Order Code RL33476
Israel: Background and Relations
with the United States
Updated July 8, 2008
Carol Migdalovitz
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division

---

Israel: Background and Relations with the United States
Summary
On May 14, 1948, the State of Israel declared its independence and was
immediately engaged in a war with all of its neighbors. Armed conflict has marked
every decade of Israel’s existence. Despite its unstable regional environment, Israel
has developed a vibrant parliamentary democracy, albeit with relatively fragile
governments. The Kadima Party placed first in the March 28, 2006, Knesset
(parliament) election; Prime Minister Ehud Olmert formed a coalition government.
The tenure of the government is now uncertain due to a scandal involving Olmert.
Israel has an advanced industrial, market economy with a large government role.
Israel’s foreign policy is focused largely on its region, Europe, and the United
States. It views Iran as an existential threat due to its nuclear ambitions and support
for anti-Israel terrorists. Israel concluded peace treaties with Egypt in 1979 and
Jordan in 1994, but never achieved accords with Syria and Lebanon. Israel
unilaterally withdrew from southern Lebanon in 2000. Hezbollah, which then took
over the south, sparked a 34-day war when it kidnaped two Israeli soldiers in July 12,
2006. Israel negotiated a series of agreements with the Palestinians in the 1990s, but
that process ended in 2000. Israel resumed talks with the Palestinian Authority (PA)
in June 2007, after PA President Mahmud Abbas dissolved an Hamas-led unity
government in response to Hamas’s military takeover of Gaza. On November 27, the
international Annapolis Conference officially welcomed the renewed negotiations.

Since 1948, the United States and Israel have developed a close friendship based
on common democratic values, religious affinities, and security interests. U.S.-Israeli
bilateral relations are multidimensional. The United States is the principal proponent
of the Arab-Israeli peace process, but U.S. and Israeli views differ on some issues,
such as the Golan Heights, Jerusalem, and settlements. The Bush Administration and
Congress supported Israel’s 2006 military campaigns against Hezbollah and Hamas
as acts of self-defense. The United States and Israel concluded a free-trade agreement
in 1985. Israel is a prominent recipient of U.S. foreign aid. The two countries also
have close security relations. Other issues in U.S.-Israeli relations include Israel’s
military sales to China, inadequate Israeli protection of U.S. intellectual property, and
espionage-related cases. This report will be updated as developments warrant. See
also CRS Report RL33530, Israeli-Arab Negotiations: Background, Conflicts, and
U.S. Policy, CRS Report RS22768, Israeli-Palestinian Peace Process: The
Annapolis Conference, and CRS Report RL33222, U.S. Foreign Aid to Israel.

---

Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Domestic Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Syria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
U.S. Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Historical Overview of Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Government and Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Recent Political Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Current Government and Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Scandals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
War and Aftermath . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Winograd Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Political Repercussions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Effects of Renewed Peace Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Current Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Foreign Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Palestinian Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Syria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Lebanon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Relations with the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Peace Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Jerusalem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Syrian Talks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Democratization Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Trade and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Energy Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Security Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Other Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

---

Military Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Espionage-Related Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Use of U.S. Arms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Intellectual Property Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
U.S. Interest Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
List of Figures
Figure 1. Map of Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
List of Tables
Table 1. Parties in the Knesset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 2. Key Cabinet Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 3. Basic Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

---

Israel: Background and Relations
with the United States
Most Recent Developments
Domestic Politics
In May, police questioned Prime Minister Ehud Olmert twice in connection with
money he received from New York businessman and fund raiser Morris (Moshe)
Talansky. Talansky later testified that he had transferred more than $150,000 to
Olmert over 13 years. Olmert admitted that he had taken campaign contributions
from Talansky, but denied that he had ever taken a bribe or pocketed money for
himself. He said that he would resign if indicted.1 The legal process is slow and an
indictment may not be issued for some time, if at all. Talansky is scheduled to be
cross-examined on July 17.
Speculation is rife about Olmert’s possible successor. Members of his Kadima
Party who hope to succeed him include Vice Prime Minister and Foreign Minister
Tzipi Livni, Deputy Prime Minister and Transportation Minister Shaul Mofaz,
Interior Minister Meir Shitrit, and Public Security Minister Avi Dichter. If Olmert
simply takes leave, Livni would replace him as prime minister automatically by
virtue of being Vice Premier. However, Olmert is seen as unlikely to hand the post
to Livni due to personal antipathy. Livni offers herself as a clean contrast to the
allegedly corrupt prime minister. Mofaz has been staking out the right with hawkish
remarks opposed to an Israeli withdrawal from the Golan Heights and threats to
attack Iran if it continues developing nuclear weapons.
For several weeks, Kadima’s main coalition partner, the Labor Party, appeared
to support Olmert’s ouster. On May 28, a day after Talansky’s testimony, Defense
Minister and Labor Party leader Ehud Barak declared that Olmert could not
“simultaneously run the government and deal with his own personal affair.”
Therefore, “for the good of the state,” he called on Olmert to cut himself off from the
daily running of the government via “suspension, vacation, or resignation or
declaring himself incapacitated.” He said that Labor would consider working with
Olmert’s replacement in Kadima. If Kadima did not act, then Labor would provoke
early elections.2 Barak is not a Member of the Knesset and cannot be a candidate for
prime minister unless new elections are held, but polls do not forecast Labor success
in a vote.
1 Cam Simpson, “Olmert Defends Taking Cash, Vows to Resign if Indicted,” Wall Street
Journal, May 9, 2008.
2 Statement by Barak, Voice of Israel, May 28, 2008, BBC Monitoring Newsfile.

---

CRS-2
On June 24, after Labor ministers decided to support a bill on calling for the
dissolution of the Knesset and thereby for early elections, but before a vote on the
bill, Barak and Olmert cut a deal. In exchange for Labor’s not supporting the bill,
Olmert agreed to complete a Kadima primary not later than September 25. Jewish
holy days follow shortly thereafter, and it now appears that the Knesset may not
dissolve itself before its winter session in November and that elections may not occur
before 2009. The Kadima party constitution requires that a primary be held to select
a new chairman.
Meanwhile, the Shas Party, whose numbers also are key in the coalition,
continues to threaten to deny its support if the government does not increase child
allowances.
Reacting to the announcement that indirect peace talks had begun between Israel
and Syria, Likud Party leader Benjamin Netanyahu claimed, “The way to guard the
Golan and Jerusalem is to go to elections now. If we don’t live here (the Golan),
Iranian soldiers will.”3 Likud and other opposition parties were outraged when the
Olmert-Kadima deal short-circuited imminent elections. Public opinion polls
published on May 30 showed Likud under Netanyahu gaining more seats in the
Knesset than a Kadima Party led by Livni or Mofaz, with Labor coming in third, and
Livni favored to take the helm of Kadima.4
Iran
On April 16, Olmert promised the citizens of Israel, “Iran will not have nuclear
capability.”5 He later told visiting Members of Congress that “the window of
opportunity to prevent a nuclear Iran will close in 2010. Iran would then provide a
nuclear umbrella to the terrorist organizations and would make the fight against them
difficult.”6 In a June 4 speech to the American-Israel Public Affairs Committee,
Olmert claimed, “With every day that passes, we are getting closer to stopping Iran’s
nuclear program.”
More than 60 Members of Congress have urged President Bush to include Israel
within the U.S. missile defense shield or X-band radar in order to more than
quintuple Israel’s warning time against an Iranian missile attack and allow an
intercept by Arrow missiles outside of Israeli territory.
3 Rebecca Anna Stoil, “Netanyahu: the Golan will Stay Israeli,” Jerusalem Post, May 30,
2008.
4 “Elections Poll: Netanyahu Leads, Livni Beats Mofaz,” Ma’ariv, May 30, 2008, Open
Source Center Document GMP200805311746002, “Israeli Poll: Netanyahu’s Likud to Wind
Elections, Livni Most Popular Minister,” Haaretz, May 30, 2008, Open Source Center
Document GMP20080530736002.
5 Landau and Verter, op. cit.
6 Itamar Eichner, “PM to Congressmen: Iran would Provide Nuclear Umbrella to Terrorists,”
Yedi’ot Aharonot, May 20, 2008, Open Source Center Document GMP20080520743002.

---

CRS-3
On June 20, the New York Times reported that Israel’s air force had conducted
a major exercise about 900 miles west Israel in the Mediterranean, comparable to the
distance from Israel to Iran’s uranium enrichment plant at Natanz. The exercise was
viewed as a rehearsal for an attack on Iran’s nuclear facilities and a signal to the West
of Israel’s readiness to act if diplomacy fails to curtail the Iranian threat.7 On June
30, ABC News reported that “a senior Pentagon official” has claimed that there is an
“increasing likelihood” that Israel will carry out an attack on Iran’s nuclear facilities
before the end of this year. A strike could be triggered by Iran’s production of
enough highly enriched uranium to make a nuclear weapon or before Iran deploys a
new Russian SA-20 air defense system. The official expressed concern about
repercussions of such an attack for the United States. On July 2, Chairman of the
U.S. Joint Chiefs of Staff Admiral Mike Mullen said that “opening a third front (in
addition to Iraq and Afghanistan) right now would be extremely stressful” on the
U.S. military. He added that the consequences of an attack on Iran “are very difficult
to predict.”
On July 4, Gen. Mohammed Ali Jafari, commander of Iran’s Revolutionary
Guards, declared that Iran would consider any military action against its nuclear
facilities as the beginning of a war. On July 7, the Guards’ website carried a
statement by a Guard official that Tel Aviv, Israel’s largest city, and the U.S. naval
fleet in the Persian Gulf would be among the first targets of an Iranian response if
Iran is attacked.8
Syria
On May 21, it was announced that Israel and Syria had begun indirect peace
talks thru Turkish intermediaries. Yoram Turbovich, Prime Minister Olmert’s chief
of staff, and Shalom Turgeman, his foreign policy advisor, are leading the talks.
Olmert acknowledges that the price of peace would be Israeli withdrawal from the
Golan Heights. Some skeptics suggest that Olmert is using the talks as a way to
divert attention from the new scandal. (See above.) Two more rounds of talks have
since taken place in Istanbul.
U.S. Aid
H.R. 2642, the Supplemental Appropriations Act, 2008, was signed into law on
June 30, 2008 as P.L. 110-252. It provides not less than $170 million in Foreign
Military Financing (FMF) for Israel, to be disbursed not later than November 1.
7 Michael R. Gordon and Eric Schmitt, “U.S. Says Exercise by Israel Seemed Directed at
Iran,” New York Times, 20, June 2008.
8 “Iranian Military Warns US, Israel Against Attack,” CNN.com, July 8, 2008.

---

CRS-4
Historical Overview of Israel9
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 later 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 1960s, Israel 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.
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 Prime Minister is the leader of the party
with the most seats in parliament. The 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 was raised from 1% to
2% — an action intended to bar smaller parties from parliament but that spurred
some parties to join together simply to overcome 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.

