US embassy cable - 05TELAVIV723

S E C R E T SECTION 01 OF 03 TEL AVIV 000723 
 
SIPDIS 
 
E.O. 12958: DECL: 02/04/2015 
TAGS: PREL, ECON, KWBG, IS, GAZA DISENGAGEMENT, ECONOMY AND FINANCE, ISRAELI-PALESTINIAN AFFAIRS 
SUBJECT: PERES PURSUES DIRECT TALKS ON GAZA DISENGAGEMENT 
ECONOMIC ISSUES 
 
 
Classified By: DCM Gene A. Cretz for reasons 1.4 (B) and (D) 
 
1.  (S) Summary:  DPM Shimon Peres is moving quickly to 
initiate direct negotiations with the PA on Gaza 
Disengagement economic issues. Following the template 
established by the World Bank process, Peres met February 2 
with Mohammed Dahlan and Sa'eb Erekat to set a path toward 
face to face negotiations on settler assets, border passages 
and industrial zones according to his advisor Einat Wilf. 
Wilf predicts that within the next two weeks the two sides 
will split into three subject matter committees with the GOI 
team relying on the NSC, COGAT and Ministry of Justice staff 
who have been coordinating with the World Bank. During his 
meeting with the PA and previous meetings held by Peres last 
week in Davos, where he pitched for U.S. and European private 
sector investment in the West Bank and Gaza and for support 
for a plan to establish a PA social welfare program, there 
were signs of renewed flexibility in GOI positions on Gaza 
disengagement issues especially on the disposition of settler 
assets and the preservation of hot houses and other settler 
agricultural businesses.  End Summary 
 
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Movement on Direct Talks on Disengagement Issues: 
--------------------------------------------- ---- 
 
2.  (S)  In a February 2 meeting with Econ Counselor and 
USAID Mission Director, Einat Wilf, special advisor to Deputy 
Prime Minster Peres, disclosed the discussions between Peres 
and the PA leading to movement towards direct negotiations on 
Gaza disengagement economic issues with the PA.  In meetings 
with PA Finance Minister Fayyad at Davos and with Palestinian 
negotiator Saab Erekat and Mohammed Dahlan on February 2 in 
Jerusalem, Peres has begun a push toward direct negotiations 
and to interest both foreign country and private sector 
investment in the future of the post-disengagement Gaza 
economy. The result of the meetings with the PA includes 
plans for several more meetings to define terms of reference 
and then a split into working groups covering settler assets, 
passages and industrial estates. The GOI will be represented 
at the working group level by NSC, MOJ and COGAT staffs who 
have been working with the World Bank. (Comment: Ministry of 
Finance officials that had been working on passages and 
industrial estates seem to have been left out of this 
process, in part we surmise, because of Peres' cool 
relationship with Minister Netanyahu. End Comment) Ministry 
of Finance officials we have talked to have brushed off 
Peres' efforts, indicating the MOF along with the PM's office 
would ultimately play the more influential role.  Wilf said 
that the GOI would seek assistance in the direct talks from 
the U.S. and the World Bank as circumstances dictate. 
 
----------------------------------------- 
With Fayyad in Davos: 
Transport Links and a Social Security Net 
----------------------------------------- 
 
3.  (S)  In Davos, Peres met with PA Minister of Finance 
Fayyad and discussed the possible railroad link from Gaza to 
the port of Ashdod, but not curiously the link with the West 
Bank. According to Wilf, Fayyad endorsed the railroad link 
but only if the PA was assured that a seaport would also be 
built. On the issue of assets, Fayyad reportedly agreed to 
Peres' proposal that settlement homes be kept intact and that 
agricultural assets need to be maintained and transferred in 
whole to the PA. (Note: PA officials have told ConGen 
Jerusalem Offs that the PA's preference is for settlement 
homes to be removed by the GOI, including the rubble, before 
the assets are handed over. End note.)  They also discussed 
the establishment of a Palestinian social safety net to help 
the PA compete with Hamas' successful social programs. Wilf 
said that Peres had also raised the idea of a social 
insurance plan in talks with the Norwegian Prime Minister who 
said Norway would take this under consideration. According to 
MOF's Rani Lobenstein, Fayyad has begun talks regarding the 
social insurance program with the resident IMF 
representative. While the issue has yet to be raised with 
USAID, Fayyad did discuss it with A/S Burns in their January 
26 meeting (Jerusalem 332).  Also at Davos, Peres met with a 
series of international company CEOs including HP, Radisson 
Hotels, Starwood Hotels and Cisco systems to encourage 
investment in a post-disengagement Gaza. Among the ideas he 
fielded were turning evacuated settler housing into tourist 
resorts and replicating the successful WEF sponsored Jordan 
Education Initiative to raise the level of high-tech 
infrastructure. (Note: The PA has told ConGen Jerusalem Offs 
that its still-in-draft medium-term development plan includes 
a special focus on Gaza and the settlement assets. They say 
they are looking holistically at all of the assets to see how 
they can best be used to serve, over the long-term, the 
growing needs of the Gaza population. End note.) 
 
