to normalize relations. In September, Tunisian President Zine El Abidine Ben Ali sent a
personal letter to Sharon, praising his “courageous” withdrawal from Gaza. Shalom attended
the World Summit on the Information Society in Tunisia in November.
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 has been 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. Some Israelis contend that the basis
of such views is an underlying European anti-Semitism. Nonetheless, in November 2005,
Israel agreed to allow the EU to maintain a Border Assistance Mission (EU-BAM) to monitor
the reopened Rafah crossing between the Gaza Strip and Egypt.
Some European representatives have met with local Hamas leaders elected in December
2004 in order to oversee EU-funded local projects. The EU also has authorized its
monitoring mission for the January 2006 Palestinian parliamentary elections to contact the
full range of candidates, including Hamas, in order to carry out its task. EU officials have
said, however, that Hamas will remain on the EU terror list until it commits to using
nonviolent means to solve the Israeli-Palestinian conflict. Israel asserts that the circum-
stances that led the EU to place Hamas on its list of terrorist organizations are unchanged and
it opposes actions that grant Hamas legitimacy at the expense of moderate Palestinian groups.
Israel also demands that the EU include Hizballah on its list of terrorist organizations and has
protested meetings between European ambassadors and the Hizballah minister in the
Lebanese cabinet.
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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, by Kristin
Archick; and CRS Report RL31017, The Barcelona Process: The European Union’s
Partnership with the Southern Mediterranean, by Anja Linder and Joshua Ruebner.)
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 unprece-
dented, 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
said that she would not get involved in direct Israeli-Palestinian negotiations of issues. She
preferred to have the Israelis and Palestinians work together, although she traveled to the
region several times in 2005 and personally mediated an accord to secure the reopening the
Rafah crossing between Gaza and Egypt in November. The Administration supported Israel’s
disengagement from Gaza mainly as a way to return to the Road Map process to achieve a
solution based on two states, Israel and Palestine, living side by side in peace and security.
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. On April 14, 2004, however President Bush noted the need to take into account
changed “realities on the ground, including already existing major Israeli population center,”
(i.e., settlements), asserting “it is unrealistic to expect that the outcome of final status
negotiations will be full and complete return to the armistice lines of 1949.” He later
emphasized that it was a subject for negotiations between the parties.
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
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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.
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,
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. The failure of the State
Department to follow congressional guidance on Jerusalem has prompted a response in H.R.
2601, the Foreign Relations Authorization bill, passed in the House on July 20, 2005. (See
also CRS Issue Brief IB91137, The Middle East Peace Talks, by Carol Migdalovitz; and
CRS Report RL33000, Foreign Relations Authorization, FY2006 and FY2007: An
Overview, by Susan Epstein, coordinator.)
The United States has never recognized Israel’s annexation of the Golan Heights which
it views as a violation of international law. The current administration has not attempted to
revive Israeli-Syrian peace talks.
Trade and Investment. 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, while Israel
ranks about 20th among U.S. trading partners. In 2004, the United States took 38.4% of its
exports ($6.8 billion), while providing 15.6% of its imports ($5.4 billion). 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 an 8.41% U.S. deficit.2
Israel also encourages U.S. investment. In July 2005, Intel, the U.S. microchip
manufacturer, announced that it would invest $4.6 billion in its U.S. branch — the largest
single foreign investment in the history of Israel. Israel will provide Intel with a grant of
15% of an investment of up to $3.5 billion or $525 million to secure the deal.
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 ESF cuts, Israeli has received an
2 U.S. Department of Commerce, World Trade Atlas.
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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. P.L. 109-102, November 14, 2005, the Foreign Operations Appropria-
tions Act, 2006, provides $240 million in ESF, $2.28 billion in FMF, and $40 million for the
settlement of migrants from the former Soviet Union, Eastern Europe, and other areas.
On July 11, 2005, Israeli press reported that Israel was 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. An
Israeli team visited Washington to present elements of the request, and preliminary
discussions were held. No formal request was presented to Congress. In light of the costs
inflicted on the United States by Hurricane Katrina, an Israeli delegation intending to discuss
the aid cancelled a trip to Washington, and Deputy Premier and Finance Minister Ehud
Olmert said, “The request is being postponed until a more fitting date.” On November 15,
Globus, an Israeli online business news source, reported that talks had resumed on a $1.2
billion aid package for the Negev and Galilee; $800 million for military aspects of
disengagement were deleted from the request after a negative U.S. response.
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. 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 develop-
ment, 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. (See also CRS Report RL33222, U.S. Foreign Aid to Israel, by Jeremy Sharp.)
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,
(JPMG) which meets twice a year, to implement most provisions of the MOU. Joint air and
sea military exercises began in June 1984, and the United States has constructed facilities to
stockpile military equipment in Israel. In 2001, an annual interagency strategic dialogue,
including representatives of the two countries’ diplomatic, defense, and intelligence
establishments, was created for the discussion of long-term issues. In 2003, reportedly at the
U.S. initiative due to bilateral tensions related to Israeli arms sales to China, the talks ceased.
