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S E C R E T SECTION 01 OF 04 TEL AVIV 002473 SIPDIS DEPARTMENT FOR DEPUTY SECRETARY STEINBERG E.O. 12958: DECL: 11/12/2019 TAGS: PREL, PGOV, PTER, MOPS, KWBG, IS, IR SUBJECT: SCENESETTER FOR THE VISIT OF DEPUTY SECRETARY JAMES STEINBERG Classified By: Deputy Chief of Mission Luis G. Moreno, Reason 1.4 (b) ( d) 1. (S) Summary. Israel is deceptively calm and prosperous. The security situation inside Israel is the best since the outbreak of the Second Intifada, the economy has weathered the storms of the international economic crisis, and Netanyahu's governing coalition is stable, for the time being at least. Yet outside the storm is gathering and Israelis of many different political outlooks agree on the need to seize the initiative, even while they disagree about what exactly should be done. Israelis see Iran as the primary regional threat, both due to its nuclear program and its projection of power directly into Gaza and southern Lebanon. The Israeli navy's seizure of a ship loaded with a huge shipment of Iranian arms November 3 has provided tangible proof of Iran's involvement in arming Hamas and Hizballah. Syrian intentions are also a source of concern, as Israeli analysts see Asad moving closer to Iran and Hizballah even as Syria improves its relations with the West. The sharp decline in Israel's long- standing strategic relationship with Turkey is adding a new element of instability into the picture. Prime Minister Erdogan's rhetorical support for Ahmedinejad and his dismissal of the threat posed by Iran's nuclear program is feeding the sense here of impending crisis, although the robust U.S.-Israeli security relationship is profoundly reassuring to Israeli security officials and the general public alike. Finally, the failure to re-launch Israeli-Palestinian negotiations and the political crisis in the Palestinian Authority is deeply disturbing to Israelis who still believe in a two-state solution. Even GOI skeptics are worried that the lack of a political dialogue and talk of a collapse of the PA are undermining the bottom-up approach they advocate as the alternative to a final-status agreement. Netanyahu insists that he is ready to start negotiations immediately without preconditions, but he will not negotiate on the basis of former PM Olmert's offer of a year ago. The opposition Kadima Party's number two, former IDF Chief of Staff and former Minister of Defense Shaul Mofaz, has generated considerable attention with a new peace plan that is based on offering the Palestinians a state with temporary borders in the next year or two, to be followed by intensive final status negotiations. Few here believe the Palestinians will accept this idea, but it may serve to push Netanyahu toward offering a peace initiative of his own. End Summary. Calm Before the Storm? ---------------------- 2. (S) Israel in the fall of 2009 is deceptively calm on the surface. Israelis are enjoying the best security situation since the outbreak of the Second Intifada, the result of Israeli intelligence successes in destroying the suicide bombing network in the West Bank as well as good security cooperation with the Palestinian Authority's security forces. The Israeli economy has successfully weathered the world economic crisis, with only a slight uptick in unemployment and no major impact on the financial system. PM Netanyahu's center-right coalition is stable, and faces no significant challenge from the opposition Kadima Party. Netanyahu personally enjoys approval ratings over sixty percent, and appears to have benefited politically from the media obsession with reports of frictions with the U.S. Administration. Netanyahu so far has managed the more right wing elements of Likud and other rightist elements in the coalition, although tensions with the far right are likely to reemerge over peace process issues, including a temporary settlement freeze or a decision to make good on Barak's pledges to evacuate illegal outposts. There are signs of a growing split within the Labor Party, and Foreign Minister Lieberman continues to face the strong possibility of several criminal indictments for money laundering and obstruction of justice, but none of this threatens the stability of the coalition, at least not yet. The latest polls indicate that Likud would gain three seats if elections were held now. And Looming Threats ------------------- 3. (S) Despite this good news for the government, Israelis are even more anxious than normal these days. Sixty-one years after the establishment of the State of Israel, Israelis sense a growing tide in the world challenging not just the occupation of territory seized in 1967, but even against the existence of the Jewish state within any borders. The GOI's alarm and outrage over the Goldstone Report was based on their view that the report represented an attempt to deny Israel the right to react military to terrorist threats. TEL AVIV 00002473 002 OF 004 Security is indeed good and Israel's borders are generally the quietest they have been in years, but it is common knowledge that Hamas in Gaza and Hizballah in Lebanon both now possess rockets capable of hitting the greater Tel Aviv area, Israel's