Authors: The Foreign Affairs Committee
Publication: www.publications.parliament.uk

Introduction

The Foreign Affairs Committee has maintained a long-standing interest in the situation in Israel and the Occupied Palestinian Territories , and the role of the UK and the international
community in the peace process. At the time of our final Report on Foreign Policy Aspects of the War against Terrorism, the Islamist party Hamas had
recently triumphed in the Palestinian Authority legislative elections. Israel and the international community responded with a financial boycott of the Palestinian Authority. The Palestinian
President Mahmoud Abbas had been weakened by the electoral failure of his Fatah party in the legislative elections, and divisions between Palestinians meant that a peace deal with Israel looked
unlikely. Meanwhile, Israel was still recovering from the departure from politics of former Prime Minister Ariel Sharon owing to illness. Ehud Olmert, the newly elected Prime Minister, headed up a
cabinet made up of his colleagues from Kadima, as well as members from other political parties including Labour.[6]

In June 2007, Hamas took control of the whole of the Gaza Strip by the use of force. The Palestinian President Mahmoud Abbas dissolved the Hamas Government and established a new technocratic
administration, led by former Finance Minister, Salam Fayyad. This was rejected by Hamas, who as we prepare this Report continue to wield de facto control in Gaza . These dramatic events followed
months of insecurity and uncertainty in both the Occupied Palestinian Territories and Israel . Whilst the situation looking ahead remains unpredictable, we believe it is important to provide an early
assessment of these events. This chapter first looks at the political crisis in Israel before addressing the growing crisis in the Occupied Palestinian Territories and the consequences for the
prospects of peace in this part of the world.

Israeli Politics

In February, Dr Peter Gooderham, the FCO’s Director for the Middle East and North Africa , gave us his assessment of Prime Minister Ehud Olmert’s administration:

The Israeli Government are not in a strong position domestically, largely because of the fall-out from the Lebanon war last summer, which continues to reverberate in Israeli politics.[
id="n7">7]

Simon McDonald, now the Prime Minister’s foreign policy adviser, and a former Ambassador to Israel , told us that “the polls are poor for Mr Olmert’s Government; he has a 65% negative rating, and
his Defence Minister has a 1% approval rating.”[8] Israel ’s Government is a coalition including Mr Olmert’s Kadima party and the Labour party. Labour
held primaries in the summer of 2007, and its leader, Amir Peretz (then the Defence Minister) was defeated. Ehud Barak, the former Prime Minister of Israel, was elected leader of the party and was
appointed as the new Defence Minister.[9]

Nomi Bar-Yaacov, an independent foreign policy adviser, expanded on the troubles of the current Government in Israel . She argued:

Kadima’s political platform has gone. The party won the election on a platform of unilateral disengagement and, because that (policy) failed in Lebanon and in Gaza , it (unilateral disengagement)
is unlikely to happen again in the near future. The question is what is it (the party) standing for. I do not think that Kadima is going to be there for that much longer-certainly not as the leading
power in Israeli politics.[10]

Ms Bar-Yaacov also highlighted the possible return of Benjamin Netanyahu, Israel ’s former Prime Minister:

He is racing ahead in the polls. He has got so much more support. He has five times more support-four to five times, depending on the polls-than Kadima or any other party at the moment. We all
know who he is and what he stands for. He is a quite hardcore, right-wing politician. He stayed with Likud when Sharon split into the centre, into Kadima. He not only has a lot of financial support,
but has a lot of public support.[11]

We asked about the views of the Israeli population for a two-state solution. Mr McDonald told us that recent polling suggested up to 74% support for this.[ "#note12">12] Dr Rosemary Hollis, Director of Research at Chatham House, said that she had found five different substantive views amongst the Israeli population. She agreed that around 75% wanted
some form of Palestinian state. However, their views as to what type of state it should be differed:

One of those versions involves the Palestinian state being more Jordan than it is Gaza . That is a hunk of the West Bank would be attached to Jordan , and Egypt would have to pick up the
impossibility of the Gaza strip and helping it function somehow-that kind of thing.

You can get the Israelis to hypothesise any number of solutions to their conflict with the Palestinians. I think it would need even more than a strong leader to galvanise them and deliver any one
of those. [.] If we are to wait for an Israeli leader to solve the problem, we can forget it.[13]

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Source: International Crisis Group

The Occupied Palestinian Territories

The Occupied Palestinian Territories have been marked by instability and political uncertainty in recent months, culminating in the dramatic events of June 2007. This section considers a
number of inter-related issues, including the Quartet’s three principles for engaging with Hamas, the EU’s Temporary International Mechanism (TIM), the Mecca agreement, the rise and fall of the
national unity Government, and broader questions about the role of regional states and the international community in the politics of the Occupied Palestinian Territories .

THE COMMITTEE’S JUNE 2006 REPORT

It is worth beginning by restating the developments noted and conclusions drawn with regard to the Occupied Palestinian Territories in our final Report on Foreign Policy Aspects of the War against Terrorism. This Report was published in June 2006. The Report considered a wide range of issues, including political
developments in the Occupied Palestinian Territories , international aid to the Palestinians, and Israel ’s unilateral withdrawal from the Gaza Strip. The key aspects relating to the Occupied
Palestinian Territories are as follows:

• Hamas had won the January 2006 legislative elections for the Palestinian Authority with 74 seats as compared to Fatah’s 45, and thus held ministerial positions. However, much executive authority
  remained with President Mahmoud Abbas, a member of Fatah;
• Hamas is regarded as a terrorist organisation because of its past attacks on Israeli civilians. The British Government had no dealings with it. We concluded that this was an appropriate policy to
  take;
• One quarter of Palestinian households are directly dependent on a public sector wage-earner. Israel took the decision to cut off customs revenues payable to the Palestinian Authority and many
  international donors, including the Government, suspended direct aid following Hamas’ election victory. At the time our Report was published, the EU had announced that it would be establishing a
  Temporary International Mechanism, designed to pay Palestinian workers but by by-passing Hamas, from the beginning of July 2006. We concluded that it was right for the Government to refuse to channel
  its aid through a Palestinian administration led by Hamas, and we endorsed the three Quartet principles of non-violence, recognition of Israel and acceptance of previous agreements and obligations.
  Hamas would have to meet these principles for direct aid to be resumed. However, we further concluded that “it is important the Palestinian people are not punished for exercising their rights as
  voters”;
• We reiterated the Committee’s previous conclusions on the illegality of the route of Israel ’s security barrier. We noted that in mid-June 2006, Hamas had resumed rocket fire against Israeli
  targets for the first time in nearly 18 months in response to an alleged Israeli naval strike on 9 June, in which seven Palestinians were killed on a Gaza beach. In May 2006, fighting broke out
  between Palestinian security force under the authority of President Abbas and militants loyal to Hamas.[14]

We now consider how these issues have developed over the previous year.

DEVELOPMENTS LEADING TO THE MECCA AGREEMENT

On 8 February 2007, President Abbas and Khaled Mashaal (the leader-in-exile of Hamas) signed an agreement in the holy city of Mecca in Saudi Arabia . This agreement established a national
unity Government in the Occupied Palestinian Territories.[15] It is sensible for a number of reasons to divide our analysis into pre- and post-Mecca.
This section considers political, economic and security developments in the period from June 2006 until the signing of the Mecca agreement.

Kidnap of Corporal Gilad Shalit and the Israeli Reaction

Israel had withdrawn unilaterally from the 141 square miles of the Gaza Strip in August 2005. We noted above that in mid-June 2006, Hamas had resumed rocket fire from the Gaza Strip against
Israeli targets following an alleged Israeli strike that killed a number of people on a beach in Gaza . The situation escalated significantly on 25 June 2006, when Palestinian militants kidnapped an
Israeli soldier, Corporal Gilad Shalit, in an attack on an Israeli border post. The British Government has since repeatedly called for Corporal Shalit’s immediate and unconditional release.[ "n16" id="n16">16] In a written answer on 22 March 2007, Lord Triesman said Corporal Shalit had been kidnapped by Hamas itself.[ "#note17">17] The incident leading to his capture left two Israeli soldiers and two militants dead. In response, Israel launched an invasion of the Gaza Strip, seizing eight Hamas ministers, as
well as other MPs and officials.[18]

Our colleagues on the International Development Committee (IDC) commented that Gaza was subject to an “intensified military assault” by Israel over the following five months. They tell how, on
7 November 2006, 19 Palestinian civilians, including 14 women and children, were killed by Israel in the town of Beit Hanoun.[19] At the time, the
then Foreign Secretary commented that “it is hard to see what this action was meant to achieve and how it can be justified [...] Israel must respect its obligation to avoid harming civilians.”
Israeli politicians expressed their regret at the incident.[20] The IDC was subsequently told that the incident occurred due to a “technical error”.
In its Report, it went on to note that a ceasefire agreed between Israel and the Palestinians on 28 November 2006 helped prevent the occurrence of revenge attacks.[ "#note21">21] In June 2007, Hamas released what it claimed was a tape of Corporal Shalit. It is demanding the release of Palestinian political prisoners as an exchange but Israel has refused to
negotiate.[22] Israel continues to detain around a third of the 132 elected Members of the Palestinian Legislative Council (most are from Hamas). The
new Foreign Secretary, Rt Hon David Miliband MP, has said that “they should either be charged or released.”[23]

In 2006, 661 Palestinians died as a result of Israeli military action. In the same period, 23 Israelis were killed by violence both inside and outside the Occupied Territories.[
id="n24">24] The Israeli human rights group B’Tselem stated that at least 332 of the Palestinians had taken no part in hostile acts, and that the figure included 141
children.[25]

The Economic Situation and the Temporary International Mechanism

As noted above, the international community halted all aid to the Palestinian Authority once Hamas took office in March 2006. Israel also withheld tax revenues. Ed Balls, then Economic
Secretary to the Treasury, gave a speech to Chatham House on 19 June 2007 setting out the economic situation in the Occupied Palestinian Territories . Some of his key points were as follows:

• There has been a 40% fall in per capita GDP amongst Palestinians since the start of the second intifada in 2000. This is twice as severe as both of the two worst years of the US Great Depression
  in the 1930s.
• The Palestinian Authority’s finances were already in a “precarious” position before the advent of the Hamas government. The arrival of Hamas and the suspension of international aid has left the
  Palestinian economy “extremely weak”, and “growing poverty and unemployment have fuelled the spiral of instability”. Particularly damaging to the PA’s revenue stream was Israel ’s decision to freeze
  tax revenue payments. Unemployment is nearly 50% in Gaza .
• With the advent of the Temporary International Mechanism, aggregate EU assistance to the Palestinian people rose by 27% last year to over 650m euros. This was one factor in helping to slow the
  shrinkage in the Palestinian economy from an anticipated 26% at the start of the year to an estimated 5-10% at the end of the year.[26]

Dr Gooderham told us that he rejected claims that the international community was not doing enough to protect Palestinian people:

Our assistance over the last year has reached record levels and the UK , for its part, is one of the biggest donors among the EU member states. Our contribution bilaterally last year was £30
million. If you add the contribution that we give on a pro rata basis to the European Commission’s funds, we gave over £70 million last year.[27]

However, this has not been enough to halt the decline. Nomi Bar-Yaacov argued that a problem with the TIM was that it “gives money to employees. It is not an economy.”[ "n28">28] Dr Hollis criticised the fact that it took six months for the EU to adjust to Hamas’ victory.[29] In February
2007, Oxfam claimed that two-thirds of Palestinians lived in poverty, a rise of 30% on the previous year. More than half of Palestinians were “food insecure” and the health and education systems were
“disintegrating” to the point of “meltdown”.[30] The International Crisis Group argued that the international “sanctions” and financial fragmentation
(a consequence of bypassing the finance ministry) had left the PA’s institutions on the verge of collapse.[31] Dr Gooderham, giving evidence in
February, commented that the Palestinians’ “plight is awful, and getting worse.”[32] We consider the fate of the TIM in light of the events of June
2007 later in this chapter.