9 For more, see Howard M. Sachar, A History of Israel: From the Rise of Zionism to Our
Time, New York, Knopf, 1996.

---

CRS-5
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.10 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. However, the coalition agreement for
the government that took power in April promised the ultra-orthodox Shas Party that
Basic Laws would not be changed (i.e., transformed into a Constitution) without its
approval. 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 and the
security barrier in the West Bank, and seeks territorial compromise. Both groups
have U.S. supporters.
Recent Political Developments
Israel’s domestic politics have been tumultuous in recent years. Former Prime
Minister Ariel Sharon’s plan to disengage from the Gaza Strip and four small West
Bank settlements split his Likud Party. Then, in November 2005, Histadrut labor
federation head Amir Peretz defeated acting party leader Shimon Peres and former
Infrastructure Minister Benjamin Ben Eliezer in a Labor Party leadership primary. On
November 20, Labor voted to withdraw from the government, depriving Sharon of
his parliamentary majority.
On November 21, Sharon said that he was no longer willing to deal with Likud
rebels, resigned from the party, and founded a new “centrist” party, Kadima
(Forward). He asked the President to dissolve parliament and schedule an early
election. Some 18 Likud MKs, 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 or Action Plan stated that, in order to secure a Jewish
majority in a democratic Jewish State, part of the Land of Israel (defined by some
Israelis as the area between the Jordan River and the Mediterranean Sea) would have
to be ceded. It affirmed a commitment to the Road Map, the 2003 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.11
Former Prime Minister and Finance Minister Benjamin Netanyahu won a
primary to replace Sharon as leader of Likud on December 19. Netanyahu called for
“defensible walls” against Hamas and borders that would include the Jordan Valley,
10 For Basic Laws, see [http://www.mfa.gov.il/mfa/government/law/basic%20laws/].
11 For Kadima’s Action Plan, see [http://kadimasharon.co.il/15-en/Kadima.aspx].

---

CRS-6
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 Ehud
Olmert became Acting Prime Minister and, on January 16, he became acting
chairman of Kadima.
The Hamas victory in the January 25, Palestinian parliamentary elections rapidly
became an Israeli election issue, even though all parties agreed that Israel should not
negotiate with Hamas. On March 8, Olmert revealed plans for further unilateral
withdrawals from the West Bank — what he “convergence,” or merging of
settlements east of the security barrier with large settlement blocs that west of the
barrier.12 Netanyahu charged that the unreciprocated, unilateral withdrawal from
Gaza had rewarded terrorists and contributed to the Hamas win. He criticized
Olmert’s plan as another unilateral concession that would endanger Israel.
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 disengage from the West Bank, but it also proved
to be a vote on economic policies that many believed had harmed the disadvantaged.
Kadima came in first, but by a smaller margin than polls had predicted. Labor,
emphasizing socioeconomic issues, came in a respectable second. Kadima drew
supporters from Likud, which lost 75% of its votes from 2003. Likud’s decline also
was attributed personally to Netanyahu, whose policies as Finance Minister were
blamed for social distress and whose opposition to unilateral disengagement proved
to be unpopular with an increasingly pragmatic, non-ideological electorate.
The Shas campaign specifically aimed at restoring child allowances for the large
families of its constituents. Although Shas opposes disengagements, the party’s
spiritual leader Rabbi Ovadia Yosef made rulings in the past that some believed
might allow Shas to accommodate Kadima’s plans for the territories. Yisrael Beiteinu
(Israel Our Home), a secular party appealing to Russian-speakers, wants borders that
exclude Israeli Arabs and their land and include settlements; it opposes unilateral
disengagements and the Road Map. The rightist National Union/National Religious
Party (NU/NRP) drew support from settlers; it opposes all withdrawals from the
West Bank, where it believes Jews have a biblical right to settle. Voters harmed by
Netanyahu’s policies as well as young protest voters supported the new Pensioners’
Party (GIL), which did not elaborate positions on other issues. The ultra-orthodox
United Torah Judaism (UTJ) also seeks increased child allowances and military
deferments for religious school students. United Arab List, Hadash, and Balad —
Israeli Arab parties — are never part of a government.
12 During his May 2006 meeting with President Bush at the White House, Olmert used
“realignment” and not “convergence” as the English translation for his plan.

---

CRS-7
Current Government and Politics
On May 4, 2006, the Knesset approved a four-party coalition government of the
Kadima Party, the Labor Party, the Pensioners’ Party, and the Shas Party. It
controlled 67 out of 120 seats in the Knesset, with 25 cabinet ministers, and Dalia
Itzik of Kadima as the first woman Speaker of the Knesset. The government’s
guidelines call for shaping permanent borders for a democratic state with a Jewish
majority.13 The guidelines also promise to narrow the social gap. Shas joined the
coalition without agreeing to evacuate settlements as specified in the guidelines and
will decide on the issue when it is on the government agenda.
In October 2006, Olmert broadened the coalition in order to stabilize it in the
aftermath of the war in Lebanon, bringing in Yisrael Beiteinu and increasing the
government’s strength in the Knesset to 78 out of 120 seats. Yisrael Beiteinu leader
Avigdor Lieberman became Deputy Prime Minister and Minister for Strategic
Threats, a previously non-existent post.

Table 1. Parties in the Knesset
Seats
Party
Orientation
29
Kadima
Centrist, Pro-disengagement
19
Labor
Leftist, Social-democrat
12
Likud
Rightist, Anti-disengagement
12
Shas
Sephardi Ultra-orthodox
11
Yisrael Beiteinu
Russian-speakers, Nationalist, Secular, Against unilat-
(Our Home Israel)
eral withdrawals, but for exchange of populations and
territories to create 2 homogenous states
9
National Union (NU)/
Nationalist, Ashkenazi Orthodox, Seeks to annex the
National Religious Party
West Bank (Land of Israel) and transfer Palestinians to
(NRP)
Jordan
7
Pensioners’ (GIL)
Single-issue: guaranteed pensions for all; Supports
unilateral withdrawal from West Bank
6
United Torah Judaism (UTJ)a
Ashkenazi Orthodox, Anti-withdrawals
5
Meretz/Yahad
Leftist, Anti-occupation, Civil libertarian
4
United Arab List/Ta’al
Israeli-Arab, Islamist
3
Hadash
Israeli-Arab, Communist
3
Balad
Israeli-Arab
a. UTJ includes the Lithuanian ultra-Orthodox Degel HaTorah party and the Hasidic Agudat Israel party.
Scandals
A series of scandals created a sense that the government was operating under a
cloud. In October 2006, police recommended that President Moshe Katzav be
indicted on charges of rape, sexual harassment, and obstruction of justice. On June
30, 2007, two weeks before the expiration of his term, Katzav resigned under the
terms of a controversial plea bargain providing that he be indicted for lesser offenses,
13 For the entire text of the government guidelines, see [http://www.mfa.gov.il/MFA/
Government/Current+Government+of+Israel/Basic%20Guidelines%20of%20the%2031s
t%20Government%20of%20Israel].

---

CRS-8
receive a suspended sentence, and pay damages. Katzav was indicted on February
27, 2008, but, on April 8, 2008, he backed out of the plea agreement and decided go
on trial to clear his
name.
Prime Minister
Table 2. Key Cabinet Officers
Olmert also is involved
in several scandals. He
Ehud Olmert
Prime Minister
Kadima
is under criminal investi-
Tzipi Livni
Vice Prime Minister;
Kadima
gation for alleged cor-
Minister of Foreign Affairs
rupt practices while
Haim Ramon
Vice Prime Minister
Kadima
Minister of Finance and
Minister of Trade and
Ehud Barak
Deputy Prime Minister;
Labor
Industry and for receiv-
Minister of Defense
ing an allegedly suspi-
Roni Bar-On
Minister of Finance
Kadima
cious significant dis-
Daniel Friedmann
Minister of Justice
non-
count on the purchase of
partisan
an apartment. Olmert
Avi Dichter
Public Security
Kadima
has denied all allega-
Shaul Mofaz
Deputy Prime Minister;
Kadima
tions.
Minister of Transportation*
Meir Shitrit
Minister of Interior
Kadima
On January 31,
Yuli Tamir
Minister of Education
Labor
2007, former (Kadima)
Eli Yishai
Deputy Prime Minister;
Shas
Justice Minister Haim
Minister of Industry, Trade,
Ramon, a close ally of
and Labor
Olmert, was convicted
of sexually harassing a
*Also in charge of strategic dialogue with the United States.
female soldier. On
March 29, the court up-
held Ramon’s convic-
tion for indecent assault, but found him not guilty of moral turpitude, opening the
way for him to resume a political career and be appointed Vice Prime Minister.
War and Aftermath
Israel engaged in a two-front war against U.S.-designated terrorist groups in
response to the June 25, 2006, kidnaping of an Israeli soldier by Hamas and others
near Gaza and the July 12 abduction of two Israeli soldiers from northern Israel by
Hezbollah.14 The Israeli public, press, and parliament supported the war in Lebanon
as a legitimate response to an attack on sovereign Israeli territory and a long overdue
reaction to Hezbollah rocket attacks on northern Israel, but they questioned its
prosecution. Israelis began debating the war soon after it ended. Critics noted that
the kidnaped soldiers were not rescued and that Hezbollah is rearming and has been
strengthened politically. The government claimed success in forcing Hezbollah from
the border, in degrading its arms, and in pressuring the Lebanese government, aided
by international forces, to assert itself in south Lebanon.
14 For additional coverage of these developments, see CRS Report RL33566, Lebanon: the
Israel-Hamas-Hezbollah Conflict, coordinated by Jeremy M. Sharp.

---

CRS-9
The fallout from the war included the resignation of Chief of Staff Lt. Gen. Dan
Halutz on January 17, 2007. Retired Maj. Gen. Gabi Askenazi, Director General of
the Defense Ministry and a former infantry commander, was named to succeed
Halutz and promoted to lieutenant general.
Winograd Commission
Amid post-war recriminations, Prime Minister Olmert eventually named retired
Judge Eliyahu Winograd to head a governmental commission, the “Committee for
the Examination of the Events of the Lebanon Campaign 2006,” to look into the
preparation and conduct of the war and gave it authority equal to that of an
independent commission. The committee began its work in November 2006.
On April 30, 2007, the Winograd Commission presented its interim findings,
assigning personal blame for “failings” to Prime Minister Olmert, then-Defense
Minister Amir Peretz, and then-Chief of Staff Dan Halutz.15 It criticized Olmert for
“hastily” deciding to go to war without a comprehensive plan, close study, or
systematic consultation with others, especially outside the Israeli Defense Forces
(IDF). It accused him of declaring unclear, over-ambitious, and infeasible goals for
the campaign and for failing to adapt them once their deficiencies were realized. It
concluded that these accusations add up to a “serious failure” in exercising
“judgment, responsibility, and prudence.” It faulted Peretz for making decisions
without systematic consultations despite his lack of knowledge and experience in
military matters, emphasizing his lack of strategic oversight of the IDF. It concluded,
“his serving as Minister of Defense during the war impaired Israel’s ability to
respond well to its challenges.” The Committee also severely criticized Halutz, who
had already resigned.
Political Repercussions
The political effects of the Winograd Commission’s findings on Prime Minister
Olmert have been minimal. Most (26 out of 29) Kadima MKs supported him.
Foreign Minister Tzipi Livni called for Olmert’s resignation, but did not work to gain
the support of others in the party to achieve this goal. Afterwards, she remained in
the government, with her image somewhat tarnished by her unsuccessful action.
Shas, Yisrael Beitenu, and the Pensioners’ Party supported the Prime Minister’s
refusal to resign and the first two were said to have rejected the idea of remaining in
a Kadima-led government if it were led by Livni, who is also Vice Prime Minister,
for reasons of ideology and gender. Yisrael Beitenu viewed her as too supportive of
a peace process and Shas may not follow a female head of government. Olmert was
not challenged as leader of his Kadima Party and easily defeated three no-confidence
votes against his government in the Knesset.
Peretz was defeated in the first round of the Labor Party leadership primary on
May 28, 2007. In the second round, on June 12, former Prime Minister and former
15 For text of Interim Report, see [http://www.mfa.gov.il/MFA/Government
/Communiques/2007/Winograd+Inquiry+Commission+submits+Interim+Report+30-Apr
-2007.htm].

