Order Code IB82008
CRS Issue Brief for Congress
Received through the CRS Web
Israel: Background and Relations
with the United States
Updated April 4, 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. Israel
three-party coalition in January 2005 to secure
concluded a peace treaty with Egypt in 1979
support for withdrawing from the Gaza Strip
and with Jordan in 1994, but never reached
and four small settlements in the West Bank.
accords with Syria and Lebanon. It unilaterally
In November, however, new Labor party
withdrew from southern Lebanon in 2000.
leader Amir Peretz withdrew his party from
European countries collectively are Israel’s
the government and called for early elections.
second largest trading partner, and the EU
Sharon then resigned from the Likud party to
participates in the peace process.
form a new party, Kadima. On January 4,
2006, Sharon suffered an incapacitating
Since 1948, the United States and Israel
stroke; Deputy Prime Minister Ehud Olmert
have developed a close friendship based on
became Acting Prime Minister. Kadima
common democratic values, religious affini-
placed first in the March 28, 2006, Knesset
ties, and security interests. U.S.-Israeli bilat-
(parliament) election, but it will have to form
eral relations are multidimensional. The
a coalition government of at least four parties.
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
Acting Prime Minister Ehud Olmert’s Kadima Party placed first in the March 28, 2006,
Knesset (parliament) election, although by a far smaller margin than had been predicted.
Olmert vows to pursue negotiations with the Palestinians, but to proceed with unilateral
withdrawals from or “convergence” of settlements in the West Bank to ensure a “Jewish state
with a Jewish majority” if nothing develops after a “reasonable time.” The new government
also is expected to have a vigorous social agenda. President Moshe Katzav is consulting
the parties and will probably designate a Member of the Knesset to form a government by
April 9. Once designated, an interim prime minister has 28 days with a possible 14-day
extension to form a government. The government is then presented to the Knesset for a vote
of confidence. Olmert is expected to form a government with at least four, if not more,
parties. On April 4, he and Labor Party leader Amir Peretz announced that they had agreed
to cooperate in forming a government. (For more on the election, see Government and
Politics/Current Political Situation below.)
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.
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 may be taken up
in the new Knesset. 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
Prime Minister Ariel Sharon’s plan to disengage from the Gaza Strip and four small
West Bank settlements split his Likud Party. In August 2005, Finance Minister “Bibi”
Netanyahu resigned from the government to protest disengagement and became a candidate
for Likud chairman. In September, Sharon supporters narrowly defeated an effort in the
Likud Central Committee by opponents of disengagement to call an early party leadership
primary to depose Sharon. On November 7, eight Sharon opponents in Likud joined the
opposition to deny Knesset approval of three new Sharon cabinet appointees; the dissidents
considered two of the appointments compensation for supporting disengagement.
In a November Labor Party primary, Histadrut labor federation head Amir Peretz
defeated acting party leader Shimon Peres and former Infrastructure Minister Benjamin Ben
Eliezer. Peretz emphasized the party’s need to champion socioeconomic goals such as
comprehensive school reform, an increase in the minimum wage to $1,000 a month, and an
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increase in pensions with a guaranteed pension for every citizen, which had been
subordinated for the sake of joining Sharon’s coalition. On November 20, Labor voted to
withdraw from the coalition government, depriving Sharon of his parliamentary 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,
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; Israel would 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.
Netanyahu called for “defensible walls”
against Hamas and borders that would
include the Jordan Valley, the Golan
Cabinet Officers*
Heights, an undivided Jerusalem, settle-
ment blocs, and hilltops, and moving the
Ehud Olmert
Acting Prime Minister;
security barrier eastward.
Minister of Finance, Interior,
Industry, and Welfare
On January 4, 2006, Sharon suf-
Tzipi Livni
Foreign Affairs, Justice, and
Absorption
fered an incapacitating stroke. In a
Shaul Mofaz
Defense
peaceful transition under the terms of
Gideon Ezra
Internal Security and
Basic Law Article 16 (b), Deputy Prime
Environment
Minister Olmert became Acting Prime
Meir Sheetrit
Transport and Education
Minister. On January 16, Olmert became
Abraham Hirchson Tourism and Communications
acting chairman of Kadima.
Zeev Boim
Housing and Agriculture
Roni Bar-On
Science and Technology and
The victory of Hamas in the Janu-
Infrastructure
ary 25 Palestinian parliamentary elec-
Yaakov Edri
Health and Development of the
tions rapidly became an election issue,
Negev and Galilee
even though all parties agreed that Israel
*As of January 18, 2006; all are Kadima.
should not negotiate with Hamas.