We conclude that the Temporary International Mechanism has played a limited, but important, role in mitigating the economic and humanitarian crises in the
Occupied Palestinian Territories . This crisis has been severe and its impact on the political and security situation, in particular in the Gaza Strip, should not be under-estimated.

Intra-Palestinian Strife

As argued by Ed Balls, the “spiral of instability” experienced in the Occupied Palestinian Territories was fuelled by the growth in poverty and unemployment, in particular following Hamas’
victory. The Israeli invasion of Gaza referred to above likely contributed to a growing sense of insecurity. This was accompanied by growing internecine conflict between Hamas and Fatah in the
territory. Nomi Bar-Yaacov told us that at the time the Mecca agreement was signed, the only alternative would have been civil war in Gaza.[33]

An International Crisis Group report, published on 28 February 2007, considered a number of security issues in the Occupied Palestinian Territories . It argued that with the international
boycott of the Palestinian Authority, there had been a “collapse of law and order,” particularly in Gaza . “Families, clans and armed factions” were increasingly becoming the units of
loyalty.[34] It referred to the establishment by Hamas of the Executive Security Force (ESF), which was formed and deployed in Gaza in April 2006
because of the Islamist movement’s fears that the 70,000 strong traditional security forces in both Gaza and the West Bank remained loyal to Fatah.[ "#note35">35] In February, Nomi Bar-Yaacov estimated the strength of the ESF as “at least 6,000″ and noted that it was complemented by the armed wing of Hamas, the “Ezzedin al-Qassam”.[ "n36" id="n36">36] The International Crisis Group reports how the ESF, under the direction of Hamas, repeatedly engaged in a “bloody power struggle” with Fatah operatives,
leading to “widespread public disgust” with both movements.[37] Nomi Bar-Yaacov told the Committee that Hamas appeared to have come out on top when it
overran Fatah positions and “showed that it potentially has the upper hand in terms of force.” In the meantime, both factions were re-arming themselves rapidly through tunnels from Egypt.[ "n38" id="n38">38]

The Mecca Agreement

The increased factional conflict in the Gaza Strip led, eventually, to Fatah and Hamas agreeing to form a national unity Government when their respective leaders met in Mecca in February 2007.
Dr Gooderham told us in February that, under the Mecca agreement, “the Ministries will be shared out between Hamas, Fatah and some of the other political groupings in the Palestinian Territories
.”[39] The agreement gave Hamas the largest number of members in the Government, including the position of Prime Minister, but it was agreed that
independents would take the positions of Interior and Finance Ministers.

Dr Rosemary Hollis argued that the Mecca agreement and the establishment of a national unity Government in the Occupied Palestinian Territories had been the best possible outcome:

The alternatives included, first, the complete collapse of the Palestinian Authority; secondly, an internal Palestinian war, which we have seen a bit of already, and which would result in a very
chaotic situation in the West Bank and Gaza ; and thirdly, a dysfunctional situation in which Hamas struggles on.

Nomi Bar-Yaacov agreed, telling the Committee that “but for Mecca , we would be in a dreadful place.”[40] In the same evidence session, Dr Peter
Gooderham suggested that to the extent that Mecca was able to bring about a cessation of violence, “it has been a success.” He noted that this attempt to restore peace was the main objective for
President Abbas at Mecca.[41]

When we took evidence from Dr Gooderham, the national unity Government had not yet been established. He stressed that for the international community, it was important that the programme of
the new Government should “reflect the three principles” of the Quartet (non-violence, recognition of Israel and acceptance of past agreements). This, he said, “would enable us to engage with them.”
He told us that it was “not clear” whether the text of the agreement reflected the three principles, but he argued that “this is a process”, suggesting that further movement towards the principles
may occur.[42] Dr Gooderham’s repeated use of the word “reflect” was significant, hinting that the Government was not ruling out the possibility of
engagement with a Palestinian Government that did not explicitly and indisputably meet the three principles. He described this as a “wait-and-see” policy.[ "#note43">43]

In the text of the agreement, Hamas had pledged to “respect” existing agreements between Israel and the PA. The Financial Times wrote that:

Under Mecca , the Islamists do not, and Hamas will not, recognise Israel . They do, however, accept not only the 1993-98 Oslo series of PLO-Israel deals but the 2002 Arab League peace plan-spurned
by Israel . That offers Israel full peace if it withdraws from Arab land seized in the 1967 Arab-Israeli war. That would mean Israel giving up most of the illegal West Bank settlements as well as
occupied Arab east Jerusalem .

The newspaper argued that this amounted to “implicit recognition” of Israel and suggested that the international boycott of the PA should be ended. To do otherwise, it argued, would only serve to
increase the influence of Iran in the Occupied Palestinian Territories.[44]

Dr Gooderham told us that “the whole international community applauded” the role of the Saudis in brokering the Mecca agreement.[45] The Saudi
Government was reported to have cemented the deal with $1 billion in aid to the Palestinian Authority.[46] It was also of course required to engage
with Hamas directly, something that the British Government refuses to do. We asked Dr Howells if there wasn’t a contradiction in applauding Saudi engagement whilst refusing to engage ourselves. He
replied:

[I]t might be stating the obvious to say that we are not the Saudi Government or the Saudis. They have a different standing in the Middle East from ours and a different attitude towards this
problem. We are glad to see that they have taken on this new diplomatic initiative. They are very energetic [.] Our political objectives might ultimately be the same as theirs-two stable states
living alongside each other-but we have a different way of coming at it. We are glad to see that the Saudis have taken this initiative.[47]

Dr Howells told us that it was not a viable position for the Government to risk money going to Hamas if “they were using it to fund the families of suicide bombers.” He stated that the financial
boycott of Hamas had put “pressure” on it to realise it had to act with “responsibility”.[48] Yet it is almost certain that a large chunk of the $1
billion aid provided by Saudi Arabia would have gone into Hamas’ coffers. If part of the rationale of the economic boycott of the Palestinian Authority was to pressurise Hamas into adopting a more
moderate position, then the Saudi money would appear to have undermined this policy. It seems to us that encouraging this mixed approach risks diluting the international community’s efforts.