---

CRS-10
IDF Chief of Staff Ehud Barak bested former Shin Bet (Israeli Counterintelligence
and Internal Security Service) head Ami Ayalon to become party leader. Barak then
took over as Defense Minister, saying that he would serve until an election or until
someone other than Olmert forms a new government.
On June 13, 2007, the Knesset elected Kadima candidate 83-year-old Shimon
Peres to be President of Israel. On July 4, Olmert shuffled his cabinet, naming Haim
Ramon Vice Premier to replace Peres, Roni Bar-On Finance Minister, and Meir
Shitrit Interior Minister, among other appointments. Ramon and Bar-On are close
associates of the Prime Minister.
On July 9, 2007, controversial Russian-born billionaire Arkadi Gaydamak
announced the creation of the Social Justice Party. The party intends to participate
in municipal elections in November 2008. French authorities seek to arrest Mr.
Gaydamak for allegedly arms trafficking to Angola in the 1990s and Israeli police
have questioned him about money-laundering.16
Effects of Renewed Peace Process
Resumed Israeli-Palestinian negotiations have roiled the domestic political
waters, with the fate of Jerusalem being the main focus of discord. In September
2007, Vice Premier Ramon, sometimes viewed as a surrogate for Prime Minister
Olmert because of their close ties, floated a peace plan for maintaining a democratic
Israel with a solid Jewish majority; one provision calls for Israel to cede control of
Arab neighborhoods in Jerusalem to the Palestinians and for each religion to
administer its holy sites. Then, in October, Olmert himself questioned whether
Israel needed to retain outlying Arab neighborhoods in East Jerusalem. Shas Party
leader Eli Yishai reacted by stating that his party would leave the coalition if
Jerusalem is a subject of negotiations. Meanwhile, Yisrael Beiteinu head Lieberman
asserted that while refugee camps near Jerusalem could be handed over to Palestinian
control, the Jewish holy sites should not be discussed.

Likud Party opposition leader Netanyahu declared that Jerusalem must remain
united forever under Israeli control and a majority of the Members of the Knesset
(parliament/MKs) signed a petition circulated by Likud, expressing that view.
Signers included 30 MKs from coalition parties as well as opposition MKs.
Netanyahu criticized what he termed a policy of “unilateral concessions” in releasing
Palestinian terrorists and giving the Palestinian Authority (PA) arms before the
November 27 Annapolis Conference to relaunch Israeli-Palestinian negotiations. He
called on Yisrael Beiteinu and Shas to leave the coalition.
On January 16, 2008, Lieberman announced that Yisrael Beiteinu Party was
withdrawing from the government because negotiations with the Palestinians were
dealing with core issues. He claimed that “negotiations on the basis of land for peace
are a crucial mistake” and called for a solution involving an exchange of Israeli Arabs
for territory. After the loss of Yisrael Beiteinu, the Olmert coalition survived with a
majority of 67 seats in the Knesset.
16 “Israeli Billionaire Launches Party ‘To Oust Olmert,’” Daily Telegraph, July 10, 2007.

---

CRS-11
However, on January 22, Shas leader Yishai reportedly warned Olmert that his
party would not be part of the government from the moment it makes concessions in
the peace talks on red lines like Jerusalem.17 Olmert only promised to keep Shas
fully informed about the negotiations. Shas is exacting a high price for remaining in
the government and supporting Olmert against no-confidence votes in the Knesset.
Olmert has approved construction of a number of housing units in several predomi-
nantly ultraorthodox settlements near Jerusalem inhabited by Shas constituents,
which would appear to contravene the 2003 Road Map’s call on Israel to end all
settlement activity. Moreover, Yishai reportedly has said that his party would quit
the government if child welfare payments were not increased and is holding up
government appointments until it is done.18
The final report of the Winograd Committee was released on January 30.19 It
called the war “a great and severe missed opportunity” and “found grave faults and
failings in the decision-making process and the preparatory work both in the political
and military levels and the interaction between them.” Most observers concluded
that, although the report criticized the Prime Minister, Olmert emerged relatively
unscathed because it did not blame him personally for what many Israelis consider
a debacle. Olmert had said prior to the report’s release that he would not resign as
a result of its findings. Afterwards, his office said, “Taking responsibility means
staying on, fixing, improving, and continuing to lead the way forward.”
On February 3, Barak announced that he would not withdraw Labor from the
government because of the Winograd report. He said that it was “an opportunity to
correct things that were revealed” and that he was staying in the government because
of the “challenges Israel faces - Gaza, Hezbollah, Syria, Iran, and rehabilitating the
army.” Labor Party ministers argued that supporting the peace process is more
important than the Winograd Report, but they also may have been influenced by
public opinion polls which predicted a Likud victory in the next election.
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 on par with some European Union member states. Despite limited
natural resources, the agricultural and industrial sectors are well developed. The
engine of the economy is an advanced high-tech sector, including aviation,
17 Gil Hoffman, “Olmert Promises Yishay Full Disclosure on Peace Concessions,”
Jerusalem Post, January 23, 2008.
18 Mazal Mualem, “Shas Threatens to Bolt Gov’t over Child Welfare Payments,” Haaretz,
May 27, 2007.
19 For key findings of the Winograd Committee, see [http://www.mfa.gov.il/MFA
/MFAArchive/2000_2009/2008/Winograd%20Committee%20submits%20final%20repor
t%2030-Jan-2008].

---

CRS-12
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. Israel’s economy has recovered from economic declines in 2001
and 2002 due to the effects of the Palestinian intifadah (uprising) on tourism and to
the bursting of the global high-tech bubble.
Table 3. Basic Facts
7.1 million (includes an estimated 187,000 set-
tlers in the West Bank, 20,000 in the Golan
Population
Heights, and fewer than 177,000 in East Jerusa-
lem)
Jews
76.4%
non-Jews, mostly Arabs
23.6%
Gross Domestic Product growth rate
5.3% (2007 est.)
GDP per capita
$25,800 (2007 est.)
Unemployment rate
7.3% (2007 est.)
Population below poverty line (i.e., $7.30
21.6% (2005)
per person per day)
Inflation rate
0.5% (2007 est.)
Military Expenditures
7.3% GDP (2006)
Public debt
80.6% GDP (2007 est.)
Exports
$50.24 billion (2007 est.)
machinery and equipment, software, agricultural
Export commodities
products, cut diamonds
U.S. 38.4%, Belgium 6.5%, Hong Kong 5.9%
Export partners
(2006)
Imports
$55.76 billion (2007 est.)
raw materials, military equipment, investment
Import commodities
goods, rough diamonds
U.S. 12.4%, Belgium 8.2%,
Import partners
Germany 6.7%, Switzerland 5.9%,
UK 5.1%, China 5.1% (2006)
Source: CIA, The World Factbook, June 19, 2008.
Under former Finance Minister Netanyahu, the government attempted to
liberalize the economy by controlling government 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. However, Netanyahu’s critics suggested that cuts in social spending widened
the national income gap and increased the underclass.

---

CRS-13
Israel has a budget deficit target of 3% of gross domestic product, and the
government is allowed by law to raise the annual budget by only 1.7%. Olmert
vowed not to increase the deficit while lessening the social gap. The coalition
agreement called for raising the minimum wage to $1,000 a month by the end of the
Knesset session, canceling a 1.5% pension cut of the Netanyahu era, guaranteeing a
pension for all workers, and increasing spending on heath care, child allowances,
daycare, and other socioeconomic programs.
Current Issues
Then Finance Minister Abraham Hirschson estimated that the war against
Lebanon in 2006 cost about $3.5 billion due economic losses resulting from the
closure of industrial plants in northern Israel, inability to work on agriculture in that
region, attendant business, property, and tax losses, and the loss of tourism revenues.
In the first half of 2006, the economy grew at a 5.9% rate; second half growth with
the war and its aftermath fell to 2.9%. At the year’s end, government economists
were very pleased with the economy’s performance, which resulted in a balance of
payments surplus of $3.9 billion and a cut in the government deficit to 1.2%, half of
the previous year.20 Most economic indicators also were positive: inflation low,
employment, wages, and the standard of living rising.
On January 29, 2007, Hirchson presented plans to decrease poverty and correct
the mal-distribution of wealth in the country during the period from 2007 to 2010.
They include mandatory pensions, increased taxes on employee vehicles, negative
income tax for low-income earners, and lower-middle-class income taxes. On April
18, Prime Minister Olmert issued a socioeconomic agenda for 2008-2010 to reduce
poverty and encourage growth and employment.
In a year-end speech, Olmert painted a positive picture of the economy which
he attributed to the eradication of terror from city centers, the existence of hope in the
political process, and Israel’s place in the global economy.21 In its inflation report for
2007, the Bank of Israel (central bank) said that the resilience of Israel’s economy is
founded on a business sector that is growing, becoming more efficient, and is
profitable; fiscal policy that is keeping to a budget appropriate to the state of the
economy; and monetary policy that is striving for price stability and supports
financial stability. The Bank also noted that the smallness of the economy and its
openness to trade and to strong and fast capital flows limits policy makers’
flexibility.22
On April 13, 2008, Finance Minister Roni Bar-On claimed that Israel is poised
to withstand the crisis in the world economy and grow at a more moderate pace.
20 Sharon Wrobel, “2006 GDP Growth Tops Forecasts,” Jerusalem Post, January 1, 2007,
citing the Israeli Central Bureau of Statistics’ preliminary figures.
21 “PM Olmert’s 10 Dec Speech to the Israel Business Conference,” Government Press
Office, Open Source Center Document GMP20071211738009.
22 Bank of Israel, Inflation Report 2007, Open Source Center Document
GMP20080223739005.