Olmert set conditions for dealing with
Hamas and worked to get foreign gov-
ernments to agree with them. On March
8, he 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.
Netanyahu charged that the unreciprocated, unilateral withdrawal from Gaza had rewarded
terrorists and contributed to the Hamas win. He criticized Olmert’s plan as a unilateral
concession to Hamas that would endanger Israel. Peretz suggested that, although it could not
deal with Hamas, Israel must continue a dialogue with moderate Palestinians.
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The March 28, 2006, Knesset election results were surprising in many respects. The
voter turnout of 63.2% was the lowest
ever. The contest was widely viewed as
a referendum on Kadima’s plans to dis-
Parties in the Knesset
engage from the West Bank, but it also
proved to be a vote on economic policies
Seats
Party
that many believed had harmed the dis-
29
Kadima
advantaged. Kadima came in first, but
19
Labor
12
Likud
by a smaller margin than polls had pre-
12
Shas
dicted. Labor, emphasizing socioeco-
11
Yisrael Beiteinu (Our Home Israel)
nomic issues, came in a respectable
9
National Union (NU)/National Religious
second. Likud declined sharply from the
Party (NRP)
40 seats it held before former Prime
7
Pensioners’
Minister Ariel Sharon resigned to estab-
6
United Torah Judaism (UTJ)
lish Kadima. This drop was mainly due
5
Meretz/Yahad
4
United Arab List/Ta’al
to the unpopular policies Netanyahu had
3
Hadash
implemented as Finance Minister, which
3
Balad
were blamed for social distress, and to
his opposition to unilateral disengage-
ment.
The Shas campaign specifically aimed at restoring child allowances. Although it
opposed disengagements, the party’s spiritual leader has made rulings that may give Shas
room to accommodate Kadima’s plans for the territories. Yisrael Beiteinu (Israel Our Home),
a party appealing to Russian-speakers, wants borders that exclude Israeli Arabs and their land
and include settlements; it opposes unilateral disengagement and the Road Map international
framework for a two-state solution. The rightist NU/NRP drew support from settlers; it
opposes further withdrawals from the West Bank, where it believes Jews have a biblical right
to settle. The new Pensioners’ Party (GIL) drew single-issue voters harmed by Netanyahu’s
policies as well as young protest voters. Its positions on other issues are not known, but it
appears willing to work with Olmert. The ultra-orthodox United Torah Judaism, which was
part of the last Sharon government, also is expected to join any future coalition. United Arab
List, Hadash, and Balad — Israeli Arab parties — will not be part of a new government, but
are expected to passively support any future disengagements.
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
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global high-tech bubble, Israel’s econ-
omy has substantially recovered since
Basic Facts
2003 and is growing at a pace not seen
since the 1990s. Most economic indica-
Population
6,276,883 (2005.)
tors are positive: inflation is low, em-
Population
1.2% (2005 est.)
Growth Rate
ployment and wages are rising, and the
standard of living is rising. Former Fi-
— Jewish 80.1% (1996)
Ethnic
nance Minister Netanyahu claims credit
Groups
— non-Jewish (mostly Arab)
19.9% (1996)*
for the improvement. Under his leader-
GDP Growth
ship, the government attempted to liber-
5.2 (2005 est.)
Rate
alize the economy by controlling govern-
GDP Per Capita $22,200 (2005 est.)
ment spending, reducing taxes, and
Inflation Rate
1.3% (2005 est.)
resuming privatization of state enter-
Unemploy-
prises. The chronic budget deficit de-
8.9% (2005 est.)
ment Rate
creased, while the country’s international
Ratio of debt to
credit rating was raised, enabling a drop
101% (2005 est.)
GDP
in interest rates. Netanyahu’s critics,
Foreign Debt
$74.46 billion (2004 est.)
however, suggested that his program of
crude oil, grains, raw materials,
Imports
cuts in social spending widened the
military equipment
national income gap and increased the
cut diamonds, high-technology
Exports
underclass. According to Israel’s Na-
equipment, fruits and vegetables
tional Insurance Institute, 20% of all
Main Trading
United States, Belgium, Germany,
Israelis and 30% of Israeli children live
Partners
United Kingdom
below the poverty line.
Sources: CIA, The World Factbook, January 2006; and
the Israeli government.
Israel has a budget deficit target of
*Within 1967 borders.
3% of gross domestic product, and the
government is allowed by law to raise
the annual budget by only 1%. The new
government’s policies may test these limits, although Olmert has vowed not to increase the
deficit while lessening the social gap.