THE RESPONSE TO MECCA

On 21 February, the then Prime Minister Rt Hon Tony Blair MP remarked that it would be “far easier to deal with the situation in Palestine if there is a national unity Government,” adding that
“I hope we can make progress, including even with the more sensible elements of Hamas.”[49] When we asked Dr Howells to clarify the then Prime
Minister’s comments, his answer revealed that the Government, at that point, did not view the three principles as explicit ‘red lines’:

As I interpret the Prime Minister’s analysis, those elements within Hamas would have to be part of the national unity Government and subscribe to a general statement by that Government that would
go some way at least towards the Quartet’s principles. If that happened, we could contemplate talking to Hamas.[50]

We asked our independent experts what the Government’s response to the Mecca agreement should be. Dr Hollis argued that:

Signs need to be given to the Palestinians of both factions that there will be benefits for them to come up with a better joint position than they have at the moment. Otherwise there will be a
repeat of what happened with Iraq. My concern would be that, while fiddling around waiting for everybody to agree or to get a better position out of Hamas or the Palestinians, events move on and
two years down the line somebody will be asking, including in America, ‘Whose decision was it to let this situation drift so that we have no Palestinian Authority?’[ "n51">51]

Ms Bar-Yaacov asserted that:

The wait-and-see policy should be turned into a rather more proactive policy of seeing how we can support the formation of a national unity Government and how we could work with them, given that
the alternative is dire.[52]

She warned that if the national unity Government “does not get the international community’s backing and recognition, we will see a return to violence very quickly.”[ "n53">53] These are sobering remarks in the context of the events of June 2007, and we will return to consider them later.[ "#note54">54]

On 15 March 2007, the Hamas Prime Minister Ismail Haniyeh unveiled the new national unity Government. The key posts of Interior and Finance Ministers were given to independents (the latter
being Salam Fayyad).[55] In its first engagement with the Palestinian Authority since Hamas won the 2006 election, a senior US official met Mr Fayyad
soon after he took office.[56] The British Government adopted a similar approach. Dr Howells set out this policy in a written answer:

We will judge the Palestinian Government by their platform and actions and respond accordingly [.] No Hamas members of the current Government have yet made clear that they have accepted [the
Quartet's] principles. We are working with those members of the Government who do.[57]

In a confidential ‘End of Mission’ report written in May 2007 (leaked to The Guardian), the UN’s Middle East envoy, Alvaro de Soto, discussed the formation of the national unity Government and
its relationship with the three Quartet principles. He argued that Hamas was keen to establish a national unity Government by February or March 2006, and that there was some support for this in
Fatah. However, the United States “made it known that it wanted Hamas to be left alone to form its Government” so that it could be confronted and ideally toppled by Fatah.[ "n58">58] He pleaded to the senior leadership of the United Nations:

Please remember this next time someone argues that the Mecca agreement, to the extent that it showed progress, proved that a year of pressure ‘worked’, and that we should keep the isolation going.
On the contrary, the same result might have been achieved much earlier without the year in between in which so much damage was done to Palestinian institutions, and so much suffering brought to the
people of the occupied territory, in pursuit of a policy that didn’t work, which many of us believed from the outset wouldn’t work, and which, I have no doubt, is at best extremely
short-sighted.[59]

Mr de Soto ’s view is corroborated to a large degree by reports from the very day of Hamas’ election victory in January 2006 that it wanted to enter into a political partnership with
Fatah.[60]

Nomi Bar-Yaacov provided us with a similar analysis of the way in which the international community had dealt with the Palestinians following Hamas’ election victory in January 2006. She
believed that the international community had “tried a certain policy with Abbas and it failed.” She argued that the British Government “must come to terms with the fact that Hamas is there for the
duration. Hamas is not going to go anywhere; it is part of the fabric of Palestinian society.”[61] She suggested to the Committee that President Abbas
had to accept the Mecca agreement “in its current form” (i.e. without major policy shifts by Hamas) because “he did not get anything from the US ” that could have provided incentives for Hamas to
change its policies.[62]

We conclude that the decision not to speak to Hamas in 2007 following the Mecca agreement has been counterproductive. We further conclude that a national
unity Government could and should have been established much earlier than the spring of 2007. We recommend that, in its response to this Report, the Government set out when it began to actively
support the establishment of a national unity Government in the Occupied Palestinian Territories .

The national unity Government required a response on two fronts. The first, as we have seen, was political, and the response of much of the international community was to engage with those
members of the Government that accepted the Quartet’s principles. The second response was economic. As we noted earlier in this chapter, the EU and US had suspended all direct aid to the Hamas
administration since its election, a policy that this Committee supported with the proviso that the Palestinian people should not be themselves punished. On the day the national unity Government was
announced, the German EU Presidency issued a statement. It said:

Mindful of the needs of the Palestinian people, the EU is committed to continuing its vital assistance through the Temporary International Mechanism until the financial situation and future needs
can be assessed and a more sustainable framework for assistance can be established.[63]

Days later, the Quartet endorsed,

the continuation of the Temporary International Mechanism (TIM) for a three-month period while it evaluates the situation and the international community works to develop a more sustainable
international mechanism for support to the Palestinians.[64]

This decision to continue with the TIM meant that the financial boycott of the Palestinian Authority remained in place, but press reports at the time suggested that the “more sustainable
framework” called for by the EU included proposals to channel funds through the Finance Ministry of Mr Fayyad.[65] By May however, the Quartet’s
language appeared to have abandoned talk of a new framework. Its statement on 30 May strongly reaffirmed support for the TIM:

The Quartet commended the excellent work of the Temporary International Mechanism (TIM) and endorsed its extension for three months from July until September 2007.[ "n66">66]

Dr Hollis had warned the Committee that the six months between the Hamas election and the establishment of the TIM in the first half of 2006 had been too long. She argued:

If another six months are spent adjusting to the unsatisfactory, inconclusive nature of the deal done in Mecca, an insufficient signal will be sent to the Palestinians-by that I mean both Fatah
and Hamas.[67]

As documented above, the Quartet announced in March that the TIM would be extended to July 2007 whilst a more appropriate vehicle for funds was found. In May, it was announced that the TIM would
be extended to September 2007, and no reference was made to any attempts to find an alternative funding solution. Thus the Quartet was anticipating the continuation of its pre-Mecca economic
sanctions of the Palestinian government for at least six months following the establishment of the national unity Government, and seven months following the Mecca agreement itself. In April, Finance
Minister Fayyad appealed to the European Commission for direct financial aid to avert a “devastating humanitarian crisis” but instead he was offered technical assistance for his Ministry so that it
would be better placed to receive aid in the future.[68]

There appears to have been little difference in the fundamental economic relationship between the EU and the Palestinian Authority in the pre- and post-Mecca arrangements, and there seems to
have been little sense of the urgency that Dr Hollis had called for to create conditions in which this relationship could be changed. Dr Howells’ written answer above stated that the Government was
“working with” members of the Palestinian Authority that accepted the three Quartet principles. Given the lack of movement on the economic boycott, we must seriously question the extent to which this
engagement was substantive.

A swift change of policy would have demonstrated that the international community was eager to provide genuine financial support to moderates in the Palestinian Authority. The decision to
continue to refuse to provide direct aid, even to the moderates, helped to boost the perception that the measures were punishing the Palestinian people.

We conclude that the unwillingness of the EU to modify the financial boycott of the Palestinian Authority following the Mecca agreement was very damaging. The
international community failed to prepare and implement rapid economic solutions to reward those elements within the national unity Government that respected the three Quartet principles. We
recommend that, in its response to this Report, the Government provide an assessment of whether it believes in hindsight that the EU and the rest of the international community acted with sufficient
urgency to create conditions in which direct aid could be restored as soon as possible. We also recommend that the Government in its response to this Report should clarify the extent to which
difficulties in restoring aid to the national unity Government in 2007 were due to the impact on the institutions of the Palestinian Authority of the suspension of aid in 2006.

THE COLLAPSE OF NATIONAL UNITY

On 14 June 2007, President Abbas dissolved the national unity Government. The next day, Mr Fayyad was appointed as the Prime Minister of a new emergency Government.[ "n69">69] These dramatic steps followed the brutal military takeover of the Gaza Strip by Hamas forces. This section briefly sets out the pattern of events that led to the
collapse of the Mecca agreement, in particular considering whether the Government, as part of the international community, could have done more to prevent the total breakdown of June 2007. We then
turn to assessing the UK ’s response to the establishment of Mr Fayyad’s emergency Government.

The Mecca agreement itself had been signed in a bid to prevent civil war amongst the Palestinian people. In the month the agreement was signed, we asked Nomi Bar-Yaacov how long she felt the
Government could adopt a “wait-and-see” approach. She replied:

Not too long, because the guns are back. The euphoria of the Mecca agreement did not last very long in Gaza . [.] Today, we see that the guns are back in the streets. We see the executive force of
Hamas displaying its arms and flexing its muscle, particularly in the evacuated settlements. We also see the presidential guard, Abbas’s force, displaying its armour in the streets. There is a lot of
tension in Gaza at the moment.[70] [.] If the national unity Government does not succeed and does not get the international community’s backing and
recognition, we will see a return to violence very quickly.[71]

Dr Hollis told the Committee:

Fatah needs to know that there are rewards for working with the status quo. So far it has had signals that if it waits on the sidelines, the international community will bring down Hamas and then
Fatah can come back to power. That has not been a very productive signal to send.[72]

Yet as we have seen in the section above, the international community offered next to no financial incentives for the non-Hamas members of the national unity Government to work with the status
quo. We judge that they had little stake in this Government and we agree with Dr Hollis that this was not a productive signal to send.

The arming in the Gaza Strip, as Ms Bar-Yaacov told us, was not restricted to one faction. As early as November 2006, The Times reported that the United States was attempting to strengthen
Fatah’s security forces with extra arms and men. One western official told the newspaper “as far as we are concerned, what the Americans are proposing to do is back one side in an emerging civil
war.” Another international observer made a similar comment:

A lot of what the Americans were saying was, ‘If there is going to be a fight, we might as well make sure the right person wins.’ We would have a difference of opinion there. You really don’t want
to be encouraging a civil war.[73]

In April 2007, the US Congress approved a $59 million package for the Occupied Palestinian Territories . As the financial boycott of the Palestinian Authority was still in place, these funds did
not go to Prime Minister Haniyeh’s national unity Government. The aim of the funds, which had received Israeli approval, was to “transform and strengthen” Mr Abbas’ elite Presidential Guard forces.
They received $43.4 million. This included $3 million for Mr Abbas’ national security adviser, Mohammed Dahlan.[74] At the time, Mr Dahlan was the
Fatah strongman in the Gaza Strip and has long been a powerful opponent of Hamas.[75] There have been suggestions that the intentions of the US may
not have been pure. In his ‘End of Mission’ report, Alvaro de Soto , the then UN Middle East envoy, tells how, a week before Mecca (when civil war looked possible), the US envoy declared twice in one
meeting that “I like this violence [.] it means that other Palestinians are resisting Hamas.”[76]

The events of June 2007 were, at their core, change rooted in violence. The United Nations Office for the Co-ordination of Humanitarian Affairs has stated that between 9 and 13 June, 110
Palestinians were killed and over 550 injured as a result of inter-factional fighting.[77] The Hamas Executive Security Force took over the
Palestinian Authority’s security and military intelligence headquarters following a three-day siege. Many of the Fatah militia in the Gaza Strip were routed.[ "#note78">78] The Presidential compound was also seized as Hamas took full control of the territory.[79] The leading international human rights
organisation Human Rights Watch said that both sides were guilty of serious atrocities:

Both Fatah and Hamas military forces have summarily executed captives, killed people not involved in hostilities, and engaged in gun battles with one another inside and near Palestinian hospitals
[.]