---

CRS-14
Bank of Israel Governor Stanley Fischer predicted a 2008 growth rate of 3.2%.23 On
May 25, the Central Bureau of Statistics reported a first quarter growth rate of 5.4%
in annualized terms and an unemployment rate down to 6.3%.
Foreign Policy
Middle East
Iran. Israeli officials state that Iran will pose an existential threat to Israel if it
achieves nuclear weapons capability. Ayatollah Khomeini, founder of Iran’s Islamic
revolution, decreed that the elimination of Israel is a religious duty. President
Mahmud Ahmadinejad quoted Khomeini when he called for Israel to be “wiped off
the map” and has described the Holocaust as a “myth” used as a pretext to create an
“artificial Zionist regime.” He repeatedly makes virulently anti-Israel statements.
Iranian Shahab-3 and Ashura missiles are 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 it did against Iraq’s reactor at
Osirak in 1981. On June 20, 2007, the House agreed to H.Con.Res. 21, calling on the
U.N. Security Council to charge Ahmadinejad with violating the Convention on the
Prevention of Genocide because of his calls for the destruction of the State of Israel.
On June 21, it was referred to the Senate Committee on Foreign Relations.
In 2005, when U.S. Vice President Dick Cheney warned that Israel might act pre-
emptively against Iran, Israel’s then Defense Minister Shaul Mofaz countered, urging
a pre-emptive U.S. strike. Some consider the prospect of an Israeli counterattack to
be an effective deterrent against an Iranian attack because Israel is presumed to have
nuclear weapons. However, on January 17, 2006, then 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.”24 On April 23, he stated, “it would not be correct to focus on
us as the spearhead of the global struggle as if it were our local, individual problem
and not a problem for the entire international community. The international struggle
must be led and managed by — first and foremost — the U.S., Europe, and the U.N.
institutions. We are not ignoring our need to take ... steps in order to be prepared for
any eventuality.”25 On November 13, Olmert told the U.S. “Today Show” that he
would find acceptable any compromise that President Bush does to stop Iran from
acquiring nuclear capabilities.
23 Moti Bossok, “Bar-On: The Israeli Economy with Withstand the World Economic Crisis,”
Haaretz, April 14. 2008
24 “PM Olmert, President Qatzav Discuss Iran, Peace Process During News Conference,”
Open Source Center Document FEA20060117017385, January 17, 2006.
25 “23 Apr Cabinet Session; Daily Says Olmert Readying for ‘Swift’ Convergence,”
Jerusalem Government Press Office, Open Source Center Document GMP20060424621005,
April 23, 2006.

---

CRS-15
On January 24, 2007, Olmert declared that the Iranian threat preoccupies him
“incessantly,” but restated his continuing preference for a diplomatic solution and
observed that Iran is “very vulnerable” to international pressure. He added, “Israel
does not face an imminent danger of a nuclear attack” and that there is still time to
frustrate Iran’s intentions to become a nuclear power.26 Israel welcomed U.N.
Security Council Resolution 1747, March 24, 2007, which imposed additional
sanctions in Iran due to its failure to halt uranium enrichment. It also welcomed the
U.S. State Department’s October 25 decision to subject Iran’s Revolutionary Guards,
some financial entities, and individuals to economic sanctions. Olmert has said that
he believed that international diplomatic pressure will keep Teheran from attaining
nuclear weapons and that a military confrontation will not be necessary. Other Israeli
officials have echoed that theme. They also have expressed concern about the
ramifications of a military strike against Iran on regional stability and about possible
retaliation by Syria and Hezbollah as well as Teheran.
Israel and the United States appear to differ in their forecasts for Iran’s nuclear
capabilities. U.S. Director of National Intelligence Mike McConnell, at the Senate
Armed Services Committee in February 2007, estimated that Iran could develop
nuclear weapons and the capacity to deliver them by 2015. Israelis believe that they
must prepare for a more imminent threat. On February 5, 2008, the head of Mossad
Meir Dagan told the Knesset Foreign Affairs and Defense Committee that Iran will
develop a nuclear weapon in three years.27 On February 26, Maj. Gen. Amos Yadlin,
the head of Military Intelligence, told the Committee that the Iranians were continuing
the development of nuclear material as well as nuclear weapons and would likely
achieve a viable weapon in 2010.28
Israeli officials challenged some of the Key Judgements of the U.S. National
Intelligence Estimate (NIE) on Iran released on December 3, 2007. The NIE
concluded with “high confidence” that Iran had halted its nuclear program in fall
2003, with “moderate confidence” that it had not restarted the program as of mid-
2007, and with moderate-to-high confidence “that Teheran at a minimum is keeping
open its options to develop nuclear weapons.”29 The NIE also observed that Iran is
continuing to produce enriched uranium for civilian purposes and that the program
could provide enough material to produce a nuclear weapon by the middle of the next
decade.
26 Verbatim text of speech to the Herziliyya Conference, reported by IDF Radio, BBC
Monitoring Middle East, January 25, 2007.
27 Remarks by President Bush at Joint Press Availability, January 9, 2008,
[http://www.whitehouse.gov].
28 Shahar Ilan, “MI Chief: Terrorists Trained in Syria, Iran have Infiltrated Gaza,” Haaretz,
February 26, 2008.
29 National Intelligence Council, National Intelligence Estimate, Iran: Nuclear Intentions
and Capabilities, November 2007. Only the “Key Judgements” section of NIE was released
unclassified. The NIE explains that high confidence indicates judgments based on high
quality information, but which still carry a risk of being wrong. Judgements of moderate
confidence are credibly sourced and plausible.

---

CRS-16
Defense Minister Ehud Barak responded that, although Iran had halted its
military nuclear program for a while in 2003, it is still continuing with its program.
He maintained that Israel “could not allow itself to rest just because of an intelligence
report from the other side of the globe, even if it is from our greatest friend.”30 The
Foreign Ministry welcomed the section of the NIE that noted the effectiveness of
international pressure and sanctions.
On December 8, Prime Minister Olmert observed, “Iran is continuing to pursue
the two vital components needed for a nuclear weapons program — developing and
advancing their rocket arsenal and enriching uranium.” In an interview published on
January 26, 2008, Defense Minister Barak told the Washington Post, “We suspect they
are probably already working on warheads for ground-to-ground missiles... (and) that
probably they have another clandestine enrichment operation beyond the one in
Natanz.” On May 11, Olmert contested the NIE’s conclusion that Iran had not
restarted his nuclear weapons program, maintaining, “Based on the information we
have, the military program continues and has never been stopped. If this program
continues, at some point they will be in possession of a nuclear weapon.”31.
Israel also is concerned about Iran’s support for anti-Israeli terrorist groups. Iran
provides financial, political, and/or military support to the Lebanese Hezbollah as
well as to Hamas, Palestinian Islamic Jihad (PIJ), the Al Aqsa Martyrs’ Brigades, and
the Popular Front for the Liberation of Palestine-General Command — Palestinian
terrorist groups seeking to obstruct the peace process and destroy Israel.
Prime Minister Olmert has called upon moderate Sunni leaders to form a
coalition against Iran, Hezbollah, and other regional extremists. Those leaders seek
a settlement of the Israeli-Palestinian conflict as a precondition for dealings with
Israel. Nonetheless, it was widely reported, but not officially confirmed, that Olmert
met Saudi National Security Advisor Prince Bandar in September 2006, and
commentators opined that Iran was on their agenda.
On January 6, 2008, President Bush reasserted, “If Iran did strike Israel... (w)e
will defend our ally (Israel), no ands, ifs, or buts.”32 During a visit to Israel on January
9, the President tried to reassure Israelis. He noted that the NIE “sent the signal to
some that said perhaps the United States does not view an Iran with a nuclear weapon
as a serious problem..., (but) Iran was a threat, Iran is a threat, and Iran will be a threat
if the international community does not come together and prevent that nation from
the development of the know-how to build a nuclear weapon.”
On January 17, Israel successfully tested a new long-range missile, the Jericho-3,
that is probably capable of delivering nuclear warheads.
30 Stephen Erlanger and Isabel Kershner, “Israel Insists That Iran Still Seeks a Bomb,” New
York Times, December 5, 2007.
31 Lally Weymouth, “A Conversation with Ehud Olmert,” Washingtonpost.com, May 11,
2008.
32 “Bush Says US Would Defend Israel if Iran Attacks,” Agence France Presse, January 6,
2008.

---

CRS-17
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 Authority (PA) with territorial control over parts of the West Bank and the
entire Gaza Strip. After Ariel Sharon came to power and during the intifadah or
Palestinian uprising against Israeli occupation, Israel refused to deal with the late
Palestinian leader Yasir Arafat. Israel’s relations with the PA and its leaders
improved somewhat after Arafat’s death in November 2004 and the election of
Mahmud Abbas as President of the PA in January 2005. 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 Abbas
and 13 Palestinian factions agreed to an informal truce. However, Sharon and Abbas
did not meet for a long time after June 2005. Although Israeli officials described the
disengagement from the Gaza Strip as unilateral, they met with Palestinian
counterparts to coordinate security for the disengagement and disposition of Israeli
assets in Gaza.
Israel has at least 242 settlements, other civilian land use sites, and 124
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 building 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. The barrier,
which is about 60% complete, is taking the form of a future border between Israel and
Palestine and cuts Palestinians off from East Jerusalem and, in some places, from each
other and some of their land.
The Israeli government accepted the Road Map, 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.33 Former Prime
Minister Sharon contended that the Road Map requires that the PA first fight terror,
by which he meant disarm militants and dismantle their infrastructure, but it also
required Israel to cease settlement activity in the first phase. Abbas initially preferred
to include terrorist groups such as Hamas in the political system and refused to disarm
them prior to January 2006 parliamentary elections. Hamas’s victory in those
elections created policy dilemmas for Abbas, Israel, and the international community.
Israel demanded that Hamas abrogate its Covenant that calls for the destruction of
Israel, recognize Israel, disarm and disavow terrorism, and accept all prior agreements
with Israel as preconditions for relations with a Hamas-led PA.
Israel initially and officially refused to negotiate with Hamas for the return of
Cpl. Gilad Shalit, an Israeli soldier kidnaped on June 25, 2006. After the kidnaping,
in summer 2006, Israel arrested members of the Hamas-led PA government and
legislature for participating in a terrorist group, and Israeli forces conducted military
operations against Hamas and other militant groups in the Gaza Strip as well as in the
West Bank.
33 For text, see [http://www.state.gov/r/pa/prs/ps/2003/20062.htm].

---

CRS-18
On March 18, 2007, the Israeli cabinet voted to shun the new Palestinian unity
government, a coalition of Hamas, Fatah, and independents, until it met what had
become international demands to disavow violence, recognize Israel, and accept prior
Israeli-Palestinian agreements. Prime Minister Olmert said that he would continue to
meet with President Abbas only to discuss humanitarian and security issues. After
Hamas took control of Gaza in June, Olmert said that he would deal with the new PA
government appointed by Abbas to replace Hamas but not cooperate with Hamas in
Gaza. Israel transferred to the PA the tax revenues it had withheld since Hamas came
to power. It also resumed security cooperation with the PA, transferred armored
personnel carriers to the PA security forces, and released several hundred Fatah-
affiliated prisoners.
Olmert and Abbas began meeting regularly in summer 2007, and, as President
Bush announced at the Annapolis Conference on November 27, reached a “Joint
Understanding” to simultaneously begin continuous bilateral negotiations for a peace
treaty and implement the Road Map. Those negotiations continue, with teams led by
Foreign Minister Livni and former Palestinian Prime Minister Ahmed Quray.
Indirectly via Egyptian mediators, Israel and Hamas agreed to a cease-fire in June
2008 and are continuing to negotiate a prisoner exchange to obtain Shalit’s release.
Egypt.34 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
(Palestinian uprising against Israeli occupation), 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
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. After the January
2006 Hamas election victory in the Palestinian territories, Egyptian officials
unsuccessfully urged the group to accept the 2002 Arab Peace Initiative that offers
Israel recognition within its 1967 borders in exchange for full normalization of
relations with Arab countries. Egypt supports President Mahmud Abbas generally in
order to ensure that there is a Palestinian partner for peace negotiations with Israel and
it is training the Palestinian Presidential Guard. After Hamas took over the Gaza Strip
in June 2007, Egypt worked with Israel to close the Rafah crossing at the Gaza-Egypt
border and moved its representative to the PA to the West Bank. However, Egypt
reportedly permitted about 85 Hamas members and other militants wanted by Israel
34 See also, CRS Report RL33003, Egypt: Background and U.S. Relations, by Jeremy M.
Sharp.

