- Full report (pdf)

Executive Summary

"… So I’ve made clear from day one that I’m prepared to meet President Abbas any place, any time to negotiate peace. And I make that clear again today. I invite him to sit down and negotiate peace for both our peoples. President Abbas, don’t walk away from peace; continue the negotiations."
PM Netanyahu at the Portuguese Synagogue in Amsterdam, January 18, 2012

The Government of Israel views the bilateral track with the Palestinians as the only way to reach a sustainable solution, based on two states for two peoples.

In the first three quarters of 2011, Palestinian economic growth slowed, as real GDP in the West Bank rose by 5.8%, while growth in the Gaza Strip continued to climb, with a 25.8% increase in real GDP. Unfortunately, the PA faces a financial crisis, caused primarily by the shortfall in foreign aid, growing arrears to suppliers and reaching the lending limit that the domestic banking system can sustain. Another primary factor was the lack of significant development in the private sector coupled with an inability to increase income from internal resources, while the public sector remains the largest employer in the West Bank. The current fiscal situation raises doubts about whether the PA will be able to reduce its dependency on foreign aid in the coming years.

In a time of regional political uncertainty and instability, the global economic slowdown now hinders the capability of international donors to assist the PA, and the PA enjoys very limited Arab financial support. Thus, after three consecutive years of impressive economic growth in the West Bank, PA financial stability is now challenged.

In 2011, Israel continued to implement its policy of support for economic growth in the West Bank, inter alia by removing additional check points, upgrading commercial crossings, approving projects in Area C, increasing the number of permits for Palestinian employment in Israel, and pushing forward an agreement to build four electricity substations in the West Bank to increase the amount of electricity available for further economic development.

Israel maintained bilateral dialogues with the PA aimed at supporting the upgrade of Palestinian infrastructure, including: financial and customs services, water and sewage infrastructure, the agriculture sector, and the electricity network. Israel worked closely with the international community in order to support projects, facilitate trade and contribute to improved Palestinian governance and economic capacity.

Israel's policy in the West Bank contributed to maintaining growth in the past year. Overall Israeli trade with the PA (goods and services) totaled USD 4.308 billion, an increase of 2.1% compared to 2010. Israeli purchases from the PA amounted to USD 815.9 million, an increase of 18.3%. Israeli sales to the PA amounted to USD 3.492 billion, a decrease of 1.1% compared to 2010.¹ Tax revenue transferred by Israel to the PA increased by 5.9%².

A higher volume of commercial goods was shipped from the West Bank via the land crossings to Israel. In 2011, there was a 33% increase in commercial movement of goods via the Allenby Bridge.³ Palestinian imports (excluding Israel) amounted to USD 1,758,147,197, a 9.22% increase compared to the parallel period in the previous year. Palestinian exports (excluding Israel) amounted to USD 105,831,164 in 2011, a 13% increase compared to the parallel period in the previous year.⁴

The aforementioned measures have been accompanied by security coordination between the authorities on both sides, seeking greater security and improved institutional capacity. Still, terror threats remain imminent from both the West Bank and Gaza. In 2011, 563 terrorist incidents emanating from the West Bank were recorded and 191 terrorist incidents were recorded in the area surrounding Jerusalem. The death toll of terrorist incidents from the West Bank rose for the second year in a row, taking 10 lives in 2011 (versus 8 in 2010).⁵

In the Gaza Strip, in the first three quarters of 2011, real GDP growth has climbed by 25.8%.⁶ Unemployment dropped in 2011 to the lowest level in the past 10 years. Israel's June 20, 2010 Civilian Policy has made a substantial contribution to the economy.

The Palestinian Authority has no effective role, nor control, in Gaza, which is still controlled by Hamas. During the past few months, security in Southern Israel along the border with Gaza has been under constant threat. The most recent serious escalation started on March 9, 2012 when, during a four day period alone, over 300 projectiles were fired from the Gaza Strip, 171 hit Israeli territory, and 65 were intercepted while the remainder fell within the Gaza Strip.⁷ This fire was aimed at heavily populated areas in Israel, forcing a million Israeli citizens to take refuge in shelters.

This brutal attack came just half a year after the last attack, an escalation that began in July 2011 and peaked in mid-August 2011, which had been the worst escalation since Operation Cast Lead.

During both of these attacks, the area sustained a continuous, almost daily, barrage of heavy rocket and mortar fire launched from the Gaza Strip into Israeli territory. This fire was deliberately aimed at civilian targets, hitting schools, residences and places of worship, and has reached major population centers in Southern Israel, including Beersheba, Ashdod, Ashkelon, and surrounding areas, paralyzing daily life. Three Israeli civilians were murdered in the round of attacks this summer, while in both rounds numerous civilians have been wounded or have suffered trauma, and property has been damaged.

This unbearable security reality is an alarming reminder of the proliferation of terrorist military capacity in Gaza, which jeopardizes prospects for peace and stability for both Israelis and Palestinians.

Since June 20, 2010, and despite these ongoing attempts by Hamas and the Islamic Jihad to terrorize Israeli cities and the crossings between Israel and the Gaza Strip, Israel continues to implement its policy, a policy that contributes to the economic and social recovery in Gaza.

Israel has approved 176 projects led by the international community in Gaza, and has upgraded the infrastructure and capacity of the Kerem Shalom crossing far beyond actual needs. More people are exiting Gaza for humanitarian and commercial purposes. Agricultural exports have been expanded and exports of furniture and textiles to international markets have been approved. Date bars were also exported from Gaza to the West Bank in March 2012. Thousands of tons of construction materials for international projects have been shipped into Gaza, and a pilot for the recovery of ten local private factories in Gaza has commenced.