On Sunday, Hamas military forces captured 28-year-old Muhammad Swairki, a cook for President Mahmoud Abbas’s presidential guard, and executed him by throwing him to his death, with his hands and
legs tied, from a 15-story apartment building in Gaza City . Later that night, Fatah military forces shot and captured Muhammad al-Ra’fati, a Hamas supporter and mosque preacher, and threw him from a
Gaza City high-rise apartment building.

Human Rights Watch said both Fatah and Hamas were guilty of “the most brutal assaults on the most fundamental humanitarian principles.” [80]

President Abbas called Hamas’ actions a “military coup.” He used his authority as President to dissolve the national unity Government and establish a largely independent emergency Government
under the leadership of Mr Fayyad. Ismail Haniyeh, the Hamas Prime Minister of the national unity Government, insisted that his dismissal was unconstitutional. In effect, rival institutions were now
running the two Occupied Palestinian Territories : Hamas in the Gaza Strip, independents and Fatah in the West Bank. [81]

The response of the British Government was clear. Responding to urgent questions in the House, Dr Howells said:

The emergency Government, who were sworn in on 17 June, have our full support. We will continue to work with all those, including President Abbas, who are dedicated to achieving a peaceful
resolution to the conflict. The emergency Prime Minister, Salam Fayyad, has said that his priorities are restoring security and improving the economic and humanitarian situation, and we share those
goals[82] [.]

This happened as quickly as it did because Hamas committed nothing less than a coup d’état. Those generally happen quickly, and this one was brutal.[ "#note83">83]

In a show of support to the new Government, the European Union and United States swiftly lifted the financial boycott of the Palestinian Authority once the new administration was sworn
in.[84]

Dr Howells argued that the “terrible inter-factional fighting among Palestinians is a result of Hamas’ decision to mount a coup d’etat.”[85]
However, as documented earlier in this Report, the inter-factional fighting began long before June 2007. Many factors fuelled the violence, including the economic deprivation in the Occupied
Palestinian Territories , divisions within Fatah, a power struggle between Hamas and Fatah, the role of other militant groups, the refusal of the EU and US to engage with Hamas and the general
escalation of criminality in the Gaza Strip. In her written submission, Nomi Bar-Yaacov stressed the importance of acknowledging that Hamas viewed its move as “a pre-emptive strike against
Fatah.”[86] Indeed, the new Foreign Secretary has told the House that “the feuding between Hamas and Fatah representatives and supporters has deep
roots.”[87]

We conclude that the actions of both Hamas and Fatah militia forces in the Gaza Strip were deplorable and should be condemned by all. However, the escalation
of violence in June 2007 should not have come as a surprise to the UK Government or any of its international partners. We conclude that the decision to boycott Hamas despite the Mecca agreement and
the continued suspension of aid to the national unity Government meant that this Government was highly likely to collapse. We further conclude that whilst the international community was not the root
cause of the intra-Palestinian violence, it failed to take the necessary steps to reduce the risk of such violence occuring.

LOOKING AHEAD

This Report has been prepared at a time of great uncertainty as to the future of the Occupied Palestinian Territories . This section considers the possible options open to the Government as it
considers its response to recent developments.

We noted above that the EU and US have both decided to restore bilateral aid to the Palestinian Authority following the establishment of Prime Minister Fayyad’s emergency Government. Israel
suspended payment of all of the VAT and customs revenues owed to the Palestinian Authority following the 2006 elections (roughly $55 million a month). In December 2006, it promised to pay President
Abbas $100 million.[88] It has since announced that the remainder of the funds will be paid back to the Palestinians. The Parliamentary
Under-Secretary of State for International Development, Shahid Malik MP, has estimated that this figure will be “circa $800 million.” He argued that the “entirety” of the money “needs to be
released.”[89]

The Foreign Secretary has said that Prime Minister Fayyad and President Abbas should “develop institutions capable of representing the aspirations of all Palestinian people.”[ "n90">90] In her written submission, Nomi Bar-Yaacov argued that the fact that the emergency Government excludes both Hamas and Fatah means that “it cannot represent the
Palestinian people for long.”[91] The Parliamentary Under-Secretary of State for International Development has remarked that there can be no
sustainable solution “without the inclusion of Hamas”. However, he went on to state that Hamas has “obligations” (the three Quartet principles) and that “we expect them to be adhered to”.[ "n92" id="n92">92]

Alan Johnston

On 12 March 2007, the BBC journalist Alan Johnston was kidnapped in the Gaza Strip. His capture was met with a wave of protest amongst Palestinian journalists around the world. In April, the
British Consul-General in Jerusalem travelled to Gaza to meet with the then Hamas Prime Minister, Ismail Haniyeh, despite the EU and US boycott of the movement.[ "#note93">93] A further meeting between the two was held as part of what the Consul-General described as “continuous contact”.[94] Hamas
repeatedly called for Mr Johnston’s release, and following its take-over of Gaza in June, it pushed harder to secure his freedom. It launched a crackdown against the militant ‘Army of Islam’ that was
holding the journalist, and helped to secure his release on 4 July.[95] Responding to the release, the Foreign Secretary said:

Ismail Haniya and Hamas spokesmen denounced the hostage-takers and demanded Alan’s release. I fully acknowledge the crucial role they have played in securing this happy outcome.[ "n96">96]