---

CRS-19
to enter Gaza via Rafah in October 2007 in exchange for a wanted Al Qaeda
militant.35 Egypt also has called for a revival of the Fatah-Hamas unity government
that Abbas dissolved in June 2007. Egyptian intelligence chief Omar Sulayman
mediated the June 2008 Israel-Hamas cease fire and continues to mediate indirect
talks between Israel and Hamas on a prisoner exchange for Cpl. Shalit.
Egypt deployed 750 border guards to secure the Rafah crossing after Israel’s
disengagement from Gaza in 2005. Israel refused an Egyptian request to deploy
military border guards, instead of police, for greater control of smuggling along the
entire border in Sinai. Israelis argued that an increased military presence would
require changes in the military annex to the 1979 peace treaty and contend that 750
border guards plus 650 general police who also are present should suffice to do the
job, if there is the will. Israeli officials repeatedly expressed frustration with Egypt’s
failure to control arms-smuggling into Gaza; on December 24, 2007, for example,
Foreign Minister Livni told a Knesset Committee that the activity of the Egyptian
border guards is “awful and problematic.”36 P.L. 110-161, the Consolidated
Appropriations Act, 2008, signed into law on December 26, 2007, would have
withheld $100 million in Foreign Military Financing (FMF) from Egypt until the
Secretary of State reported that Cairo had taken steps to detect and destroy the
smuggling network and tunnels that lead from Egypt to Gaza, among other measures.
Egypt rejected the conditions and, on December 31, Foreign Minister Ahmad Abu al
Ghayt blamed the “Israel lobby” for trying to damage Egyptian interests in Congress,
and warned that Egypt would retaliate if Israel continued trying to undermine Cairo’s
ties to Washington.37
In November 2007, the U.S. Army Corps of Engineers sent a team to examine
the tunnels. President Mubarak said that Egypt is following U.S. advice and obtaining
advanced equipment to detect tunnels; it will spend $23 million of its U.S. FMF for
this purpose. In March 2008, Secretary of State Condoleezza Rice confirmed that she
had waived the congressional hold on $100 million in FMF for Egypt related to the
tunnel issue. On June 16, the Administration disclosed that an army team had begun
training Egyptian forces in using electronic equipment to detect smuggling tunnels.38
In late June, U.S. military engineers installed tunnel-detection devices along the
Philadephi Corridor between Gaza and Egypt.
After Hamas blew up the border wall between the Gaza Strip and Egypt on
January 23, 2008, allowing tens of thousands of Gazans to stream into Egypt,
Egyptian forces did not block their entry. Israeli officials said that they expected
35 “Hamas ‘Handed Al Qaeda Fugitive to Egypt’ in Exchange for Border Opening,” Daily
Star (Beirut), October 2, 2007.
36 “FM: Egypt Doing ‘Awful’ Job of Halting Arms Smuggling into Gaza Strip,” Haaretz,
December 24, 2007.
37 “Egypt Warns Israel not to Undermine Ties to U.S.,” Reuters, December 31, 2007.
38 Under the 1976 Arms Export Control Act, Major defense equipment is defined as any item
of significant military equipment on the U.S. Munitions List having a nonrecurring research
and development cost of more than $50 million or a total production cost of more than $200
million.

---

CRS-20
Egypt to bring the situation under control. Egypt resealed the border, but has been
unable to achieve a new arrangement for border control mainly because Hamas insists
on participating and excluding Israel and President Abbas refuses to deal with Hamas.
Israeli officials reportedly are pleased with Egypt’s decision to construct a new,
concrete border wall, complete with outlook posts and surveillance systems, to replace
the one that was blown up.39

In December 2004, Egypt and Israel signed a Qualified Industrial Zone (QIZ)
Agreement under which jointly produced goods enter the U.S. market duty free as part
of the U.S.-Israeli Free Trade Agreement (FTA). As a result of the QIZ, Israeli
exports to Egypt have grown and as have Egyptian exports to the United States. In
October 2007, the agreement was amended and expanded. 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
made in an addendum to the 1979 peace treaty. Gas began to flow in February 2008.
Jordan.40 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.
Believing that a two-state solution to the Israeli-Palestinian conflict would
contribute to regional stability, the King is very supportive of the peace process, wants
the Road Map to be implemented, and has hosted meetings between Israeli and
Palestinian leaders. In January 2007, Jordan joined Egypt, Saudi Arabia, and
Palestinian President Abbas in advocating an agreement on the “end game” before
following the Road Map. The King has opposed possible unilateral Israeli steps in the
West Bank, fearing that they would strengthen Palestinian radicals who could
destabilize the region and undermine his regime. He is one of the strongest proponents
of the Arab Peace Initiative, offering Israel relations with Arab countries in exchange
for its full withdrawal from occupied territories and a solution to the Palestinian
refugee issue, which the Arab League reaffirmed in March 2007. U.S. training of a
new Palestinian gendarmerie, considered central to institutions for a new Palestinian
state, is being conducted in Jordan.
39 Ya’aqov Katz, “Israel Impressed by Cairo’s Efforts at Gaza Border,” Jerusalem Post,
March 12, 2008.
40 See also CRS Report RL33546, Jordan: U.S. Relations and Bilateral Issues, by Alfred
Prados and Jeremy M. Sharp; 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.

---

CRS-21
After Hamas took over Gaza in June 2007, speculation revived concerning a
possible union between Jordan and the West Bank, which some in Israel have long
suggested as the ideal solution. On July 1, King Abdullah firmly rejected the idea, “I
say clearly that the idea of confederation or federation, or what is called administrative
responsibility, is a conspiracy against the Palestinian cause, and Jordan will not
involve itself in it.... The Jordanians refuse any settlement of the Palestinian issue at
their expense.”41 In 1988, the King’s father had disengaged Jordan from the West
Bank and accepted the Palestine Liberation Organization (PLO) as the sole body
responsible for Palestinian areas.
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 and 20,000 settlers on the
Golan. Syrian President Bashar al Asad has called for unconditional peace talks with
Israel. Israeli officials demand that he first cease supporting the Lebanese Hezbollah
militia, expel Palestinian rejectionist groups (i.e., those who reject an Israeli-
Palestinian peace process and the existence of Israel), and cut ties with Iran.
After Syria was implicated in the February 2005 assassination of former
Lebanese Prime Minister Rafiq Hariri, international pressure on the Asad regime
mounted. Israeli officials said that Israel was 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, 2005, former 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.
Syria hosts Hamas political bureau chief Khalid Mish’al and other Palestinian
groups that reject negotiations with Israel, and supplies Hezbollah with Syrian and
Iranian weapons. After the June 25, 2006, Palestinian attack on Israeli forces and
kidnaping of an Israeli soldier, Israeli officials specifically requested the United States
to pressure President Asad to expel Mish’al, whom they believed was responsible for
the operation. Syria refused. When Hezbollah abducted two Israeli soldiers from
northern Israel on July 12, sparking an Israeli-Hezbollah war, some rightwing Israeli
politicians demanded that it be expanded to include Syria. However, the government
and military did not want to open a third front against Syria in addition to those
against Hezbollah in Lebanon and Hamas in Gaza. U.S. officials demanded that Syria
exert its influence on Hezbollah to end the conflict; Syrian officials unsuccessfully
sought a broader resolution that would include a revival of a peace process to produce
the return of the Golan Heights.
In September 2006, Prime Minister Olmert, declared, “As long as I am prime
minister, the Golan Heights will remain in our hands because it is an integral part of
41 July 1 interview with Al Ghad newspaper, cited in Hassan M. Fattah, “Growing Talk of
Jordanian Role in Palestinian Affairs,” New York Times, July 10, 2007.

---

CRS-22
the State of Israel.”42 He also indicated that he preferred not to differ with the Bush
Administration’s policy of not dealing with Syria due to its support for terrorists,
destabilizing of Lebanon, and failure to control the infiltration of insurgents into Iraq.
However, on April 24, 2008, Syrian President Bashar al Asad revealed that Turkish
Prime Minister Recep Tayyip Erdogan had informed him “about Israel’s readiness for
a full withdrawal from the Golan Heights in return for a peace agreement with Israel.”
In May 2008, it was disclosed that Israel and Syria had been exchanging messages via
Turkish intermediaries for more than a year and, on May 21, the two parties publicly
announced that they had begun indirect talks in Istanbul.
On September 6, 2007, the Israeli Air Force carried out an air raid against a site
in northeastern Syria. The Israeli government did not comment about the strike or
provide details and considerable speculation about the likely target ensued. On
September 12, the New York Times alleged that the target may have been a nuclear
weapons installation under construction with North Korean-supplied materials, which
Syrian and North Korean officials denied. Syria did not take concrete actions in
retaliation for the air raid. H.Res. 674, introduced on September 24, would express
“unequivocal support” ... “for Israel’s right to self defense in the face of an imminent
nuclear or military threat from Syria.”
Lebanon.43 Israeli forces invaded Lebanon in 1982 to prevent Palestinian
attacks on northern Israel. The forces gradually withdrew 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 because of Syria’s insistence that it reach an accord with Israel
first. 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 Shib’a Farms area where the borders of Lebanon, Syria, and Israel
meet. The U.N. determined, however, that Israel’s withdrawal from Lebanon was
complete and treats the Shib’a Farms as part of Syria’s Golan Heights occupied by
Israel. Syria verbally recognizes that Shib’a is part of Lebanon, but will not demarcate
the border officially as long the Israeli occupation continues. Hezbollah took control
of the former “security zone” after Israeli forces left and attacked Israeli forces in
Shib’a and northern Israeli communities. The Lebanese government considers
Hezbollah to be a legitimate resistance group and a political party represented in
parliament. Israel views it as a terrorist group.
Hezbollah’s kidnaping of two Israeli soldiers on July 12, 2006, provoked Israel
to launch a war against Hezbollah in Lebanon. On July 17, Prime Minister Olmert
declared that military operations would end with the return of the kidnaped soldiers,
the end to Hezbollah rocket attacks into northern Israel, and the deployment of the
Lebanese army along the Israeli-Lebanese border to replace Hezbollah units.
Hezbollah demanded a prisoner swap, namely, that the Israeli soldiers be exchanged
for Lebanese and other Arab prisoners held in Israel. The war ended with a cessation
42 “Olmert Tells Israeli Paper: Golan ‘An Integral Part of the State of Israel’,” Yedi’ot
Aharonot, September 26, 2006, citing a Mishpaha newspaper interview, Open Source Center
Document GMP20060926746002.
43 See also CRS Report RL33509, Lebanon; and CRS Report RL31078, The Shib’a Farms
Dispute and Its Implications, both by Alfred Prados.

