Order Code IB82008
CRS Issue Brief for Congress
Received through the CRS Web
Israel: Background and Relations
with the United States
Updated March 16, 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
implemented the “Roadmap,” the international
declared its independence and was immedi-
framework for achieving a two-state solution.
ately engaged in a war with all of its neigh-
Israel unilaterally disengaged from Gaza in
bors. Armed conflict has marked every de-
summer 2005 and is constructing a security
cade of Israel’s existence. Despite its unstable
barrier to separate from the Palestinians. The
regional environment, Israel has developed a
victory of the Hamas terrorist group in the
vibrant parliamentary democracy, albeit with
January 2006 Palestinian parliamentary elec-
relatively fragile governments.
tions has complicated Israeli-Palestinian
relations and led Israeli officials to propose
Prime Minister Ariel Sharon formed a
future unilateral steps in the West Bank.
three-party coalition in January 2005 to secure
Israel concluded a peace treaty with Egypt in
support for the withdrawal from the Gaza
1979 and with Jordan in 1994, but never
Strip and four small settlements in the West
reached accords with Syria and Lebanon. It
Bank. In November, however, new Labor
unilaterally withdrew from southern Lebanon
party leader Amir Peretz withdrew his party
in 2000. European countries collectively are
from the government and called for early
Israel’s second largest trading partner, and the
elections. Sharon then resigned from the
EU participates in the peace process.
Likud party to form a new party, Kadima.
Likud chose former Prime Minister Benjamin
Since 1948, the United States and Israel
Netanyahu to be its new leader. On January 4,
have developed a close friendship based on
2006, Sharon suffered an incapacitating
common democratic values, religious affini-
stroke; Deputy Prime Minister Ehud Olmert
ties, and security interests. U.S.-Israeli bilat-
became Acting Prime Minister. The March 28
eral relations are multidimensional. The
national election will proceed as scheduled.
United States is the principal proponent of the
Arab-Israeli peace process, but U.S. and
Israel has an advanced industrial, market
Israeli views differ on various peace process
economy in which the government plays a
issues, such as the fate of the Golan Heights,
substantial role. The economy has recovered
Jerusalem, and Israeli settlements. The United
from declines experienced due to the Palestin-
States and Israel concluded a free-trade agree-
ian intifadah (uprising) against Israeli occupa-
ment in 1985, and the United States is Israel’s
tion and the international high-tech crash.
largest trading partner. Since 1976, Israel has
been the largest recipient of U.S. foreign aid.
Israel’s foreign policy is focused largely
The two countries also have very close secu-
on its region, Europe, and the United States.
rity relations.
The government views Iran as an existential
threat due to its nuclear ambitions and support
Current issues in U.S.-Israeli relations
for anti-Israel terrorists. Israel negotiated a
include Israel’s military sales to China, inade-
series of agreements with the Palestinians in
quate Israeli protection of U.S. intellectual
the 1990s, but the Oslo peace process ended in
property, and espionage-related cases.
2000, after the beginning of the intifadah.
Israeli and Palestinian officials resumed con-
See also CRS Issue Brief IB91137, The
tacts after the November 2004 death of Yasir
Middle East Peace Talks and CRS Report
Arafat. Both sides accepted but have not
RL33222, U.S. Foreign Aid to Israel.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
As the parliamentary election of March 28, 2006, approaches, the Kadima Party,
founded by Prime Minister Ariel Sharon and led by Acting Prime Minister Ehud Olmert,
retains a commanding lead over Labor and Likud, its two main rivals, in public opinion polls,
although a large number of voters are still undecided. On March 8, Olmert revealed plans
for further unilateral withdrawals from the West Bank and said that he would reallocate
funds from settlements to the Negev, the Galilee, and Jerusalem. Labor leader Amir Peretz
agreed that unilateral actions are the only choice until a Palestinian partner appears and called
for supporting moderate Palestinians to enable them to defeat Hamas in the next elections.
Likud leader Benjamin Netanyahu said that Olmert had transformed the election into a
referendum on borders and criticized Olmert’s plan as a unilateral concession to Hamas that
would endanger Israel.