main population and economic center. When discussing Iran's nuclear program, sophisticated Israeli interlocutors note that the issue is not just whether a nuclear-armed Iran would launch nuclear-tipped missiles at Israel - although that possibility cannot be dismissed - but rather the regional nuclear arms race that would ensue and the impact of the resulting uncertainty on Israeli elites and foreign investors alike. Israel's remarkable high-tech economy is a great achievement, but it also makes Israel exceptionally vulnerable to a host of private decisions to live and invest elsewhere. Growing alienation among Israel's twenty-percent Arab minority and the increasing domination of Israeli Arab politics by an elite that identifies with Palestinian nationalism further complicates Israel's internal scene. 4. (S) Painstakingly constructed relations with Israel's neighbors are also fraying. Even optimists about relations with Egypt and Jordan admit that Israel enjoys peace with both regimes, but not with their people. The transformation of Michel Aoun into Hizballah's primary Lebanese ally may be the final nail in the coffin of Israel's decades-old relations with Lebanon's Maronite Christians. Finally, Israelis are deeply alarmed by the direction of Turkish foreign policy, and see Erdogan and Davutoglu as punishing Israel for the EU's rejection of Turkey while driving Israel's erstwhile strategic ally into an alternative strategic partnership with Syria and Iran. Gaza Dilemmas ------------- 5. (S) Gaza poses its own set of dilemmas. The IDF general responsible for Gaza and southern Israel, Major General Yoav Galant, recently commented to us that Israel's political leadership has not yet made the necessary policy choices among competing priorities: a short-term priority of wanting Hamas to be strong enough to enforce the de facto ceasefire and prevent the firing of rockets and mortars into Israel; a medium-priority of preventing Hamas from consolidating its hold on Gaza; and a longer-term priority of avoiding a return of Israeli control of Gaza and full responsibility for the well-being of Gaza's civilian population. Israel appears determined to maintain its current policy of allowing only humanitarian supplies and limited commercial goods into Gaza, while sealing the borders into Israel. There are indications of progress in the indirect negotiations with Hamas over the release of Gilad Shalit in return for the release of hundreds of Palestinian prisoners, many of them hardened terrorists,but it is difficult to predict the timing of such a deal. Shalit's release would likely result in a more lenient Israeli policy toward the Gaza crossings, but a large prisoner exchange would be played by Hamas as a major political achievement and thus further damage the standing of Abu Mazen among Palestinians. Security Cooperation with the U.S. Reassuring --------------------------------------------- 6. (S) Especially given the sense of growing threats from all directions, Israelis from the Prime Minister on down to the average citizen are deeply appreciative of the strong security and mil-mil cooperation with the U.S. The U.S.-Israeli security relationship remains strong, as indicated by the joint U.S.-Israeli missile defense exercise Juniper Cobra 10 in which over 1,400 American personnel tested Israel's defense - and U.S. support thereof - against ballistic missile threats in the region . The United States remains committed to Israel's Qualitative Military Edge (QME), and has taken a number of steps to alleviate Israeli concerns over some potential U.S arms sales to the region, including the creation of four new QME working groups to further discuss these arms transfers. These working groups will soon begin deliberations, focusing on previous arms transfer agreements, mitigation measures for the planned U.S. F-15 sale to Saudi Arabia, technical mitigation issues, and intelligence policy. 7. (S) While the United States and Israel may not agree on some U.S. arms transfers to the region, these QME working groups will ensure a transparent process so that Israel is not surprised by any U.S. potential transfer. As it does in assessing all threats, Israel approaches potential U.S. arms sales from a "worst case scenario" perspective in which current moderate Arab nations (Egypt, Saudi Arabia, and TEL AVIV 00002473 003 OF 004 Jordan) in the region could potentially fall victim to regime change and resume hostilities against Israel. It is primarily for this reason that Israel continues to raise concerns regarding the F-15 sale to Saudi Arabia, especially if the aircraft are based at Tabuk airfield near the Israeli border. We have deflected Israeli requests for additional information regarding the F-15 sale until we receive an official Letter of Request (LOR) from Saudi Arabia. 