---

CRS-23
of hostilities on August 14. Israeli positions were assumed by the Lebanese army and
an enlarged U.N. Interim Forces in Lebanon (UNIFIL). Hezbollah has maintained the
cease-fire, but has not released the abducted soldiers.44 The U.N. reports that
Hezbollah is rearming via smuggling across the Lebanese-Syrian border.
On May 31, 2008, Hezbollah handed over the remains of five Israeli soldiers
killed in 2006 war to Israel. At the same time, Israel released to Lebanon an Israeli
of Lebanese descent who had been convicted of spying for Hezbollah. On June 29,
the Israeli cabinet approved a larger prisoner exchange. The two Israeli soldiers (most
likely their remains) captured in 2006, a report on Ron Arad, an Israeli pilot missing
in action since 1986, and the remains of Israeli soldiers killed in the 2006 war would
be given to Israel. In exchange, Israel will release Samir Kuntar, a Lebanese member
of a Palestinian terrorist group who killed an Israeli man and his young daughter in
1979, four Hezbollah fighters, the bodies of eight Hezbollah members, and the bodies
of other terrorists, and supply information on four missing Iranian diplomats to the
U.N. Secretary General. At a later date, Israel will release some Palestinian prisoners.
Iraq. In a March 12, 2007, speech, Prime Minister Olmert warned against the
consequences of a “premature” U.S. withdrawal from Iraq, arguing that a negative
outcome there would harm Israel, the Gulf States, and the stability of the Middle East
as well as the ability of the United States to address threats emerging from Iran.45
Israel’s Ambassador to the United States has expressed hope that withdrawal from
Iraq would be done “in such a way that does not strengthen Iran and Al Qaeda or boost
organizations such as Hezbollah and Hamas, so that we don’t face a new eastern front
from Iran to Kfar Saba.”46 The late Israeli commentator Ze’ev Schiff suggested that
if Arabs interpret America’s withdrawal as a sign of defeat, then Israel could look
forward to a radical Arab shift that will strengthen extremists.47 Others have opined
that Israel fears that a U.S. withdrawal would be seen as a victory for Iran and could
prompt Syria to consider military options to recover the Golan Heights.48 Some of
these sentiments may have influenced H.Rept. 110-060, March 20, 2007, to
accompany H.R. 1591, Emergency Supplemental Appropriations for FY2007, which
states, “The fight is Iraq is also critical to the future of Israel. A failure in Iraq will
further destabilize the region, posing a direct threat to Israel. We must not let that
occur to our friend and ally.”
44 Some have suggested that the soldiers might not be alive due to the nature of the operation
in which the soldiers were captured, the probable injuries they sustained, and the lack of
readily available medical assistance. Moreover, there has been no discussion of a prisoner
exchange comparable to that under discussion for the soldier kidnaped by Hamas earlier.
45 For text of speech, see [http://www.pmo.gov.il/PMOEng/Communication/PMSpeaks/
speechaipac130307.htm].
46 Interview by Tal Schneider, Ma’ariv, April 27, 2007, Open Source Center Document
GMP20070427754006.
47 Ze’ev Schiff, “US Withdrawal in Iraq to Strengthen Arab Extremists Around Israel,”
Haaretz, April 20, 2007.
48 Hussein Agha, “The Last Thing the Middle East’s Main Players Want is US Troops to
Leave Iraq,” The Guardian, April 25, 2007.

---

CRS-24
Other. Aside from Egypt and Jordan, Israel has diplomatic relations with the
majority-Muslim countries 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 Palestinian intifadah and the offices have not reopened. Former
Foreign Minister Silvan 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, 2005, meeting in Istanbul with the
Pakistani foreign minister, although Pakistani officials have asserted that they will not
recognize Israel until an independent Palestinian state is established. On September
14, Pakistan’s President Pervez Musharraf shook Prime Minister Sharon’s hand in a
“chance” meeting at the U.N. General Assembly opening session. In October,
Pakistan accepted Israeli humanitarian aid after a devastating earthquake. In April
2007, Musharraf offered to mediate between Israel and the Palestinians and said that
he would be willing to visit Israel to help bring peace to the Middle East. Prime
Minister Olmert declined the mediation offer, preferring to deal directly with
Palestinian President Abbas.
Shalom also met the Indonesian, Qatari, Algerian, Moroccan, and Tunisian
foreign ministers at the U.N. Also in September 2005, Bahrain ended its economic
boycott of Israel, a move required by the World Trade Organization and the Bahrain-
U.S. Free Trade Agreement, but it has vowed not to normalize relations.
Tunisian President Zine El Abidine Ben Ali sent a personal letter to Sharon,
praising his “courageous” withdrawal from Gaza. Foreign Minister Shalom attended
the World Summit on the Information Society November 2005 and Knesset members
attended the European-Mediterranean Parliamentary Assembly in March 2007; both
events were held in Tunis.
In September 2006, Foreign Minister Livni was said to have met with 10 Arab
and Muslim foreign ministers at the U.N. On January 30, 2007, Vice Premier Shimon
Peres met the Emir of Qatar in Doha. Speaker Itzik was invited to the Inter-
Parliamentary Union meeting in Indonesia in May 2007 but did not attend because of
security concerns. In September 2007, Livni met the Emir of Qatar at the U.N. and
appeared with the Secretary-General of the Omani Foreign Ministry at a public event.
In April 2008, she paid a three-day visit to participate in the Doha Forum on
Democracy, Development, and Free Trade in Qatar, where she met the Emir and the
prime minister. She also held her first public meeting with her Omani counterpart,
who refused to reopen Israel’s trade office in Muscat until an agreement is reached on
establishing a Palestinian state.
Israel also has good relations with predominantly Muslim Azerbaijan, which
supplies about one-sixth of Israel’s oil needs and seeks Israeli investments, as well as
with Tajikistan, which seeks Israel’s technological expertise.

---

CRS-25
European Union49
Israel has complex relations with the European Union (EU). Many Europeans
believe that the Israeli-Palestinian conflict is a root cause of terrorism and of 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 Road Map. EU is concerned about Israel’s ongoing settlement activity
and construction of the security barrier in the West Bank, which, according to the
Europeans, contravene the Road Map 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 some Europeans increasingly question the
legitimacy of the State of Israel. Some Israelis contend that the basis of such views
is an underlying European anti-Semitism. Nonetheless, in November 2005, Israel
agreed to allow the EU to maintain a Border Assistance Mission (EU-BAM) to
monitor the reopened Rafah crossing between the Gaza Strip and Egypt. The 90-man
EU mission was extended despite European complaints about Israeli restrictions and
frequent closures of the crossing. It suspended operations on June 13, 2007, when
Hamas took over Gaza. Negotiations to reopen the crossing, with EU monitors, are
ongoing. After the war in Lebanon, Israel urged and welcomed the strong participation
of European countries in the expanded United Nations Interim Force in Lebanon
(UNIFIL).
To Israel’s dismay, some EU representatives 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. The EU,
a member of the international Quartet with the United States, U.N., and Russia, agrees
with the Quartet’s preconditions for relations with Hamas: disavowal of violence,
recognition of Israel, and acceptance of prior Israeli-Palestinian accords. The EU
developed, at the Quartet’s request, a temporary international mechanism to aid the
Palestinian people directly while bypassing the then Hamas-led PA government.
The EU does not include Hezbollah on its list of terrorist organizations as Israel
demands. Israel has protested meetings between European ambassadors and Hezbollah
ministers 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). Foreign Minister Livni will attend an EU meeting to launch the Union for the
Mediterranean in Paris on July 13.
49 See also CRS Report RL31956, European Views and Policies Toward the Middle East,
December 21, 2005, by Kristin Archick, and CRS Report RL33808, Germany’s Relations
with Israel: Background and Implications for German Middle East Policy, January 19,
2007, by Paul Belkin.

---

CRS-26
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 evolved through legislation; memoranda 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 together with Soviet President Mikhail Gorbachev
convened the peace conference in Madrid in 1990 that inaugurated a decade of
unprecedented negotiations between Israel, Jordan, Syria, Lebanon, and the
Palestinians. President Clinton facilitated a series of agreements between Israel and
the Palestinians as well as the Israeli-Jordanian peace treaty in 1994, hosted the
Israeli-Palestinian summit at Camp David that failed to reach a peace settlement in
2000, and sought unsuccessfully to mediate between Israel and Syria.
In June 2002, President George W. Bush outlined his vision of a democratic
Palestine to be created alongside Israel in a three-year process.50 U.S., European
Union, Russian, and U.N. representatives built on this vision to develop the Road Map
to a Permanent Two-State Solution to the Israeli Palestinian Conflict.51
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. H.Res. 143,
introduced on April 12, 2007, urges the President to appoint a Special Envoy for
Middle East Peace. S.Res. 224, introduced on June 7, has a similar provision.
After the Administration supported Israel’s disengagement from Gaza mainly as
a way to return to the Road Map, Secretary Rice personally mediated an accord to
secure the reopening of the Rafah crossing between Gaza and Egypt in November
2005. Some Israelis criticized her insistence that the January 2006 Palestinian
elections proceed with Hamas participating, which produced a Hamas-led
government, despite the group’s refusal to disavow violence or recognize Israel. The
Administration later agreed with Israel’s preconditions for dealing with the
government. Rice traveled to the region several times in 2007 in order to get the
Israelis and Palestinians to focus on what she describes as a “political horizon” for the
Palestinians. President Bush convened an international meeting in Annapolis, MD on
50 See [http://www.whitehouse.gov/news/releases/2002/06/20020624-3.html] for text of
President’s speech.
51 See [http://www.state.gov/r/pa/prs/ps/2003/20062.htm]for text of Road Map.

---

CRS-27
November 27 to support bilateral negotiations between Israel and the Palestinians, and
Secretary Rice has since traveled to the region almost monthly and met the leaders of
the negotiating teams elsewhere to urge progress.
Settlements. All recent U.S. Administrations have disapproved of Israel’s
settlement activity as prejudging final status issues 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 centers” (i.e., settlement blocs), 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.”52 He later emphasized that it was a
subject for negotiations between the parties.
Jerusalem. Since taking East Jerusalem in the 1967 war, Israel has maintained
that united Jerusalem is its indivisible, eternal capital. Few countries agree 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. In P.L. 109-102, November 14,
2005, Congress mandated that the embassy be moved to Jerusalem, but a series of
presidential waivers of penalties for non-compliance have delayed the move. 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. Those provisions
are repeated in P.L. 110-161, the Consolidated Appropriations Act, 2008, signed into
law on December 26, 2007.
Syrian Talks. The United States has never recognized Israel’s annexation of
the Golan Heights, which it views as a violation of international law. However, the
Bush Administration has not attempted to revive Israeli-Syrian peace talks. Olmert
and the Administration generally agreed on isolating Damascus until it ends its
relations with terrorists and Iran. Yet, some in the Israeli coalition, Knesset, and press
wanted their government to engage Damascus in order to distance it from an alliance
with Teheran that enhances the Iranian threat to the Jewish State and believe that a
peace with Syria would be easier to achieve than one with the Palestinians. Israel and
Syria began indirect negotiations via Turkish mediators in May 2008. The United
States is not a party to this process. The State Department spokesman said, “We don’t
think that any other track or any other negotiating path ought to be a substitute or a
distraction from the primary set of discussions and negotiations between Israel and the
Palestinians.”53 However, Secretary Rice said, “We would welcome any steps that
might lead to a comprehensive peace in the Middle East .... We are working very hard
on the Palestinian track. It doesn’t mean that the U.S. would not support other tracks.”
White House spokeswoman Dana Perino added, “What we hope is that this is a forum
to address various concerns that we all share about Syria – the United States, Israel,
and many others – in regard to Syria’s support for Hamas and Hezbollah (and) the
52 For text of Bush letter to Sharon, see [http://www.whitehouse.gov].
53 Ashraf Khalil, “Israel’s Peace Efforts Widen,” Los Angeles Times, June 21, 2008.

