US embassy cable - 05TELAVIV350

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 000350 
 
SIPDIS 
 
E.O. 12958: DECL: 01/18/2014 
TAGS: KWBG, ECON, EFIN, PREL, IS, ECONOMY AND FINANCE, ISRAELI-PALESTINIAN AFFAIRS, GOI INTERNAL, GAZA DISENGAGEMENT 
SUBJECT: PERES ON INNOVATIVE ECONOMIC SOLUTIONS FOR PA 
TERRITORIES, NEGEV REGION 
 
 
Classified By: Ambassador Daniel C. Kurtzer for reasons 1.4 (b) and (d) 
 
1.  (C) Summary:  Deputy PM Shimon Peres met with the 
Ambassador recently and discussed prospects for renewed peace 
process negotiations with the PA, as well as his new role in 
coordinating economic aspects of the disengagement plan and 
development of the Negev and Galilee.  Peres was skeptical 
that the new PA will be able to control terrorism and return 
to the negotiating table, but added that economic progress 
could be utilized to free up the political process.  He 
explained that he will seek outside-the-box solutions to PA 
economic problems, including EU investment in Gazan 
industrial zones.  The Ambassador noted our planning for a 
USAID 90-day and supplemental assistance programs, explaining 
that these would boost job creation and develop civil 
society.  He also spoke positively about Peres' plans to ask 
U.S. high-tech companies to take a leading role in Gazan 
economic development. The Ambassador suggested that GOI 
"speak with one voice" on the need for U.S. assistance for 
improving the Gaza border crossings.  End summary. 
 
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Coordination: New PA Too Weak, 
GOI Hampered by Unstable Politics 
--------------------------------- 
 
2.  (C) Deputy Prime Minister Shimon Peres told the 
Ambassador recently that he is hopeful but uncertain that 
disengagement will "come through politically" within the GOI. 
 Israel's biggest obstacle to coordination with the PA, he 
said, is its own unstable political environment, as evidenced 
by the lack of unity within the Likud party.  On the 
Palestinian side, the PA "lacks sufficient finances" to do 
anything besides support its own bureaucracy and payroll. 
Peres explained that although Abu Mazen wants to go "full 
steam ahead" towards peace negotiations, he is politically 
too weak to control terrorism yet, potentially leaving Hamas 
and PIJ free to dictate politics.  "Without this he will not 
get to the peace table." 
 
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Opening Up Palestinian Economy is the Key 
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3.  (C) Reflecting on his new role coordinating economic 
aspects of the disengagement plan and development of the 
Negev and Galilee, Peres said that he would not seek to 
expand the bureaucracy. He would work with small staff in his 
office, and coordinate with others in the government who are 
experts on these issues. He firmly believes that Palestinian 
economic development can have a "profound effect" on the 
current political situation. The GOI has unprecedented 
opportunity now to act "all over the region", he explained, 
citing Israel's participation in the Jordanian QIZ agreement, 
which resulted in an increase from 25 million to 1 billion in 
trade annually.  "We need to do this with the Palestinians as 
well."    Peres said he plans to put forward "new ideas not 
bound by formality."  In his position as Deputy PM Peres will 
focus on "outside-the-box" projects -- Israel could turn one 
of the Gaza settlements to be handed over into a modern 
hospital, for example, thereby bolstering Gazan social 
services and relieving the need for many Gazans to cross into 
Israel via Erez for medical treatment. 
 
4.  (C) Peres will also look to PA-EU economic partnerships 
-- Switzerland and Germany have already expressed interest in 
investing in their own industrial zones in PA territories, 
and he has been talking to the EU about a joint 
Israeli-Palestinian-European QIZ.  Governments have limited 
aid resources, however -- Peres said that Israel and the 
donor community must look to the private sector to lead the 
way, and proposed that the U.S. nominate five to ten 
companies to help "mobilize Palestinian entrepreneurs" and 
create democratization through economics. 
 
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Negev and Galilee Development 
----------------------------- 
 
5.  (C) The Negev and Galilee regions are hard-hit by 
poverty, he said, especially among their nearly 20 percent 
Israeli-Arab populations.  Negev development must therefore 
be addressed with immediate solutions, rather than with 
longer-term plans to relocate settlers there.  While the 
Bush-Sharon letter acknowledges the need to develop the 
Negev, U.S. funds are limited and EU assistance is 
conditioned on political progress.  A possible source of 
funding might be the outstanding monies available through the 
Loan Guarantee Agreement, he said, yet overall Israel will 
need more outside-the-box ideas for Negev development.  He 
raised the idea of a safari park on the Egyptian border that 
could employ some 40,000 people, including Palestinians. 
 
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USAID 90-Day Deliverables and Supplemental Assistance 
--------------------------------------------- -------- 
 
6.  (C) The Ambassador described U.S. efforts to get more aid 
to the Palestinians via USAID's 90-day and supplemental 
assistance programs.  In the immediate term, he explained, 
the 90-day program will bolster support for Abu Mazen's PA by 
creating jobs, expanding the agriculture and construction 
sectors, and offering micro credit programs.  In the 
medium-to-long term, the four-year supplemental program will 
concentrate on strengthening civil society.  He agreed with 
Peres, however, that current financial aid levels to the 
Palestinians are not enough, and that Arab states in 
particular must contribute more.  Peres responded by 
expressing his support for the 90-day and four year 
supplemental assistance programs. 
 
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U.S. Investors in Israel Best Equipped to Help Gaza 
--------------------------------------------- ------ 
7.  (C) In response to Peres' proposal on U.S. private-sector 
support for the Palestinian economy, the Ambassador suggested 
that the GOI call in the "five best U.S. companies invested 
in Israel" -- possibly Intel, Motorola, HP, Oracle, and IBM 
-- and encourage them to outsource inputs manufacturing and 
other basic services to the West Bank and Gaza by offering 
tax breaks and other incentives.  Such an initiative could 
come from U.S. industry itself, he explained.  Regarding 
Negev development and U.S. assistance for improvements at the 
border crossings, the Ambassador told Peres that now is the 
time for the GOI "speak with one voice."  There are too many 
Israeli actors "testing the waters" while progress would be 
better served by coordinating such requests with the Prime 
Minister. 
 
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KURTZER