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, a land that
had been the Biblical home of the Jews and was 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 Palestinian terrorism. In 1979, Israel concluded a peace
treaty with Egypt, 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 March 2006, election, the threshold to enter parliament will be raised
from 1% to 2%, which was intended to bar some smaller parties from parliament but also
spurred some to join together for the purpose of overcoming the threshold. 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
Knesset. Prime Minister Ariel Sharon’s
Seats
Party
first government, in 2003, was a coali-
40
Likud
19
Labor/Meimad
tion of his right wing Likud, secularist
15
Shinui
Shinui, far-right National Union, and
11
Shas
the orthodox National Religious Party
7
National Union
(NRP). On January 10, 2005, Sharon
6
National Religious Party (NRP)
formed a new government to ensure
6
Meretz/Yahad**
passage of his plan to disengage from
5
United Torah Judaism (UTJ)***
the Gaza Strip. Because a third (13
3
A m Ehad
members) of the Likud opposed disen-
3
Hadash/Ta’al
3
Nat’l. Democratic Assembly/Balad
gagement, he had to build a coalition
2
United Arab List
large enough to overcome the loss of
their votes. A coalition of Likud, Labor,
*Until November 2005 political upheaval.
and the orthodox United Torah Judaism
** Elected as Yahad/Democratic Choice.
***Elected as Agudat Yisrael, 3, Degel Hatorah, 2.
was approved by a vote of 58-56, only
because opposition leftist and Arab
parties favoring disengagement ab-
stained.
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.
On February 2, 2006, the Knesset’s Constitution, Law, and Justice Committee approved a
draft constitution encompassing existing Basic Laws and a chapter of human rights and basic
principles. The three largest parties, Kadima, Likud, and Labor, agree on the need for a
constitution, but smaller parties oppose the draft for differing reasons. It will be taken up in
the next Knesset. Israel has an independent judiciary, with a system of magistrates courts
and district courts topped by a Supreme Court.
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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
Disengagement split Likud, and intraparty politics became heated in anticipation of a
contest for party leader and the next national election. In August 2005, Former Prime
Minister and former Finance Minister “Bibi” Netanyahu resigned from the government to
protest disengagement and became a candidate for Likud chairman. Opponents of
disengagement forced the convening of the 3,000-person Likud Central Committee to call
an early party leadership primary to depose Sharon. On September 26, however, the
Committee refused to schedule an early primary by a narrow vote of 1,433 to 1,329. On
November 7, eight Sharon opponents in Likud joined the opposition to deny Knesset
approval of three new Sharon cabinet appointees; the dissidents considered the two of the
appointments compensation for supporting disengagement.
As for Labor, Shimon Peres, the 82-year-old former Prime Minister and Nobel Prize
winner, became acting leader soon 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 socioeconomic goals to Likud’s liberal economic agenda and received a mixed
reception among the party rank and file. On November 10, 2005, Peres ran for party leader
in a primary against Histadrut labor federation leader Amir Peretz and Infrastructure Minister
Benjamin Ben Eliezer. Peretz won and immediately called for early elections and for Labor
to withdraw from the government. Peretz claimed that the Road Map, the international
framework for the peace process, is “a waste of our time” and said that he wanted to finish
negotiations with the Palestinians within a year and implement a final status accord within
three years. He subsequently amended this view with a call to instill new content into the
Road Map. (This was before the Hamas victory in the January 25, 2006, Palestinian
parliamentary elections.) Peretz promised 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 vowed not to grant the Palestinian refugees a “right of return”
to Israel and called for Jerusalem to remain Israel’s eternal capital, with city borders that
guarantee a Jewish majority, suggesting a withdrawal from Arab neighborhoods.
Domestically, Peretz seeks social justice, including comprehensive school reform, an
increase in the minimum wage to $1,000 a month, and an increase in pensions with a
guaranteed pension for every citizen. He also pledged no new taxes. On November 20,
Labor voted to withdraw from the coalition government, depriving Sharon of his parliamen-
tary majority.
