US embassy cable - 04TELAVIV6454

C O N F I D E N T I A L SECTION 01 OF 03 TEL AVIV 006454 
 
SIPDIS 
 
E.O. 12958: DECL: 12/07/2009 
TAGS: PREL, ECON, EFIN, KPAL, GZ, IS, ISRAELI-PALESTINIAN AFFAIRS, GAZA DISENGAGEMENT 
SUBJECT: NETANYAHU AND PERES PRESENT STARKLY DIFFERENT 
ASSESSMENTS OF PALESTINIAN FUTURE TO CODEL TALENT 
 
Classified By: Pol/C Norm Olsen for reasons 1.4(b) and (d). 
 
1.  (C) Summary: Finance Minister Binyamin Netanyahu told 
CODEL Talent December 6 that the new Palestinian leadership 
must show serious intent to fight terror and corruption 
before receiving any "gifts" from the U.S. or Israel. 
Netanyahu said that the GOI should simply "walk out of the 
Gaza Strip and leave the place to whatever bad Palestinian 
government fills the vacuum," and he identified corruption 
"so endemic that it chokes everything," rather than GOI 
closure policy, as the primary negative factor affecting the 
Palestinian economy.  Labor leader Shimon Peres was more 
upbeat in a separate meeting with CODEL December 6, saying 
that while he would defer "for a few years" any discussion 
with the Palestinians of the status of Jerusalem or refugee 
return, he saw no reason why serious discussion on border 
issues could not commence much sooner.  Peres called the 
Palestinians "the most democratically developed Arabs," and 
advised donors to press the Palestinians to codify the 
separation of powers in a constitution as soon as possible to 
boost donor confidence that money donated would be well 
spent.  Peres said that bringing the security services under 
control is the biggest challenge currently facing the PA, and 
lamented the fact that they had become so politicized under 
Arafat.  Neither Peres nor Netanyahu would assign a specific 
dollar amount to the costs associated with the GOI's 
disengagement plan, with Peres demurring, he said, because 
the cost is so high that everyone is reluctant to discuss it. 
 End Summary. 
 
2.  (SBU) Senator James Talent, accompanied by Military 
Legislative Assistant Lindsey Neas, Legislative Fellow Lore 
Aguayo, and Navy Senate Liaison Deputy Director Cpt. James 
Stein, met separately with Minister of Finance Binyamin 
Netanyahu and Labor Party leader Shimon Peres December 6. 
Poloff (notetaker) accompanied. 
 
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Squeeze the Palestinians, Cautious but Tough with the Saudis 
--------------------------------------------- --------------- 
 
3.  (C) Minister of Finance Binyamin Netanyahu told CODEL 
Talent December 6 that Arafat's death might open up 
possibilities with the Palestinians that absolutely did not 
exist while Arafat was alive.  Calling Arafat the embodiment 
of the pan-Islamists and the pan-Arabists, Netanyahu said 
that even Shaykh Yassin (the spiritual leader of Hamas, 
killed by an IAF missile strike in April 2004 in Gaza City) 
"kowtowed to Arafat," accepting what Netanyahu called 
Arafat's "dual hats."  Netanyahu said that the Oslo Accords 
had "empowered Arafat the dictator," providing him money, 
weapons, and prestige, with only the hope that he would push 
the Palestinian people towards peace in return.  The 
international community, Netanyahu continued, woke up 10 
years later and realized that the opposite had occurred, and 
Palestinian frustration with Arafat had been re-directed into 
increased hatred of Israel. 
 
4.  (C) Netanyahu said that if the new Palestinian leadership 
wants anything from either the U.S. or Israel, then they must 
first show some serious intent to take action against 
terrorism and corruption.  "Squeeze them," Netanyahu said, 
"and just maybe you will get some sort of result."  If Israel 
is wise, it will simply "walk out of the Gaza Strip and leave 
the place to whatever bad Palestinian government fills the 
vacuum."  Radical Islam threatens not only the West, 
Netanyahu said, but Islam itself.  In response to Senator 
Talent's question, Netanyahu said he does not believe that 
Saudi Arabia is "waking up."  On the contrary, Netanyahu 
called Saudi Arabia a furnace that is breeding more radical 
elements and spreading them all over the world.  While he 
applauded the U.S. for taking on what he called the worst of 
regimes in Afghanistan and Iraq, Netanyahu advised caution in 
Saudi Arabia, fearing that any subsequent regime there could 
well be worse for U.S. and Israeli interests than the one 
currently in power. 
 