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Evolving GOI positions: 
----------------------- 
4.  (S) Settler Assets: 
 
Wilf said that there is a growing consensus among the GOI 
ministries to preserve settler housing. Earlier in the week, 
NSC advisor Gaby Blum told EconCouns that the NSC now 
believed that tearing down evacuated settler housing and 
carting away the rubble could not be accomplished within an 
accelerated timeframe for disengagement and that the cost 
would be prohibitive. Adoption of an idea to have a third 
party take possession of the houses and sell or to donate 
them to the PA has been under consideration. Wilf said that 
Peres was considering a plan that alters the original terms 
proposed for settler compensation of Gaza businesses. In the 
present plan, the GOI would pay compensation for only forty 
percent of the value of the businesses, that is for land and 
buildings only, leaving the owners with the right to sell 
machinery, infrastructure and goodwill and pocket the 
profits. Peres now believes that the GOI should buy these 
businesses outright so that the government takes on the 
responsibility for protecting the assets during the 
evacuation and in the hope that they could then sell them to 
the PA. (Note: This is an interesting proposal but one which 
would leave the PA with increased leverage and a possible 
windfall as the only possible buyer of the assets. End note) 
A separate proposal by the Aspen Institute, to buy the 
housing from the settlers and then donate it to the PA after 
disengagement, has been making the rounds according to Blum. 
USAID Mission Director has raised this issue with the PA 
underlining the importance of making decisions on the assets 
before the envelope for preserving them closes. 
 
5.  (S) Passages: 
 
Clearly the issue of the border passages is utmost on the 
minds of the GOI, and Wilf and Blum confirmed that the 
agreement to purchase two Chinese scanners and upgrade the 
Karni crossing is underway. (Note: WB Country Director Nigel 
Roberts questioned the Chinese scanner Karni deal saying that 
the PA is likely paying too high a price for dubious quality 
and wondered why there would be an 18 month lag between 
placing the order and installing the scanners. End note.) 
Plans for a USD 140 million upgrade of five WB/Gaza passages 
has been agreed to with Fayyad according to Wilf, with the 
World Bank committing to help raise the PA half of the 
funding. (Note: While Nigel Roberts says that in his meeting 
with Peres he spoke in positive terms about the effort, no 
commitments to raise the funds for the PA were made. Roberts 
told USAID Director and ConGen EconChief February 4 that he 
would like to work with USAID on upgrading one passage in 
Gaza and one passage on the Green Line in the West Bank as 
part of a pilot program first.  End note.)  The present 
Israeli proposals separate the funding for the passages into 
two USD 70 million portions, half for technological 
improvements and an equal amount for infrastructure upgrades. 
However, Wilf agreed with the World Bank argument that 
managerial systems and standards of practice are of equal 
importance with hardware fixes, and need to be addressed in 
order to solve the present logjam of humanitarian and 
commercial goods into Gaza. Wilf indicated a significant 
change in the Israeli position on customs and security at the 
borders saying that the GOI would now seriously entertain the 
use of third parties to provide these functions. When the 
EconCouns and USAID Mission Director raised the problems 
encountered by PA officials, average Gazans and members of 
international humanitarian organizations passing through the 
Gaza crossings Wilf, though not fully briefed on the subject, 
said she would raise this as a priority issue to be addressed. 
 
6.  (S) Industrial Estates/Labor: 
 
In his discussions in Davos, Peres has been urging a plan for 
individual countries to establish their own industrial parks 
in the WB/Gaza, and has urged the Wallenburg family to pursue 
a Swedish park. According to Blum, the East West Institute 
has approached the GOI with a plan to invest in the 
resuscitation of the Erez Industrial Estate. The NSC has told 
the Institute that the GOI will not supply funding for this 
purpose and urged them to go to the private sector for 
possible support.  However, there is still no flexibility on 
the GOI position to ban Israelis from entry into Gaza after 
disengagement or on the limitations for Gazan laborers 
entering Israel, putting a significant obstacle to Industrial 
Estate development. 
 
7.  (S) Customs envelope and Rafah/Philadelphi: 
 
According to Rani Lobenstein, he has raised the issue of the 
perpetuation of the customs envelope under the Paris Accords 
with Fayyad, who agreed that post-disengagement, the PA 
preferred to have the Israelis maintain the customs envelope 
due to a lack of technical expertise on the part of the PA. 
Lobenstein says he has consensus in the GOI for maintaining 
the customs envelope after an evacuation of the Philadelphi 
Strip if the Rafah crossing can be moved to Keren Shalom, at 
the point where the borders of Israel, Egypt and Gaza meet. 
This proposal has not been broached with the PA and in the 
past we have heard of objections to this plan from the 
Egyptians, who have invested significant funds to upgrade 
their side of the Rafah crossing. 
 
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Comment 
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8.  (S)  According to the NSC, Peres has the "green light" 
from the Prime Minister to pursue direct talks with the PA on 
the economic aspects of the disengagement. Blum commented 
that it is unlikely that Peres' discussions will avoid 
security issues. There are now signs of a new flexibility and 
a general re-thinking of GOI positions toward the 
disengagement issues laid out in the World Bank report. 
However, some of the relevance of proposed follow on steps 
proposed by the World Bank -- pilot programs for the 
passages, benchmarks and monitoring -- could soon be 
overtaken by events. 
 
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