Order Code RS22370
Updated April 27, 2007
U.S. Foreign Aid to the Palestinians
Paul Morro
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division
Summary
Since the formation of a Hamas-led Palestinian Authority (PA) government in
March 2006, the Bush Administration has suspended most foreign assistance to the PA,
although humanitarian and other aid to the Palestinian people continues. U.S. policy
makers have stated that foreign aid will not resume until Hamas, a U.S. State
Department-designated Foreign Terrorist Organization, disavows violence, recognizes
Israel, and accepts previous agreements. Hamas has not complied with these demands.
In the meantime, the humanitarian situation for many Palestinians living in the West
Bank and Gaza Strip is worsening. The European Union, in conjunction with the World
Bank, has established a temporary mechanism that allows it to avoid working with the
Hamas-led government while providing some relief to the Palestinians. The Palestinians
are the largest per capita recipients of foreign aid worldwide and, with a shattered
economy, are mostly dependent on external support to meet basic needs. This report
will be updated as events warrant. For more information, see CRS Report RL33530,
Israeli-Arab Negotiations: Background, Conflicts, and U.S. Policy, by Carol
Migdalovitz.
Overview
Most U.S. assistance to the Palestinians is provided through the U.S. Agency for
International Development’s (USAID) West Bank and Gaza program. U.S. assistance
also reaches Palestinians through contributions to the United Nations Relief Works
Agency (UNRWA), which provides humanitarian relief and basic services to Palestinian
refugees living in the West Bank, Gaza Strip, Jordan, Syria, and Lebanon. Since the
formation of the Hamas-led Palestinian Authority (PA) government on March 30, 2006,
the United States has halted most foreign aid to the PA, but has continued providing
humanitarian assistance and democracy promotion and private sector support funds to the
Palestinian people through international and non-governmental organizations (NGOs).
Following Hamas’s electoral victory in the January 2006 PA legislative elections, the
Middle East Quartet (the United States, Russia, the United Nations, and the European
Union) conditioned future assistance on the government’s disavowal of violence,
recognition of the state of Israel, and acceptance of previous agreements. Several Arab

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(Saudi Arabia, Kuwait, and Qatar) and European (Russia, Norway) countries have
channeled assistance through the office of PA President Mahmoud Abbas, leader of Fatah,
a secular party that has recognized Israel and renounced violence. In March 2007, Hamas
and Fatah agreed to share power in a unity government. The new government program
does not explicitly address the first two Quartet conditions, but does agree to “respect”
previous agreements.1 Arab states are now calling for recognition of the unity
government and an end to the boycott.
Current U.S. Restrictions on Aid to the Palestinians
Direct Assistance to the PA. Since the signing of the Oslo Accord in 1993, the
U.S. government has committed an estimated $1.9 billion in bilateral economic assistance
to the Palestinians. According to annual foreign operations legislation, congressionally
approved funds for the West Bank and Gaza Strip cannot be given directly to the PA
unless the President submits a waiver to Congress stating that doing so is in the interest
of national security. To date, the United States has provided direct assistance to the PA
on four occasions. In 1993-1994, the United States provided $36 million through the
Holst Fund at the World Bank for direct assistance to the PA and an additional $5 million
in cash and equipment for the Palestinian police. From 1995-2002, no U.S. aid went to
the PA or any of its constituent bodies. On July 8, 2003, the Bush Administration
announced that it would provide $20 million out of a $50 million FY2003 supplemental
appropriations as direct aid to the PA for infrastructure projects. On December 8, 2004,
President Bush again approved $20 million in direct assistance to the PA to pay off
overdue Palestinian utility bills to Israeli companies. In a fourth instance, following PA
President Abbas’s May 2005 visit to the White House, President Bush transferred an
additional $50 million from unobligated Economic Support Funds (ESF) funds to the PA,
but that transfer was ultimately rescinded after the formation of the Hamas-led
government in March 2006 and the PA returned $45 million of the $50 million.2
Auditing of U.S. Assistance. For several years, Congress has mandated that
U.S. aid to the Palestinians be tightly monitored in order to prevent aid from going to
terrorist groups or for corrupt purposes. P.L. 109-102, the FY2006 Foreign Operations
Appropriations Act, specified that up to $1 million in ESF may be used by the Office of
the USAID Inspector General for audits and inspections of the USAID West Bank and
Gaza program. In addition, the act required the U.S. Comptroller General to conduct his
own audit of all funds for the bilateral West Bank and Gaza program.
