Executive Summary

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. The Government of Israel wishes to maintain the existing legal framework, as long as circumstances allow.

After two consecutive years of impressive economic growth in the West Bank, the Palestinian economy now faces a slowdown. According to IMF estimates, in the first half of 2011 real GDP growth amounted to approximately 4% (compared to real GDP for the first half of 2010), a decline from the 8% annual growth rate the previous year. The PA now faces a financial crisis. The factors fueling the crisis include: the Palestinian budget's ongoing dependency on foreign aid and the shortfall in aid in 2011; the PA's inability to finance the shortfall through bank loans; the lack of sufficient internal resources to generate income; and a relatively large public sector which consumes a large portion of the budget. The current fiscal situation raises doubts about whether the PA will be able to reduce its dependency on foreign aid in the coming years.

Israel's policy in the West Bank has contributed significantly to growth in the past year. Trade between Israel and the PA continuously increased by 7% throughout the first half of 2011, an increase reflected by a 6% increase in tax revenue collection transferred to the PA. A higher volume of commercial goods was shipped from the West Bank via the land crossings to Israel. In the first half of 2011, there was a 31.32% increase in commercial movement of goods via the Allenby Bridge. Palestinian imports (except Israel) amounted to NIS 3,127,395,640, a 17.44% increase compared to the parallel period in the previous year. Palestinian exports (except Israel) amounted to USD 45,458,095 in the first half of 2011, a 23% increase compared to the parallel period in the previous year.

Israel calls for ongoing international support for the PA budget and development projects that will contribute to the growth of a vibrant private sector, which will provide the PA an expanded base for generating internal revenue.

Israel maintains bilateral dialogues with the PA on a variety of matters, aiming to support the upgrade of Palestinian infrastructure in these areas, including: financial and customs services, water and sewage infrastructure, the legal system and the rule of law, the agriculture sector, and the electricity network.

These measures have been accompanied by intensified security coordination between the authorities on both sides, seeking greater security and improved institutional capacity. Israeli-Palestinian security coordination and the continuous relative security created have provided the necessary environment for business development and economic growth.

Still, terror threats remain imminent. In August, an Israeli operation uncovered 13 Hamas terror cells in the West Bank, on the eve of a planned attack in Israel. This is a disturbing reminder of just how distant real security remains. In 2011, civilians in Israel were unfortunately victimized by several deadly attacks: the horrific murder of five members of the Fogel family of Itamar in March, a bombing near the International Convention Center in Jerusalem, also in March, and a violent attack against a crowd of youths in Tel Aviv in August.

In the Gaza Strip, in the first half of 2011, real GDP growth amounted to 28%. Unemployment dropped to 25.6%, one of the lowest rates in recent years. Israel's June 20, 2010 Civilian Policy has made a substantial contribution to the Gaza economy on the ground.

Gaza is still controlled by Hamas, a terrorist organization. During the past few months, security in southern Israel along the border with Gaza has been under constant threat. An escalation that began in July 2011 peaked in mid-August 2011, in the worst escalation since Operation Cast Lead. Between August 15 and 25, 2011, 149 rockets (of 200 fired) and 19 mortar shells fell in Israeli territory. During this time, the area was subjected to 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 Beer Sheba, Ashdod, Ashkelon, and surrounding areas, paralyzing daily life. Three Israeli civilians were murdered in these attacks, while numerous civilians have been wounded and have suffered trauma.

Source: ITIC - Figures as of Sept 6, 2011

Renewed hostilities from Gaza come just as we reach the one-year mark for Israel's new Civilian Policy towards Gaza, adopted on June 20, 2010. Israel has implemented this policy consistently throughout the past year, despite ongoing attempts by Hamas to attack Israeli cities and towns and the crossings between Israel and the Gaza Strip. This policy, aimed at improving the quality of life in Gaza, has enabled an economic and humanitarian recovery in the area.

Despite the deteriorating security situation, Israel has implemented its June 2010 policy in Gaza rapidly, approving 163 projects led by the international community, as well as increasing the flow of all commercial and humanitarian goods. Israel has upgraded the infrastructure and capacity of the Kerem Shalom crossing, which exceeds 300 trucks of commercial goods per day, far beyond actual needs and the daily average of 230-250 trucks.

More people are exiting Gaza for humanitarian or commercial purposes. As of June 2011, there is an 87% increase in the quantity of goods entering the Gaza Strip on a daily basis.6 Agricultural exports have been expanded and exports of furniture and textiles to international markets have been approved. Now the Gazans must develop their export markets abroad.

Between January 1 and September 1, 2011, 281,438 tons of construction materials for international projects were shipped into Gaza. Recently, Israel approved a pilot for the entry of construction materials for the private sector to Gaza as well.

Israel is committed to the understandings reached between Prime Minister Netanyahu and Quartet representative Tony Blair in February 2011, containing measures in both the West Bank and Gaza. A significant part of these measures have already been implemented.

Gilad Shalit remains in captivity in the Gaza Strip, for more than five years, while his most basic rights, such as the right to be visited by the Red Cross, are violated. The International Community must do its utmost to bring about his immediate and unconditional release.

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