On November 21, Sharon, saying that he was no longer willing to “waste time” dealing
with Likud rebels, resigned from the party and founded a new “centrist” party, Kadima
(Forward). He asked President Katzav to dissolve parliament and schedule an early election.
Some 18 Likud Members of the Knesset (parliament), including several ministers, the
chairman of the Likud Central Committee, several Labor MKs, players in other political
parties, and prominent personalities joined Kadima. Former Labor leader Peres supported
Sharon. Kadima’s platform maintains that to secure a Jewish majority in the State of Israel,
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part of the Land of Israel (the area between the Jordan River and the Mediterranean Sea) will
have to be ceded. It affirms a commitment to the Road Map, the international framework for
achieving a two-state solution to the Israeli-Palestinian conflict, but also calls for Israel to
keep settlement blocs, the security barrier, and a united Jerusalem while demarcating
permanent borders. Domestically, Kadima’s leaders call for closing social gaps by focusing
on education and work.
Netanyahu won a Likud primary to replace Sharon as party leader on December 19.
Netanyahu calls for “defensible walls” against Hamas and borders that would include the
Jordan Valley, the Golan Heights, an undivided Jerusalem, settlement blocs, and hilltops, and
moving the security barrier eastward.
On January 4, 2006, Sharon suffered an incapacitating stroke. In a peaceful transition
under the terms of Basic Law Article 16 (b), Deputy Prime Minister Olmert became Acting
Prime Minister. On January 16, Olmert became acting chairman of Kadima. Olmert ordered
the Israeli Defense Forces (IDF) to remove illegal Jewish settlers from the Palestinian
marketplace in Hebron and to raze the illegal outpost at Amona. They did so on February
1, despite violent settler resistance.
The victory of Hamas in the
January 25 Palestinian parliamentary
Cabinet Officers*
elections rapidly became an election
Ehud Olmert
Acting Prime Minister;
issue, even though all parties agree
Minister of Finance, Interior,
that Israel should not negotiate with
Industry, and Welfare
Hamas. Olmert set conditions for
Tzipi Livni
Foreign Affairs, Justice, and
dealing with Hamas and worked to
Absorption
get foreign governments to agree with
Shaul Mofaz
Defense
them. Netanyahu charged that the
Gideon Ezra
Internal Security and
unreciprocated, unilateral withdrawal
Environment
from Gaza had rewarded terrorists
Meir Sheetrit
Transport and Education
and handed Hamas a “trump card” to
Abraham Hirchson Tourism and Communications
produce “Hamastan” on Israel’s bor-
Zeev Boim
Housing and Agriculture
ders. He describes Hamas as part of
Roni Bar-On
Science and Technology and
Infrastructure
“a global jihadist tidal wave that is
Yaakov Edri
Health and Development of the
collaborating with Iran for the pur-
Negev and Galilee
pose of eradicating Israel.” Peretz
said that although Israel cannot coop-
*As of January 18, 2006; all are Kadima.
erate with Hamas, it must continue a
dialogue with moderate elements in
the Palestinian Authority.
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
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about the same as that in Cyprus, one of
the wealthier, new European Union
Basic Facts
members. Despite limited natural re-
sources, the agricultural and industrial
Population
6,276,883 (2005.)
sectors are well-developed. An ad-
Population
1.2% (2005 est.)
Growth Rate
vanced high tech sector includes avia-
tion, communications, computer-aided
— Jewish 80.1% (1996)
Ethnic
design and manufactures, medical elec-
Groups
— non-Jewish (mostly Arab)
19.9% (1996)*
tronics, and fiber optics. Israel greatly
GDP Growth
depends on foreign aid and loans and
5.2 (2005 est.)
Rate
contributions from the Jewish diaspora.
GDP Per Capita $22,200 (2005 est.)
After economic declines in 2001 and
Inflation Rate
1.3% (2005 est.)
2002 due to the effects of the Palestin-
Unemploy-
ian intifadah (uprising) on tourism and
8.9% (2005 est.)
ment Rate
the bursting of the global high-tech
Ratio of debt to
bubble, Israel’s economy has substan-
101% (2005 est.)