---

CRS-28
training and funding of terrorists that belong to these organizations .... We believe it
could help us to further isolate Iran....”54
Democratization Policy. Some Israeli officials have questioned possible
unintended consequences of the U.S. democratization policy in the Middle East,
believing that it is aiding extremist organizations to gain power and to be legitimized.
Alarmed, they cite the examples of Hezbollah in Lebanon, Hamas in the Palestinian
Authority, and the Muslim Brotherhood in Egypt.55
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 since the FTA
became effective. As noted above, qualified industrial zones in Jordan and Egypt are
considered part of the U.S.-Israeli free trade area. In 2007, Israel imported $7.8 billion
in goods from the United States and exported $18.9 billion in goods to the United
States.56
U.S. companies have made large investments in Israel. In July 2005, the U.S.
microchip manufacturer Intel announced that it would invest $4.6 billion in its Israeli
branch; Israel provided a grant of 15% of an investment of up to $3.5 billion or $525
million to secure the deal. In May 2006, prominent U.S. investor Warren Buffet
announced that he was buying 80% of Iscar, a major Israeli metalworks, for $4 billion.
Energy Cooperation. In the context of Israel’s relinquishing control of
Egyptian oil fields and conclusion of a peace treaty with Egypt, Israel and the United
States signed a memorandum of agreement in 1979 for the United States to provide
oil to Israel in emergency circumstances. Those circumstances have not arisen to date,
and the agreement been extended until 2014.
P.L. 110-140, December 19, 2007, the Renewable Fuels, Consumer Protection,
and Energy Efficiency Act of 2007, calls for U.S.-Israeli energy cooperation and
authorizes the Secretary of Energy to make grants to businesses, academic institutions,
nonprofit entities in Israel and to the government of Israel to support research,
development, and commercialization of renewable energy or energy efficiency.
54 Cam Simpson, “ Israel, Syria in Indirect Peace Talks,” Wall Street Journal, May 22, 2008,
“US Welcomes Syrian-Israeli Talks but Stresses Palestinian Track,” Yahoo! News, May 21,
2008, “Rice: Israeli-Palestinian Track Most Likely to Produce Results,” Associated Press,
May 22, 2008.
55 For example, head of Military Intelligence Maj. Gen. Amos Yadlin, quoted in Ahiya
Raved, “Intelligence Chief: Strategic Threats on Israeli Rising,” Ynetnews, June 20, 2006,
Open Source Center Document GMP20060621746004.
56 Israeli Central Bureau of Statistics, “Summary of Israel’s Foreign Trade by Country
2007,” posted on Ministry of Finance website, January 20, 2008.

---

CRS-29
Aid.57 Israel was the largest recipient of U.S. foreign aid after 1976 and until
Iraq supplanted it after 2003. 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,
and concludes with FY2008. Separately from the scheduled ESF cuts, Israeli received
an extra $1.2 billion to fund implementation of the Wye agreement (part of the Israeli-
Palestinian peace process) in FY2000, $200 million in anti-terror assistance in
FY2002, and $1 billion in FMF in the supplemental appropriations bill for FY2003.
For FY2008, the Administration requested 2.4 billion in FMF and $500,000 in
International Narcotics Control and Law Enforcement (INCLE) funds for Israel. P.L.
110-161, the Consolidated Appropriations Act, 2008, signed into law on December
26, 2007, provides $2.4 billion in FMF, of which $631.2 million may be spent in
Israel, and $40 million for refugee assistance. The amounts may be subject to a 0.81%
across the board recision.

After meeting Prime Minister Olmert at the White House on June 19, 2007,
President Bush said that a new 10-year aid agreement would be signed to ensure that
Israel retains a “qualitative military edge.” The President also directed Secretary of
Defense Robert Gates to expedite approval of IDF procurement requests in order to
replenish arms and materiel used during the 2006 war against Hezbollah in Lebanon.
On August 13, U.S. Under Secretary of State Nicholas Burns and Israeli Foreign
Ministry Director General Aharon Abramowitz signed a memorandum of
understanding to govern a new 10-year, $30 billion aid package. Aid will increase
from $2.4 billion in FMF in FY2008 to $2.55 billion in FY2009, and average $3
billion a year by the conclusion of the 10-year period. Israel is allowed to spend
26.3% of the aid in Israel; the remainder is to be spent on U.S. arms. Burns stated that
“a secure and strong Israel is in the interests of the United States” and that the aid was
an “investment in peace” because “peace will not be made without strength.”
Congress must approve the annual appropriations.
For FY2009, the Administration has requested $2.55 billion in FMF and $30
million in Migration Assistance for Israel.
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, and have been 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 (for commercial loans) over three years. As of
September 2006, $4.5 billion of the guarantees were unexpended.58 P.L. 109-472,
January 11, 2007, extended the period for which the guarantees are to be provided for
a second time until September 30, 2011.
57 For more details, see CRS Report RL33222, U.S. Foreign Aid to Israel, by Jeremy Sharp.
58 See also CRS Report RL33222, U.S. Foreign Aid to Israel, by Jeremy Sharp.

---

CRS-30
Security Cooperation. Although Israel is frequently referred to as an ally of
the United States, the two countries do not have a mutual defense agreement. Even
without a treaty obligation, President Bush has said several times that the United
States would defend Israel militarily in the event of an attack.59 On May 14-14, 2008,
he visited Israel to celebrate its 60th anniversary. In a speech to the Knesset, the
President stated, “The alliance between our governments is unbreakable, yet the
source of our friendship runs deeper than any treaty. It is grounded in the shared spirit
of our people, the bonds of the Book, the ties of the soul.” He told Israel that it “can
always count on America to stand at its side.”
On November 30, 1981, U.S. Secretary of Defense Caspar Weinberger and Israeli
Minister of Defense Ariel Sharon signed a memorandum of understanding (MOU),
establishing a framework for continued consultation and cooperation to enhance the
national security of both countries. In November 1983, the two sides formed a Joint
Political Military Group (JPMG) to implement 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 strategic dialogue was suspended. (See Military Sales,
below.) After the issue was resolved, the talks resumed at the State Department on
November 28, 2005. On January 21, 2007, Under Secretary of State Burns and
Deputy Secretary of Defense Gordon Englund headed a U.S. delegation to Tel Aviv.
Minister of Transportation Shaul Mofaz (a former Chief of Staff and former Defense
Minister) and Defense Ministry Director General (now Chief of Staff) Gabi Ashkenazi
led the Israeli delegation. Afterwards, Mofaz reported that the dialogue would
henceforth be held four times a year. In January 2008, the two delegations discussed
their assessments of Iran’s nuclear program, diplomatic efforts to prevent Iran from
developing nuclear capability, and concerns over Hezbollah.

Secretary of Defense Gates’ visit to Israel in April 2007, the first by a U.S.
Secretary of Defense in eight years, was seen as a sign that strains in the relationship
had truly eased. His meetings included discussions of bilateral military-to-military
relations, the peace process, Syria, Iran, and Iraq. Gates tried to assure his Israeli
interlocutors that a planned U.S. arms sale to Saudi Arabia, reportedly to include
satellite-guided munitions, was needed to counter the Iranian threat and would not
threaten Israel’s military superiority.60
59 Interview with Reuters, cited in Glenn Kessler, “Bush Says U.S. Would Defend Israel
Militarily,” Washington Post, February 2, 2006. See also [http://www.whitehouse.gov/news/
releases/2006/05/20060523-9.html] for transcript of joint Bush-Olmert news conference in
May 2006.
60 David S. Cloud and Jennifer Medina, “Gates Assures Israel on Plan to Sell Arms to
Saudis,” New York Times, April 20, 2007. For more on the arms sale, see CRS Report
RL34322, The Gulf Security Dialogue and Related Arms Sale Proposals, by Christopher M.
Blanchard and Richard F. Grimmett, January 17, 2008.

---

CRS-31
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 total U.S. financial contribution so far of more than $1 billion, increasing
annually. The system became operational in 2000 in Israel and has been tested
successfully. The U.S. DOD Missile Defense Agency has agreed to extend the U.S.-
Israel Arrow System Improvement Program (ASIP) and post-ASIP through 2013.
P.L. 110-181, January 28, 2008, the Defense Authorization Act for FY2008,
authorizes full funding of the Administration’s request of $73.5 million for the Arrow
and $7 million for the joint Short Range Ballistic Missile Defense (SRBMD), known
as “David’s Sling,” a missile interceptor designed to thwart missiles and rockets from
40 to 200 kilometers. It provides an additional $25 million to complete accelerated
co-production of Arrow missiles, $45million to continue joint development of David’s
Sling, and $135 million to begin acquisition of a Thermal High Altitude Area Defense
(THAAD) fire unit in order to provide Israel with a follow-on missile defense system
of greater performance than the Arrow.
P.L. 110-116, November 13, 2007, the Department of Defense Appropriations
Act, 2008, includes Sec. 8080 which appropriates $155,572,000 for the Arrow
program, of which $37,383,000 is for producing missile components in the United
States and missile components and missiles in Israel; $20 million is for preliminary
design for an upper-tier component to Israeli Missile Defense Architecture, and $37
million for David’s Sling. Israel reportedly has decided that the THAAD does not
meet its range and altitude requirements and seeks to develop a new interceptor.
THAAD is not mentioned in the appropriations bill. The Administration has requested
$44.9 million for David’s Sling for FY2009. Israel reportedly is seeking $150 million
to develop an advanced Arrow 3 to counter a ballistic missile threat from Iran and
Syria, and President Bush is said to have promised to work with Congress to obtain
the funds.61
There are unconfirmed reports that Israel is seeking to buy the F-22 Raptor
stealth fighter, foreign sales of which are currently banned.62 On June 5, 2008, House
Foreign Affairs Committee Chairman Howard Berman told the Jerusalem Post that
he would look at dropping the ban on F-22 sales.
Security cooperation extends to cooperation in countering terrorism. P.L. 110-
53, August 3, 2007 Implementing Recommendations of the 9/11 Commission Act of
2007, recognizes Israel as a potential research partner for the Department of
Homeland Security.
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 and
61 Yaakov Katz, “Officials: Bush Pledged Funding for Arrow 3,” Jerusalem Post, May 20,
2008.
62 Yaakov Katz, “Israel Fears US will Sell F-35 to Saudis,” Jerusalem Post, April 14, 2008.