The West Bank and the Gaza Strip

The writ of Prime Minister Fayyad’s emergency Government, which is based in the West Bank , does not run in the Gaza Strip. The international community has demonstrated its support for this
Government, and has done nothing to suggest that the political boycott of Hamas will be reversed. Some have argued that the EU and US will pursue a ‘West Bank first’ policy in which political
negotiations between Israel and the emergency Government advance, whilst Gaza is further politically isolated. In her written submission, Nomi Bar-Yaacov argued that Gaza and the West Bank “must be
treated as one entity for the purpose of peace negotiations. [.] Gaza must not be left behind in the political process.”[97]

56. Robert Malley (Director of the Middle East programme at the International Crisis Group) and Aaron David Miller (a public policy scholar at the Woodrow Wilson Centre) strongly agree with Ms
Bar-Yaacov’s approach. They argue that Fatah does not fully control the West Bank , and that Hamas retains much popular support there. They point out that most of the attacks against Israel in the
West Bank have been carried out by groups linked to Fatah, not Hamas, despite President Abbas’ best efforts. They argue that Fatah is no longer ideologically or organisationally “coherent” as a
movement. President Abbas could also be severely damaged by any moves that undermine the symbolic unity of the Occupied Palestinian Territories . They state:

Efforts to deepen the split between Hamas and Fatah or between Gaza and the West Bank will compound the disaster, for there can be no security, let alone a peace process, without minimal
Palestinian unity and consensus.

They conclude that President Abbas will eventually be forced to pursue a new power-sharing agreement with Hamas, and that when this point comes, the international community must support any
resulting national unity Government.[98] Ismail Haniyeh has sought a rapprochement with Fatah, although at the time of preparing this Report,
President Abbas has rejected this route.[99]

Engaging with Hamas

The three Quartet principles for the Palestinian Authority are non-violence, recognition of Israel and a commitment to previous agreements. The Government has made the case that Israel cannot
be expected to enter into peace negotiations with a political group that does not recognise its existence.[100] We are sympathetic to this
argument. However, the Quartet principles have not stopped Russia , a member of the Quartet, from engaging with Hamas.[101] Such engagement can be
used to encourage Hamas to adopt a position consistent with the three Quartet principles, so that it can become an acceptable partner for peace. Nomi Bar-Yaacov suggests that Hamas should be judged
by its “performance”-i.e. it should be acknowledged that it is willing to negotiate with Israel on the basis of the 1967 borders, its willingness to accept many of the previous agreements entered
into by the Palestinians (including Oslo) should be welcomed and its ability to hold a ceasefire and crack down on militant groups such as Islamic Jihad should be tested.[ "n102">102]

In its Report referred to above, the International Development Committee concluded:

We believe that the international community is right to place pressure on Hamas to change those policies which militate against a peace process. However this would best be achieved through
dialogue and engagement rather than isolation. The danger of the current approach is that it might push Hamas into a corner which encourages violence rather than negotiation. The international
community must also ensure it is not bolstering one faction against the other and thereby increasing the risk of internal strife.[103]

We agree. As Nomi Bar-Yaacov argues, “the international boycott of Hamas has strengthened the extremes” whilst marginalising the more progressive elements within the organisation. She puts forward
a strong argument that “engaging with the movement is the only way to prevent radical elements within the movement side-lining more pragmatic moderates.”[ "#note104">104]

We conclude that the Government was right to make contact with Hamas in its efforts to secure the release of Alan Johnston. We welcome the role of Hamas in
his release.

Given the failure of the boycott to deliver results, we recommend that the Government should urgently consider ways of engaging politically with moderate
elements within Hamas as a way of encouraging it to meet the three Quartet principles. We conclude that any attempts to pursue a ‘West Bank first’ policy
would risk further jeopardising the peace process. We recommend that the Government urge President Abbas to come to a negotiated settlement with Hamas with a view to re-establishing a national unity
Government across the Occupied Palestinian Territories .

The Humanitarian Situation

Apart from humanitarian assistance, Gaza has been completely isolated by land, air and sea. As discussed elsewhere in this Report, the Rafah crossing between Egypt and Gaza was closed in early
June 2007, leaving thousands of Palestinians stranded in the Sinai.[105] On 9 July 2007, the International Herald Tribune reported that what was
left of the commercial sector in Gaza was shutting down because all entry points to Gaza were closed.[106] The Parliamentary Under-Secretary of
State for International Development, Shahid Malik, said on 5 July 2007 that the EU Temporary International Mechanism will continue until the end of September.[ "#note107">107] Its importance will be greater in Gaza than in the West Bank, as the West Bank based Palestinian Authority will also begin to receive direct aid from the EU and US.

We noted earlier in this Report that the financial boycott of the previous Palestinian Government has damaged Palestinian institutions. We are concerned that the events of June 2007 will mean
the Palestinian infrastructure in the Gaza Strip deteriorates further, deepening the humanitarian crisis there. Israel has decided to allow some humanitarian access to Gaza . It has mostly come
through smaller crossings such as Sufa, whilst the main Karni crossing between Gaza and Israel has remained closed.[108] This was welcomed by Mr
Malik. Speaking on 5 July, he stated that more than 130 truckloads of basic food and humanitarian supplies had got through to Gaza since 15 June. However, he argued that Gazans needed “more than the
very basics [.] We are pressing Israel to ensure full humanitarian access to Gaza and to allow trade as soon as possible.”[109] The International
Herald Tribune reported UN figures suggesting that the humanitarian supplies were only meeting 70% of the minimum food needs of Gaza ’s population.[ "#note110">110]

In her written submission, Nomi Bar-Yaacov argued that “the crossings between Israel and Gaza should be opened urgently allowing the flow of goods to resume in order to avoid a humanitarian
disaster.” She noted the importance of the flow of goods to the survival of the Palestinian economy. She also recommended that the EU work towards creating a Palestinian economy that would replace
the Temporary International Mechanism.[111]

We conclude that the Temporary International Mechanism needs to be replaced by a more permanent solution that can meet the profound humanitarian crisis in the
Gaza Strip. We recommend that the Government continue to press Israel to ensure full humanitarian access to Gaza . We further recommend that, in its response to this Report, the Government set out
its interpretation of Israel ’s obligations under international humanitarian law and the responsibilities of the international community to ensure humanitarian provision for Gaza .