GDP
tially recovered since 2003 and is grow-
Foreign Debt
$74.46 billion (2004 est.)
ing at a pace not seen since the 1990s.
crude oil, grains, raw materials,
Imports
Most economic indicators are positive:
military equipment
inflation is low, employment and wages
cut diamonds, high-technology
Exports
are rising, and the standard of living is
equipment, fruits and vegetables
rising. Former Finance Minister
Main Trading
United States, Belgium, Germany,
Netanyahu claims credit for the im-
Partners
United Kingdom
provement. Under his leadership, the
Sources: CIA, The World Factbook, January 2006; and
government attempted to liberalize the
the Israeli government.
economy by controlling government
*Within 1967 borders.
spending, reducing taxes, and resuming
privatization of state enterprises. The
chronic budget deficit decreased, while
the country’s international credit rating was raised, enabling a drop in interest rates.
Netanyahu’s critics, however, suggest that his program of cuts in social spending widened
the national income gap and increased the underclass. According to Israel’s National
Insurance Institute, 20% of all Israelis and 30% of Israeli children live below the poverty line.
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.
Because the 2006 budget was not approved before the dissolution of parliament,
spending remains at 2005 levels until the next Knesset approves a budget.
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Foreign Policy
Middle East
Iran. Israeli officials state that Iran will pose an existential threat to Israel if it achieves
nuclear capability. Ayatollah Khomeini, founder of Iran’s Islamic revolution, decreed that
the elimination of Israel is a religious duty. His disciple, President Mahmud Ahmadinejad,
quoted Khomeini when he called for Israel to be “wiped off the map;” has 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. Iran has
a missile, the Shahab-3, capable of delivering a warhead to Israel. Israeli officials have
called on the international community to thwart Iran’s nuclear ambitions in order to avert the
need for Israel to act as against Iraq’s reactor at Osirak in 1981. 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. Israeli officials
may not assess the situation as sufficiently pressing to warrant a military strike in the near
term because Iran will probably not be able to produce a nuclear bomb until 2008 to 2012.
Israel itself has nuclear weapons, and the prospect of a counterattack is seen by many as a
deterrent against an Iranian attack. On January 17, 2006, Acting Prime Minister Olmert
said, “Under no circumstances ... will Israel permit anyone who harbors evil intentions
against us to possess destructive weapons that can threaten our existence.” He added, “Israel
acted, and will continue to act, in cooperation and consultation with ... international
elements.” Meanwhile, Mofaz reiterated, “Israel will not be able to accept an Iranian nuclear
capability and it must have the capability to defend itself, with all that that implies, and this
is what we are preparing.” On February 1, President Bush said that the United States would
defend Israel militarily. There is no formal treaty obligation to do so. (See “Security
Cooperation” below.).
Iran also provides financial, political, and/or military support to Hizballah, Hamas,
Palestinian Islamic Jihad (PIJ), 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. It has compensated families of suicide
bombers. In January 2006, Israeli Defense Minister Mofaz charged that Iran had financed
a PIJ suicide bombing in Tel Aviv.
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. After 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 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. 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.
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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.
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 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 preferred to include terrorist
groups such as Hamas in the political system and refused to disarm them prior to the January
2006 Palestinian parliamentary elections. Hamas’s victory in those elections creates policy
dilemmas for Israel and the international community. Israel has demanded that Hamas
abrogate its Covenant that calls for the destruction of Israel, disarm and disavow terrorism,
and accept all prior agreements with Israel as preconditions for relations with a Hamas-led
PA.
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.
Thus far, Israeli officials have expressed satisfaction with Egypt’s monitoring of the border.
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. After the January
2006, Hamas election victory, Egyptian officials expressed sympathy with Israel’s positions
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
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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
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. 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. Olmert has indicated that talks with Syria are not
on his agenda.
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
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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;
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 the majority-
Muslim governments of 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 relations with Arab and Muslim
countries would improve due to Israel’s 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,
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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 EU representatives have met local Hamas leaders elected in December 2004 in
order to oversee EU-funded local projects. The EU also 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 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.