Current Issues
Sharon named Vice Premier Ehud Olmert as Acting Finance Minister to replace
Netanyahu, and Olmert vowed to continue Netanyahu’s economic policies.
Because the 2006 budget was not approved before the dissolution of parliament,
spending remains at 2005 levels. The new Knesset must approve the 2006 budget within 45
days after a government is formed. Labor and other parties are expected to push for increased
spending on social programs.
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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. After June 2005, however, Sharon and Abbas did not meet.
Although Israeli officials described the disengagement from the Gaza Strip as unilateral, they
met with Palestinian counterparts to coordinate aspects of implementation of the disengage-
ment 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. 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. As noted above, Acting Prime
Minister Ehud Olmert has said that he prefers negotiations according to the Roadmap formula.
He has also declared that if they do not occur, then he will proceed with a plan to unilaterally
withdraw from part of the West Bank and “converge” isolated settlements into large
settlement blocs.
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
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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 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.
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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 communities.
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 a political party represented in
parliament. Israel views it 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
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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 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 CRS
Report RL31956, European Views and Policies Toward the Middle East, by Kristin Archick.)
Relations with the United States
Overview
On May 14, 1948, the United States became the first country to extend de facto
recognition to the State of Israel. Over the years, the United States and Israel have developed
a close friendship based on common democratic values, religious affinities, and security
interests. Relations have been evolved through legislation, memorandums of understanding,
economic, scientific, military agreements, and trade.
Issues
Peace Process. The United States has been the principal international proponent of
the Arab-Israeli peace process. President Jimmy Carter mediated the Israeli-Egyptian talks
at Camp David which resulted in the 1979 peace treaty. President George H.W. Bush
convened the peace conference in Madrid in 1990 that inaugurated a decade of unprecedented,
simultaneous negotiations between Israel, Jordan, Syria, Lebanon, and the Palestinians.
President Clinton continued U.S. activism throughout his tenure in office, 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.
Some Israelis criticized U.S. insistence that the Palestinian elections proceed in January 2006,
with Hamas’s participation, which produced the Hamas-led government. The Administration
now agrees with Israel’s preconditions for dealing with that government.
Olmert has said that he would seek U.S. support for moves to determine Israel’s
permanent borders. On March 30, 2006, Secretary Rice responded, saying “I wouldn’t on the
face of it just say absolutely we don’t think there’s any value in what the Israelis are talking
about.”
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
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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.
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 to Israel in the disengagement from Gaza and the rest to develop the
Negev and Galilee regions and for other purposes, but none to help compensate settlers or for
other civilian aspects of the disengagement. Preliminary discussions were held but no formal
request was presented to Congress. In light of the costs of Hurricane Katrina, Olmert said that
the request was postponed. On November 15, 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 had been deleted from the request after a negative U.S.
response. In January 2006, Shimon Peres reportedly renewed the request in a meeting with
Secretary Rice. No aid for these purposes was appropriated in the FY2005 supplemental or
the FY2006 appropriations.
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 development,
rather than in the United States. Finally, to help Israel out of its economic slump, P.L. 108-11,
April 16, 2003, provided $9 billion in loan guarantees over three years, use of which has since
been extended to 2008. As of July 2005, Israel had not used $4.9 billion of the guarantees.
(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
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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 representa-
tives 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. Israel accounts for about 10% of the world’s defense exports, totaling
$3.5 billion in 2004. 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 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.
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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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 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 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. Pollard’s Mossad
handler Rafi Eitan, now 79 years old, recently emerged as head of the new Pensioners’ Party.
(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 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 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 “persons” and indicted for their parts in the conspiracy. Both denied
wrongdoing. On October 24, their attorneys 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. Rosen and Weissman are the first nongovernment employees indicted under
the 1917 Espionage Act for receiving classified information orally and argue that they were
exercising free speech protected by the First Amendment.
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
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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
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. (Joining the OECD is
an important Israeli foreign policy goal.) On December 15, at a World Trade Organization
conference in Hong Kong, then-Minister of Industry Olmert and USTR Rob Portman agreed
to negotiations on the issue.
On March 31, 2006, the Pharmaceutical Research and Manufacturers of America
(PhRMA) asked the USTR to keep Israel out of the OECD, alleging that Israel does not
provide adequate intellectual property protection for U.S. pharmaceutical companies operating
in Israel. PhRMA also asked that Israel be downgraded to “Priority Foreign Country” or worst
offender category in the annual list to be issued this month.
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.israelpolicyforum.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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