----------------------- 
"Feeding the Crocodile" 
----------------------- 
 
5.  (C) On Iran, Netanyahu said that it is absolutely vital 
that Iran be prevented from acquiring nuclear weapons. 
Should they acquire a nuclear arsenal, Netanyahu predicted 
that Israel would feel it immediately, even if indirectly, as 
Hizballah would have an even stronger umbrella under which to 
hide.  Asked about the European negotiations with Iran on 
Iran's nuclear enrichment program, Netanyahu was extremely 
skeptical, noting that Europe tends toward accommodation 
rather than confrontation.  Each European regime, Netanyahu 
said, is trying to "feed the crocodile," casting off elements 
such as support for Israel or a tough stance against radical 
Islam in the hope of appeasing the very people they should be 
opposing. 
 
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It's Corruption, Not Closures 
----------------------------- 
 
6.  (C) Netanyahu said that Palestinian labor markets are 
completely dependent on Israel, a circumstance that has a 
major negative impact on the Palestinian economy, now that 
labor movements have been all but curtailed.  He blamed 
corruption "so endemic that it chokes everything," however, 
as the primary factor affecting the Palestinian economy. 
Calling Palestinian society tribal by nature, Netanyahu said 
enforcement of legal norms and the right to property are 
essential missing elements.  When asked what the U.S. could 
do to further reforms in the Palestinian areas and in the 
Arab world as a whole, Netanyahu said, first, continue to 
promote President Bush's agenda of zero tolerance for 
terrorism and for bringing democracy to the Middle East. 
Second, dismantle (unspecified) regimes that are hopeless 
cases for reform.  Third, continue to fight the battle for 
hearts and minds of the people in the region. 
 
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Peres: Palestinians Need to De-Politicize the Armed Forces 
--------------------------------------------- ------------- 
 
7.  (C) In a separate meeting December 6, Labor Party leader 
Shimon Peres was guardedly positive regarding developments 
with the Palestinians, saying that, while he would not 
negotiate with them per se, he would "begin a dialogue." 
Major issues, Peres continued, such as refugee return and the 
status of Jerusalem, will have to wait for four or five 
years, because neither the Palestinians nor the Israelis are 
in a position to compromise now.  That being said, Peres was 
confident that a solution to border issues could be worked 
out.  Calling the Palestinians "the most democratically 
developed Arabs," Peres told Senator Talent that he would 
recommend to the Palestinians that they draft and adopt a 
constitution firmly defining the separation of powers as soon 
as possible after the January elections.  Donors, including 
the Saudis, could then be effectively mobilized to support PA 
institutions. 
 
8.  (C) Peres said that the biggest challenge facing the 
Palestinians now is the urgent need to bring their security 
forces under control.  Although Abu Ala'a is now head of the 
Palestinian National Security Council and thus in charge of 
all of the armed forces, Arafat had allowed the security 
forces to become politicized and the leaders of the various 
groups to become political leaders in their own right.  The 
Palestinians, Peres predicted, will not be able to disarm the 
terrorist groups by force.  Instead, it is essential that the 
PA offer a political solution backed up by a credible threat 
of force.  Peres agreed with Senator Talent that increasing 
numbers of Arabs and Muslims are interested in 
democratization and more rights for women.  Peres was less 
confident, however, as to the Arab countries' willingness to 
take on the difficult actions necessary to satisfy this 
demand and join the rest of the world. 
 
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Disengagement Cost Remains Unclear 
---------------------------------- 
 
9.  (C) Both Peres and Netanyahu were reluctant to assign a 
specific cost to disengagement.  When asked, Netanyahu did 
not answer directly, saying instead "we will get back to 
you."  Peres was somewhat less circumspect, albeit no more 
specific, saying that, although the GOI "has an idea" of the 
cost, people are avoiding the question because that cost will 
be so high.  Peres agreed with Senator Talent's assessment, 
however, that regardless of the expense, disengagement would 
ultimately lower costs for Israel in the long run. 
 
-------------------------- 
Netanyahu: Economic Reform 
-------------------------- 
 
10.  (C) Netanyahu said that he is cutting government 
spending and taxes in Israel "with a vengeance," adding that 
he intends to remove mono- and duopolies in such areas as 
utilities, refineries and the postal service.  Entitlements 
are being cut as well, Netanyahu said, comparing his efforts 
to transform the Israeli economy to the New Zealand 
government's efforts in the 1980's.  By taking this "all at 
once" approach, he said, Israel will get the maximum positive 
impact from these steps, adding jokingly that it also helped 
to "consolidate all the strikes." 
 
11.  (U) CODEL Talent cleared this cable. 
 
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