8. (S) Finally, an argument can be made that Israel has continued to raise concerns over the F-15 sale as leverage in its attempts to modify its purchase of the F-35 Joint Strike Fighter (JSF). Israel remains highly committed to the JSF as a successor to its aging F-16 fleet, although budgetary considerations have raised some doubts how Israel will be able to afford it. Nevertheless, Israel continues to press for the inclusion of an Israeli-made electronic warfare (EW) suite, indigenous maintenance capacity, and a lower cost per aircraft into its JSF purchase plans, and has repeatedly raised these issues with SecDef. Impasse with the Palestinians ----------------------------- 9. (C) Polls show that close to seventy percent of Israeli Jews support a two-state solution, but a similar percentage do not believe that a final status agreement can be reached with the Palestinian leadership. Expressed another way, Israelis of varying political views tell us that after Abu Mazen spurned Ehud Olmert's peace offer one year ago, it became clearer than ever that there is too wide a gap between the maximum offer any Israeli prime minister could make and the minimum terms any Palestinian leader could accept and survive. Sixteen years after Oslo and the Declaration of Principles, there is a widespread conviction here that neither final status negotiations nor unilateral disengagements have worked. While some on the left conclude that the only hope is a U.S.-imposed settlement, a more widely held narrative holds that the Oslo arrangements collapsed in the violence of the Second Intifada after Arafat rejected Barak's offer at Camp David, while Sharon's unilateral disengagement from Gaza resulted in the Hamas takeover and a rain of rockets on southern Israel. Netanyahu effectively captured the public mood with his Bar Ilan University speech last June, in which he expressed support for a two-state solution, but only if the Plestinian leadership would accept Israel as the ation-state of the Jewish people and the Palestiian state would be demilitarized (and subject toa number of other security-related restrictions o its sovereignty that he did not spell out in deail in the speech but which are well known in Wahington). Palestinian PM Fayyad has recently temed Netanyahu's goal a "Mickey Mouse state" due to all the limitations on Palestinian sovereignty that it would appear to entail. 10. (S) Abu Mazen's stated intent not to seek another term is widely seen here as an effort to put pressure on Washington to put pressure on Israel to meet Palestinian terms for starting negotiations. Abu Mazen's statements have likely reinforced his image among Israelis as a decent man, and certainly a different breed from Arafat, but a weak and unreliable leader. Yet even some of the Israeli officials, including Avigdor Lieberman and Sylvan Shalom, who have been most skeptical about the prospects for a final status agreement in the near term, are now expressing concern at the lack of engagement with the PA and the prospects of the PA collapsing. Advocates of a bottom-up approach are finally realizing that without a political process, the security cooperation and economic development approach will become unsustainable. Netanyahu has told us that he considers Abu Mazen to be his negotiating partner, and in his latest public statements has stressed that he is not interested in negotiations for their own sake, but rather seeks a far-reaching agreement with the Palestinians, but it remains unclear to us how far Netanyahu is prepared to go. Netanyahu is interested in taking steps to strengthen Abu Mazen, but he will not agree to the total freeze on Israeli construction in the West Bank and East Jerusalem that Abu Mazen insists is a requirement for engaging with Netanyahu. Israeli Choices --------------- 11. (C) Former Defense Minister and former IDF Chief of Staff Shaul Mofaz generated a lot of media attention this week when he announced a peace plan that calls for establishing a Palestinian state with temporary borders on sixty percent of the West Bank, then entering final status negotiations. TEL AVIV 00002473 004 OF 004 Mofaz' approach is similar to ideas that have been floated quietly over the past few months by Defense Minister Barak and President Peres, and Mofaz claims that both Barak and Peres support his plan. Mofaz' plan is in part an effort to undermine the political position of his rival for Kadima party leadership, former Foreign Minister Tzipi Livni. Livni, presumably drawing on her experience negotiating with the Palestinians during the Olmert government, says she opposes the idea of an interim solution, but instead supports intensive final status negotiations, perhaps this time with direct U.S. involvement. Livni and Mofaz both stress that they are motivated by a sense of urgency and that time is not on Israel's side. 12. (C) Netanyahu still holds the political cards here, however, and we see no scenarios in which Livni or Mofaz become prime minister in the near future. As Mofaz told the Ambassador earlier this week, Netanyahu may wait until the Palestinian elections, if they are in fact held in January, but the initiative is in his hands. If the Palestinians continue to refuse to engage on terms that Netanyahu can accept, it is possible that Netanyahu could turn his attention to Syria. Media reports that Netanyahu asked President Sarkozy to deliver a message to Asad may turn out to be accurate, but as with the Palestinians, Netanyahu will not resume talks with Syria where they left off under Olmert, but will insist on negotiations without preconditions. CUNNINGHAM