---

CRS-32
its Istanbul Cooperative Initiative. On October 16, 2006, Israel signed an Individual
Cooperation Program (ICP) with NATO, providing for cooperation in counter-
terrorism, intelligence sharing, and disaster preparedness. On February 7, 2007, Amir
Peretz became the first Israeli defense minister to visit NATO headquarters in
Brussels. In June, as part of the ICP, Israel agreed to joint military training and
exercises with NATO to enhance interoperability, potentially leading to Israeli
participation in NATO-led missions. On May 15, 2008, the House passed H.R. 5916,
the Security Assistance and Arms Export Control Reform Act, 2008, by a voice vote.
Among other provisions, the bill would treat Israel like NATO members for the
purposes of expediting exports of essential military equipment, requires that Israel’s
qualitative military edge be empirically assessed on an ongoing basis, and recognizes
that Israel’s national security is a priority for the United States.
Other Issues
Military Sales. In 2006, Israel earned $4.4 billion from defense sales. India
was Israel’s biggest customer, with purchases totaling $1.5 billion.
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.63 U.S. administrations
believe that such sales are potentially harmful to the security of U.S. forces in Asia.
In 2000, the United States persuaded Israel to cancel the sale of the Phalcon, an
advanced, airborne early-warning system, to China. In 2003, Israel’s agreement to
upgrade Harpy Killer unmanned aerial vehicles (UAVs) that it sold to China in 1999,
angering the Pentagon. China tested the weapon over the Taiwan Strait in 2004. In
reaction, the Department of Defense suspended the joint strategic dialogue,
technological cooperation with the Israel Air Force on the future F-35 Joint Strike
Fighter (JSF) aircraft as well as several other programs, held up shipments of some
military equipment, and refused to communicate with the Israeli Defense Ministry
Director General, whom Pentagon officials believed had 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 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.”64 According to the
Israeli newspaper Haaretz, 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. On November 4, in Washington,
63 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.
64 “U.S. Israel Agree to Consult on Future Israeli Weapons Sales - Nations Affirm Joint
Commitment to Address Global Security Challenges,” U.S. State Department Press Release,
August 17, 2005.

---

CRS-33
Israeli Defense Minister Shaul Mofaz announced that Israel would again participate
in the F-35 JSF project and that the crisis in relations was over.65
In March 2006, a new 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 July 17, 2007, the Knesset passed a Law on Control of
Defense Exports, regulations that establish a new authority in the Defense Ministry
to oversee defense exports and involve the Foreign Ministry for the first time in the
process, among other provisions.
On October 21, 2005, it was reported that Israel would 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
was not 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 acknowledged that Pollard had
been its agent in 1998. Israeli officials repeatedly raise the Pollard case with U.S.
counterparts, but no formal request for clemency is pending.66 Pollard’s Mossad
recruiter Rafi Eitan, now 79 years old, is head of the Pensioners’ Party and Minister
for Jerusalem affairs in the current government. On June 8, 2006, the Israeli High
Court of Justice refused to intervene in efforts to obtain Pollard release. On January
10, 2008, in Israel, Shas leader Eli Yishai gave President Bush letters from Pollard’s
current wife and from Shas spiritual leader Rabbi Ovadia Yosef pleading for Pollard’s
release, but White House spokesman Gordon Johndroe said that there were no plans
to change Pollard’s status.67
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 was not accused of wrongdoing and
returned to Israel. Then Foreign Minister Silvan Shalom strongly denied that Israel
was involved in any activity that could harm the United States, and Israel’s
Ambassador to the United States declared that “Israel does not spy on the United
65 In September 2007, the Israeli Defense Forces announced plans to purchase at least 25 F-
35 fighters, with the option to purchase 50 more planes. Defense Minister Barak reportedly
submitted a formal request for the F-35's and for three to five C-130J Hercules transport
aircraft in May 2008.
66 See CRS Report RS20001, Jonathan Pollard: Background and Considerations for
Presidential Clemency, by Richard Best and Clyde Mark.
67 Jonathan Finer, “Bush Trip Revives Israeli Push for Pardon of Spy,” Washington Post,
January 15, 2008.

---

CRS-34
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. The information was about Al Qaeda, U.S. policy toward Iran, and the
bombing of the Khobar Towers, a U.S. housing site in Saudi Arabia, in 1996. On
August 4, 2005, two former officials of the American Israel Political Action
Committee (AIPAC), Steven J. Rosen and Keith Weissman, whom AIPAC fired in
April 2005, were identified as the “persons” and indicted for their parts in the
conspiracy. Both denied wrongdoing. 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 ever indicted under
the 1917 Espionage Act for receiving classified information orally; they argue that
they were exercising protected free speech and that the law was designed to punish
government officials. In August 2007, a judge ruled that “the rights protected by the
First Amendment must at times yield to the need for national security.” However, he
required the government to establish that national security is genuinely at risk and that
those who wrongly disclosed the information knew that disclosure could harm the
nation. On November 2, the judge ruled that Secretary of State Rice and other present
and former Administration officials must testify about their conversations with Rosen
and Weissman to help the defense establish that “the meetings charged in the
indictment were examples of the government’s use of AIPAC as a diplomatic back
channel.”
The trial has been delayed. On June 20, 2008, a federal appeals court let stand
a district court ruling that the prosecution had to prove that the defendants knew that
the information they were relaying was classified national defense information, that
it was unlawful to disclose the information, and that they had a bad-faith reason to
believe that the disclosures could be used to injure the United States or to aid a foreign
nation. The district court had ruled that the prosecution would have to prove that
Rosen and Weissman intended to harm the United States or aid another nation by
disclosing the information. At the same time, the appeals court rejected a prosecution
appeal of a district court ruling that the court proceedings remain open to the public.
On April 22, 2008, U.S. authorities arrested Ben-Ami Kadish, an 84-year-old
U.S. citizen who had worked at the U.S. Army’s Armament Research, Development,
and Engineering Center in Dover, N.J. on suspicion of giving classified documents
concerning nuclear weapons, F-15 fighter jets, and the Patriot missile air-defense
system to Israel between 1979 and 1985. He was charged with acting as a foreign
agent and lying to the FBI. Kadish pleaded not guilty and was released on a personal
recognizance bond. He is said to have worked at the center from 1963-1990 and to
have reported to the same Israeli who had handled Jonathan Pollard. Pollard was
charged in 1985, and the handler then left the United States. On April 23, an Israeli
Foreign Ministry spokesman declared, “Since 1985, a great deal of care has gone into
following the guidelines of every prime minister in Israel, which prohibit this kind of
activity in the United States.”68
68 “Yossi Melman, Shahar Ilan, and Barak Ravid,” Ezra: New Spy Case Won’t Harm U.S.-
(continued...)

---

CRS-35

Use of U.S. Arms. After the war against Hezbollah in Lebanon ended in
August 2006, the State Department Office of Defense Trade Controls began to
investigate whether Israel’s use of U.S.-made cluster bombs in the war had violated
the Arms Export Control Act, which restricts use of the weapons to military targets,
or confidential bilateral agreements with the United States, which restrict use of U.S.
supplies cluster munitions to certain military targets in non-civilian areas. On January
28, 2007, the State Department informed Congress of preliminary findings that Israel
may have violated agreements by using cluster bombs against civilian populated
areas. A final determination has not been made. Israel has denied violating
agreements, saying that it had acted in self-defense. The U.N. has reported deaths and
injuries in southern Lebanon from the weapons since the war ended.69
P.L. 110-161, the Consolidated Appropriations Act, FY2008, signed into law on
December 26, 2007, bans the use of military assistance and the issuance of defense
export licenses for cluster munitions or cluster munitions technology unless the
submunitions of the cluster munitions have a 99% or higher tested rate and the
applicable agreement specifies that the munitions will only be used against clearly
defined military targets and not where civilians are known to be present. The
Administration objects to these restrictions. The Israeli Winograd Committee, which
investigated the Israeli government’s prosecution of its 2006 war against Hezbollah,
recommended a reexamination of the rules and principles that apply to IDF use of
cluster bombs because the current manner of use does not conform to international
law. On May 30, 111 countries adopted a draft treaty banning hte use of cluster
bombs. Neither the United States nor Israel participated in the negotiators or signed
the treaty. An Israeli Foreign Ministry spokesman stated, “We don’t think such an
absolute ban is justified, and a balance between military needs and taking into account
humanitarian considerations needs to be found.”70
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
(IPR). In April 2005, the USTR elevated Israel from its “Watch List” to the “Priority
Watch List” because it had an “inadequate data protection regime” and intended to
pass legislation to reduce patent term extensions. The USTR singled out for concern
U.S. biotechnology firms’ problems in Israel and persistent piracy affecting of U.S.
copyrights. In 2006, the USTR retained Israel on the Priority Watch List due to
continuing concern about copyright matters and about legislation Israel had passed in
December 2005 that weakened protections for U.S. pharmaceutical companies.71
According to Deputy Secretary of Commerce David Sampson, the U.S. government
claimed that parties in Israel were making unfair use of information submitted when
68 (...continued)
Israeli Ties,” Haaretz, April 23, 2008.
69 David S. Cloud and Greg Myre, “Israel May Have Violated Arms Pact, U.S. Officials
Say,” New York Times, January 28, 2007.
70 Herb Keinon, “Israel Rejects Cluster Bomb Ban,” Jerusalem Post, June 1, 2008.
71 For U.S. government explanation of Israel’s listing on the Priority Watch List, see Full
Version of the 2006 Special 301 Report, April 28, 2006, accessible at [http://www.ustr.gov]

---

CRS-36
patented pharmaceuticals are registered in Israel and demanded that the information
not be transferred to powerful Israeli generic drug companies, such as Teva. It also
was concerned about software, music, and DVD piracy in Israel.72 In April 2007, the
USTR again kept Israel on the Priority Watch List because “Israel appears to have left
unchanged the intellectual property regime that results in inadequate protection against
unfair commercial use of date generated to obtain marketing approval.” On May 2,
the Israeli Ministry of Industry, Trade and Commerce responded that Israel had
“complied completely in all areas that had been deemed lacking in the past.”
In April 2008, Israel was placed on the Priority Watch list for reasons related to
pharmaceuticals similar to those in 2007. However, the USTR stated that it was
encouraged by recent progress in Israel on certain IPR issues and would conduct an
out-of-cycle review to ensure further strengthening of Israel’s intellectual property
regime. Israel maintains that its regime fully conforms with its obligations. Some
Members of Congress have written letters to the USTR urging it to remove Israel from
the Priority Watch List because, they say, Israel has been more vigilant about
copyright protection than other countries with less serious listings and has passed laws
modeled after the North American Free Trade Agreement (NAFTA) providing greater
patent protections to address the USTR’s concerns, although not providing the five
years of protection sought by U.S. companies.
U.S. Interest Groups
Groups actively interested in Israel and the peace process 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/]
Brit Tzedek v’Shalom (Jewish Alliance for Justice and Peace)
[http://www.btvshalom.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]
72 Ora Coren, “U.S. Worried about Israel’s Intellectual Property Laws,” Haaretz, February
1, 2007.

---

CRS-37
Israel Policy Forum: [http://www.israelpolicyforum.org/]
New Israel Fund: [http://www.nif.org/]
Zionist Organization of America: [http://www.zoa.org/]

---

CRS-38
Figure 1. Map of Israel

---