After the issue was resolved, cooperation resumed. (See Military Sales, below.) On October
10, 2005, after meeting with U.S. Assistant Secretary of State for Near Eastern Affairs C.
David Welch, Foreign Minister Shalom announced that the United States had decided to
resume the strategic dialogue. Talks were held at the State Department on November 28 and
reportedly focused on Syria and democratization in the Arab world. On January 11, 2006,
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the JPMG convened in Tel Aviv under new Israeli Defense Ministry Director General Jacob
Toren and U.S. Assistant Secretary of State for Political Military Affairs John Hillen for the
first time since it was suspended in 2003.
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 missile has
tested successfully, most recently on December 2, 2005, when it shot down a missile
simulating an Iranian Shahab-3 that can be armed with nuclear warheads and reach Israel.
P.L. 109-148, December 30, 2005, the Defense Appropriations Act, Section 8088, provides
$132,866,000 for the Arrow program: $60,250,000 is earmarked for missile component co-
production, and $100,000,000 is earmarked for a joint feasibility study on a Short Range
Ballistic Missile Defense initiative.
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 (Israel is
ranked fourth among the world’s arms suppliers.) 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 was 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
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 believed misled them about the Harpy deal.
On August 17, the U.S. DOD and the Israeli Ministry of Defense issued a joint press
statement reporting that they had signed an understanding “designed to remedy problems of
the past that seriously affected the technology security relationship and to restore confidence
in the technology security area. In the coming months additional steps will be taken to
restore confidence fully.” According to the Israeli newspaper Ha’aretz, Israel will continue
to voluntarily adhere to the Wassenar Arrangement on Export Controls for Conventional
Arms and Dual-Use Goods and Technologies, without actually being a party to it. Israeli
Defense Ministry Director General Yaron retired in mid-September. On November 4, during
a visit to Washington, Defense Minister Mofaz announced that Israel would again participate
in the F-35 JSF project and that the crisis in relations was over.
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.
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On October 21, 2005, it was reported that Israel will freeze or cancel a deal to upgrade
22 Venezuelan Air Force F-16 fighter jets, with some U.S. parts and technology. The Israeli
government had requested U.S. permission to proceed, but it has not been granted.
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, moved to Israel, and divorced Pollard. Israelis
complain that Pollard received an excessively harsh sentence. Israel granted him citizenship
in 1996, and he remains a cause celebre in Israel. Israeli officials repeatedly raise the Pollard
case with U.S. counterparts, but no formal request for clemency is pending. (See CRS Report
RS20001, Jonathan Pollard: Background and Considerations for Presidential Clemency,
by Richard Best and Clyde Mark.)
On June 13, 2005, U.S. Department of Defense analyst Lawrence Franklin was indicted
for the unauthorized disclosure of classified information to a foreign diplomat. Press reports
named Na’or Gil’on, a political counselor at the Israeli Embassy in Washington, as the
diplomat. Gil’on has not been accused of wrongdoing and returned to Israel. Foreign
Minister Shalom strongly denied that Israel was involved in any activity that could harm the
United States, and Israel’s Ambassador to the United States Daniel Ayalon declared that
“Israel does not spy on the United States.” Franklin had been charged earlier with conspiracy
to communicate national defense information to persons not entitled to receive it and
disclosing classified national defense information to a person or persons not entitled to
receive it. On August 4, two former officials of the American Israel Political Action
Committee (AIPAC), Steven J. Rosen and Keith Weissman, whom AIPAC fired in April,
were identified as “persons” and indicted for their parts in the conspiracy. Both denied
wrongdoing. Franklin, Rosen, and Weissman were not charged with espionage. On October
5, Franklin pled guilty to two counts of conspiracy related to his transfer of classified
national defense information concerning Iran to Gil’on and the two AIPAC officials; he will
be sentenced in January 2006. On October 24, attorneys for Rosen and Weissman asked the
court to summon Israeli diplomats to Washington for testimony. It has been alleged that the
FBI had authorized Franklin to give classified information to the AIPAC officials in order
to “sting” them, expecting them to transmit it to the Israeli Embassy.4
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,
Russia, Egypt, Brazil, and Argentina. The Israeli newspaper Ma’ariv claimed that pressure
4 David Ignatius, “Watch This Spy Story,” Washington Post, August 24, 2005.
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from U.S. pharmaceutical companies was responsible for Israel’s inclusion on the list.5 In
November 2005, U.S. Ambassador to Israel Richard H. Jones urged the Knesset to put Israel
in line with Organizations for Economic Cooperation and Development (OECD) countries
with copyright law. On December 15, at a World Trade Organization conference in Hong
Kong, Olmert asked USTR Rob Portman to remove Israel from the Watch List. Olmert
asserted that Israel has been improving intellectual property rights legislation and
enforcement. Olmert and Portman reportedly agreed to negotiations on the issue.
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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Figure 1. Map of Israel
crsphpgw
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