Other Restrictions. In annual foreign operations appropriations bills, Congress
also has restricted assistance to the Palestinian Broadcasting Corporation (PBC). Israel
accuses the PBC of inciting violence against Israelis. The PBC was originally designed
to be an independent corporation. Congress also has specified that no U.S. assistance can
be provided to a future Palestinian state unless the Secretary of State certifies, among
other things, that the leadership of the new state has been democratically elected, is
1 “Haniyah Presents National Unity Government Makeup, Platform to PLC,” Gaza Palestine
Satellite Channel Television in Arabic 1005 GMT 17 March 2007, Open Source Center report
number GMP20070317745002.
2 According to USAID, the remaining $5 million is pending negotiation of costs incurred for
discontinued road construction projects.

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committed to peaceful coexistence with Israel, and is taking appropriate measures to
combat terrorism.
U.S. Aid to the Palestinians FY2005-FY2008
With the death of former PA President Yasir Arafat in late 2004 and the election of
Mahmoud Abbas as the new PA President in early 2005, there was renewed hope for
restarting the dormant Middle East peace process. The United States signaled its
commitment to playing an active role by stepping up diplomatic efforts and increasing aid
in order to strengthen Abbas’ efforts to consolidate power inside the PA.
In FY2005, the Bush Administration and Congress significantly increased U.S.
economic aid through supplemental appropriations and by reprogramming economic aid
that had been appropriated in previous years. As noted above, President Bush also used
his authority to provide $50 million in direct assistance to the PA, but this transfer was
subsequently rescinded.
In FY2006, Congress appropriated $150 million for USAID’s West Bank and Gaza
program. Following the formation of the Hamas-led government, some of this funding
was suspended and, along with funds appropriated in prior years, was then reprogrammed
and delivered through international organizations and NGOs using programs with no
connection to the PA government. During FY2006, the United States obligated $264
million3 in humanitarian relief and other assistance to the Palestinians.4
For FY2007, P.L. 110-5, the Revised Continuing Appropriations Resolution, 2007,
provides up to $50 million for USAID’s West Bank and Gaza program. However,
specific allocations are still to be determined.
Table 1. U.S. Assistance to the Palestinians, FY2004-FY2008
(Regular and Supplemental Appropriations; Current Year $ in millions)
FY2007
FY2008
FY2004
FY2005
FY2006
Account
Estimate
Request
ESF
74.558
274.400
150.000
50.000
63.500
Child Survival &
—
—
—
—
10.000
Health
Total
74.558
274.400
150.000
50.000
73.500
Source: U.S. State Department.
3 In July 2006, after a comprehensive review and reprogramming of U.S. assistance to the
Palestinians, the Administration announced it would spend $468 million on aid to the Palestinians
in FY2006, a figure that has been widely reported. The $468 million is a total of approximately
$146 million that was obligated in FY2005, $264 million that was obligated in FY2006, and $58
million that was carried over into FY2007. The $264 million FY2006 figure includes both
USAID’s West Bank-Gaza program and U.S. contributions to UNRWA.
4 USAID, “Breakdown of U.S. Government Assistance to Palestinians in West Bank and Gaza
since 2002,” April 16, 2007.

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U.S. Assistance to Palestinian Security Forces
Since the early 1990s, a small amount of U.S. aid has at times been directed to
support the creation, training, and supplying of Palestinian security forces. In 1994 and
1995, as these forces were being formed, the United States provided a one-time $5 million
cash payment for salaries of Palestinian policemen and two shipments of surplus military
trucks, spare parts, boots, and blankets.5 In the late 1990s, there were unconfirmed press
reports of CIA counterterrorism and intelligence collection training for Palestinian
security officers.6 In February 2005, the Administration named Lieutenant General
William Ward U.S. security coordinator for Gaza to support Israel’s forthcoming
withdrawal from the Gaza Strip and areas of the northern West Bank. Following the
pullout, the Administration provided $2.3 million in non-lethal assistance to the
Palestinian security services and police to facilitate their assumption of security
responsibilities in these areas.