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,
facilitated the Israeli-Jordanian peace treaty in 1994, and 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 and
preferred to have the Israelis and Palestinians work together. However, she has traveled to
the region several times and personally mediated an accord to secure the reopening the Rafah
crossing between Gaza and Egypt in November 2005. The Administration supported Israel’s
disengagement from Gaza mainly as a way to return to the Road Map process to achieve a
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solution based on two states, Israel and Palestine, living side by side in peace and security.
The Administration agrees with Israel’s preconditions for dealing with a Hamas-led
Palestinian government.
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
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 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 2005, the United States imported $23.8
million in goods from Israel and exported $27.1 million in goods to Israel.
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Israel also encourages U.S. investment. In July 2005, the U.S. microchip manufacturer
Intel announced that it would invest $4.6 billion in its Israeli 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
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. P.L. 109-102,
November 14, 2005, the Foreign Operations Appropriations Act, 2006, provided $240
million in ESF, $2.28 billion in FMF, and $40 million for the settlement of migrants to
Israel. For FY2007, the Administration has requested $120 million in ESF, $2.34 billion in
FMF, and $40 million for migrants.
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 hold preliminary
discussions. No formal request was then presented to Congress. In light of the costs
inflicted on the United States by Hurricane Katrina, 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. In January 2006, Shimon Peres reportedly renewed the aid
request in a meeting with Secretary of State Condoleezza Rice; the amount was not revealed.
No additional developments have been reported.
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,
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(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 diplomatic, defense, and intelligence establishments, was created
to discuss 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. (See Military Sales, below.) After the
issue was resolved, the strategic dialogue resumed at the State Department on November 28,
2005, and reportedly focused on Syria and democratization in the Arab world. On January
11, 2006, the JPMG convened in Tel Aviv also for the first time since 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,” affording it preferential treatment in
bidding for U.S. defense contracts and access to expanded weapons systems at lower prices.
Israel participates in NATO’s Mediterranean Dialogue, its Istanbul Cooperative Initiative,
and in Operation Active Endeavor monitoring the Mediterranean Sea to thwart terrorism.

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.2 (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. 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, 2005, 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
2 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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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 Wassenaar Arrangement on Export Controls for
Conventional Arms and Dual-Use Goods and Technologies, without actually being a party
to it. 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. In March 2006,
Defense Ministry Director General Jacob Toren said that an interagency process had begun
approving marketing licenses for Israeli firms to sell selected dual-use items and services to
China, primarily for the 2008 Olympic Games, on a case-by-case basis.
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 (about Iran) to a foreign diplomat.
Press reports named Na’or Gil’on, a political counselor at the Israeli Embassy in Washing-
ton, 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 on related
counts of conspiracy to communicate and disclose national defense information to 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 two of those “persons” and indicted for their parts in the conspiracy.
Both denied wrongdoing. On October 24, attorneys for Rosen and Weissman asked the court
to summon Israeli diplomats to Washington for testimony. On January 20, 2006, Franklin
was sentenced to 12 years, 7 months in prison and reportedly will testify against Rosen and
Weissman at their trial beginning in April 2006.
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 an “inadequate data protection regime” and intended to pass legislation
to weaken patent term adjustments. The USTR singled out for concern U.S. biotechnology
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firms’ problems in Israel and a persistent piracy affecting the U.S. copyright industry. Israeli
officials protested the USTR decision, saying that Israel is acting energetically against
violations of intellectual property and cannot be compared to others on the list, such as India,
China, Russia, Egypt, Brazil, and Argentina. 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, then-Minister of Industry Ehud and
USTR Rob Portman 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/site/c.ijITI2PHKoG/b.685761/k.CB97/Home.htm]
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/site/c.hsJPK0PIJpH/b.672581/k.CB99/Home.htm]
Israel Policy Forum: [http://www.ipf.org/]
New Israel Fund: [http://www.nif.org/]
Zionist Organization of America: [http://www.zoa.org/]
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Figure 1. Map of Israel
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