In late 2006, the State Department notified Congress of the President’s intent to
reprogram up to $86 million in prior-year funding to support efforts to reform and
rehabilitate Palestinian civil security forces loyal to President Abbas. However, the
House Appropriations Committee placed a hold on these funds, seeking more information
on where and why the money was to be spent. After the Palestinians reached agreement
on the Fatah-Hamas power sharing arrangement, other Members of Congress reportedly
expressed further doubts, fearing the money may end up with Hamas. In March 2007,
Secretary Rice told a House Appropriations subcommittee that the Administration was
now seeking $59 million for Abbas, $43 million for training and non-lethal assistance to
the Palestinian Presidential Guard and $16 million for improvements at the Karni
crossing, the main terminal for goods moving in and out of Gaza. No holds were placed
on this request.
Ban on Unauthorized Transactions with Hamas-Led PA
On April 12, 2006, the Department of the Treasury’s Office of Foreign Assets
Control (OFAC) formally determined that Hamas, a designated Foreign Terrorist
Organization, had a property interest in the transactions of the Palestinian Authority. This
determination prohibits any and all U.S. persons from engaging in unauthorized
transactions with the PA. To allow for and support ongoing U.S. foreign policy priorities
with regard to the Palestinians, including the potential delivery of humanitarian or
financial assistance to some Palestinian entities, OFAC released six “general licenses”
that authorize transactions between U.S. persons and specific entities within the
5 General Accounting Office, “Controls Over U.S. Funds Provided for the Benefit of the
Palestinian Authority,” January 1996; Defense Security Cooperation Agency and U.S. Army
Security Assistance Command responses to CRS inquiries, June 21-23, 2005. Also see testimony
of Thomas G. Rhame, Director, Defense Security Assistance Agency, before the House
Appropriations Committee, May 6, 1994.
6 Tim Weiner, “CIA Officers, With Israel’s Knowledge, Teach Palestinians the Tricks of the
Trade,” New York Times, March 5, 1998; Matthew Kaiman, “Mideast Training Program
Backfires,” San Francisco Chronicle, February 14, 2005.

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Palestinian territories.7 The general prohibition on transactions with the PA does not limit
transactions between U.S. persons and NGOs or financial institutions in the West Bank
or Gaza. However, in practice, private individuals and entities in the U.S. have reported
difficulty in carrying out financial transactions with non-PA related individuals and
entities, as financial institutions around the world have taken protective measures to
ensure they are not inadvertently violating the OFAC determination.8
Palestinian Authority Finances
Reports vary widely on the exact nature of Palestinian finances. PA expenditures in
2005 were approximately $2 billion, while revenue, including direct external budget
support, was estimated at $1.3 billion. The PA generates revenues from modest amounts
of collected taxes ($400 million), customs duties collected by Israel ($600 million), and
foreign aid ($360 million in direct aid).9 The PA financed the $700 million annual deficit
by borrowing from commercial lenders and using proceeds from the Palestine Investment
Fund. After the formation of the Hamas-led government in March 2006, key donors
suspended direct budget support for the PA and Israel froze the transfer of customs
revenues, drastically reducing PA revenue. According to the PA Ministry of Finance,
gross revenues for the first half of 2006 were $231.3 million as compared to $597.6
million for the same period in 2005, a 61% decline. In addition, the PA lost access to
commercial bank loans as banks feared running afoul of U.S. anti-terror sanctions.
Relying only on domestic tax revenue and cash carried through the Egyptian border
crossing with Gaza, the PA has been unable to pay PA employees their full salaries since
March 2006, although it did manage partial payments on at least four occasions. Some
observers are concerned that many of these cash payments emanate from Iran. Israel is
attempting to clamp down on this practice and in December 2006 forced PA Prime
Minister Haniyeh to deposit $35 million in cash in a Cairo bank before allowing him to
reenter Gaza.
The Temporary International Mechanism (TIM)
In June 2006, the Quartet endorsed a Temporary International Mechanism (TIM)
proposed by the European Union to channel aid directly to Palestinians, bypassing the
Hamas-led government. Through a World Bank account, European donations or “social
allowances” are paid directly into the bank accounts of some Palestinian public sector
workers and other needy families. The TIM also provides essential services in the Gaza
Strip through fuel deliveries to hospitals and clinics as well as by maintaining water and
waste water treatment facilities.10 Although the United States supports the funding plan,
7 The general licenses and answers to frequently asked questions are available for review at the
OFAC website: [http://www.treasury.gov/offices/enforcement/ofac/programs/terror/pa.shtml].
8 Gregg Krupa, “Palestinians: U.S. Ban Halts Aid to Relatives,” Detroit News, June 2, 2006.
Even inadvertent violations could potentially subject financial institutions to a range of U.S.
penalties under provisions of the USA PATRIOT Act and other laws.
9 The international community also provides a large amount of indirect assistance for the
Palestinian people through donations to specific development projects and charitable donations.
10 For more details of the TIM and the EU’s policy toward the Palestinians, see the EU website
(continued...)

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it does not pay into it. According to Israeli Foreign Minister Tzipi Livni, “As far as we are
concerned, the Quartet’s decision to give further humanitarian support to the Palestinian
Authority, bypassing the Hamas government, is definitely OK.”11 The TIM, initially
established in June 2006 for three months, was renewed in September, December, and
again in March 2007. In 2006, the EU delivered approximately $900 million in
emergency assistance to the West Bank and Gaza.
Recent Legislation
Section 550 of P.L. 109-234, the FY2006 Emergency Supplemental Appropriations
Act, prohibits U.S. aid to the PA, but provides the President waiver authority to grant
some assistance to the Office of the President of the Palestinian Authority (Mahmoud
Abbas) provided, among other things, that such assistance will not benefit or be re-
transferred to Hamas and that the President consult Congress and provide a written policy
justification for use of the waiver. Upon signing P.L. 109-234 into law on June 15, 2006,
President Bush asserted that because “the President’s constitutional authority to supervise
the unitary executive branch and take care that the laws be faithfully executed cannot be
made by law subject to a requirement to consult with congressional committees or to
involve them in executive decision-making, the executive branch shall construe the
references in the provisions to consulting to require only notification.”12
On December 21, 2006, President Bush signed into law P.L. 109-446, the Senate
version of the Palestinian Anti-Terrorism Act of 2006, which bars aid to the Hamas-led
Palestinian government unless, among other things, it acknowledges Israel’s right to exist
and adheres to all previous international agreements and understandings. It exempts
funds for humanitarian aid and democracy promotion. It also provides $20 million to
establish a fund promoting Palestinian democracy and Israeli-Palestinian peace. The law
limits the PA’s representation in the United States as well as U.S. contact with Palestinian
officials. In a signing statement, the President asserted that these and several other of the
bill’s provisions impinge on the executive branch’s constitutional authority to conduct
foreign policy, and he therefore viewed them as “advisory” rather than “mandatory.” The
original House version of the bill (H.R. 4681, passed on June 23, 2006) was seen by many
observers as more stringent as it would have made the provision of U.S. aid to the PA
more difficult even if Hamas relinquishes power. In March 2007, Representative Ileana
Ros-Lehtinen introduced H.R. 1856, the Palestinian Anti-Terrorism Act Amendments of
2007, which would amend the original Act to further restrict contact with and assistance
to the PA.
10 (...continued)
[http://ec.europa.eu/comm/external_relations/gaza/intro/index.htm].
11 Harvey Morris, “Israel Endorses Decision To Aid Palestinians,” Financial Times, May 11,
2006.
12 “President’s Statement on Signing of Emergency Supplemental Appropriations Act for
Defense, the Global War on Terror, and Hurricane Recovery, 2006,” available online at
[http://www.whitehouse.gov], June 15, 2006.

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