Quartet Representative

On 27 June 2007, former Prime Minister Tony Blair was appointed as the Quartet Representative. His mandate is to:

Mobilise international assistance to the Palestinians, working closely with donors and existing coordination bodies;

Help to identify, and secure appropriate international support in addressing, the institutional governance needs of the Palestinian state, focusing as a matter of urgency on the rule of law;

Develop plans to promote Palestinian economic development, including private sector partnerships, building on previously agreed frameworks, especially concerning access and movement; and

Liaise with other countries as appropriate in support of the agreed Quartet objectives.

He is charged with bringing “intensity of focus” to the Quartet’s work in supporting the Palestinian people. This is understood to be “within the broader framework” of the Quartet’s efforts to
promote an end to the Israel-Palestine conflict.[112]

The former Prime Minister appears to have a narrow mandate-the focus is on developing Palestinian institutions rather than promoting Palestinian reconciliation or possible peace negotiations
between the Israeli Government and the Palestinian President. In her written submission, Nomi Bar-Yaacov argued that his mandate should,

be expanded to include a serious political role if he is to stand a chance in succeeding in his mission. Mr Blair is unlikely to be able to achieve progress on the institution-building and
economic front (his current mandate) unless his mandate is expanded to include a political and security role.[113]

There was a need, she said, for the issues of politics, economics and security to be considered in “tandem”. Ms Bar-Yaacov suggested that a past mistake of the Quartet was to let the US deal with
political and security issues, whilst the UN and the EU focused on aid. The latter “found themselves pouring vast sums of money into a bottomless pit” due to continued insecurity. She remarked that
the creation of a “unified and competent” security apparatus in the Occupied Palestinian Territories will be “one of the most difficult challenges” facing Mr Blair, but also “the most important one”,
for which advancements in the political process would be required.[114]

We welcome the appointment of the former Prime Minister as the Quartet Representative. We recommend that he engage with Hamas in order to facilitate
reconciliation amongst Palestinians. We further recommend that his mandate be broadened to include explicitly working with Israel , the Palestinians and regional states to advance peace
negotiations.

The Middle East Peace Process

The Roadmap for Peace

Set against the backdrop of crisis in the Occupied Palestinian Territories and political uncertainty in Israel, the future of the Roadmap for Peace-the Quartet’s phased plan for a two-state
solution-looks increasingly fragile.[115] The initial Roadmap, agreed in 2003, envisaged a comprehensive agreement that “ends the
Israel-Palestinian conflict in 2005.”[116] Yet neither the Palestinians nor the Israelis have yet met the very first obligations required of them.
On the Palestinian side, political leaders have proven unwilling or unable to prevent rocket fire against Israeli towns, and earlier this year we saw the highly disturbing return of suicide bombings
with an explosion in Eilat in Israel.[117] With regard to the Israelis, Nomi Bar-Yaacov told us about settlements in the West Bank :

There are 102 illegal outposts. Prime Minister Olmert has not dismantled one since he came to power. The Road Map calls for the halt of settlement expansion and the dismantling of illegal
outposts. That is ( Israel ’s obligation under) phase one of the Road Map. The Quartet goes on to demand certain conditions of the Palestinians, but I have not seen a demand made recently of the
Israelis. I think that it is of utmost importance. [.] There are 121 official settlements throughout the West Bank and 102 illegal outposts and construction within those continues.[ "n118">118]

Dr Rosemary Hollis emphasised the scale of Israeli growth in the West Bank :

If you look at the territory on the ground including the barrier, the route it takes, the major highways-some with six lanes-that carve through the land with embankments on either side, the
confiscations that have taken place to build and install Israel’s security arrangements and then you consider the settlement expansion, which is pretty much the expansion of the main settlement
blocks, and the arrangements that are being made in the neighbourhoods of Jerusalem that make nonsense of any kind of city life, it is understandable why the Palestinians wonder what will be left at
the end of the day for them to call a state.[119]

Nomi Bar-Yaacov’s view that there is a lack of balance in the way the Quartet deals with Israeli and Palestinian violations of the Roadmap is backed up strongly by the views of the former UN
Envoy to the Middle East, Alvaro de Soto. Mr de Soto argued that there was a lack of balance in Quartet statements, which has worsened in recent months. In a colourful statement, he claimed that
“even-handedness has been pummelled into submission in an unprecedented way since the beginning of 2007.” He argued that the Quartet, in failing to act even-handedly, needs to accept “its share of
responsibility for feeding despair.”[120] In its written submission to the Committee, the Church of England argued that the Quartet must balance
demands of the Palestinians with “equally strong demands upon the Israeli government to cease from settlement activity.” This failure, it suggested, has diminished the Quartet’s authority and
legitimacy.[121]

We challenged Dr Howells on the issue of what pressure the Government has applied on Israel to meet its Roadmap obligations. He replied, telling us that the Government tries to “persuade and
cajole” Israel :

We certainly try to do that-we do it all the time, especially on the question of the expansion of settlements, the continuation of illegal settlements and the route of the barrier. We protest
about that constantly, and argue that it is having a very bad effect on the peace process, especially in-this is what it is called, although I do not know whether it actually exists-the Arab
street.[122]

I am not sure what good it would do to British diplomacy for us to start putting sanctions on Israel . [.] I have to reiterate that the object of the exercise is to try to get to a peace process
that is going to bring real change there. If we take our eye off that ball, I do not think that we are ever going to get there. I would say that placing sanctions on Israel would do nothing to help
that.[123]

However, there is a difference between ’sanctions’ and strongly worded Quartet statements that would urge Israel to meet its obligations in more robust language than heretofore.

In his written evidence, Shai Feldman argued that whilst the Roadmap is a “logical approach”, it never took off because the Israelis and Palestinians “became bogged down in endless bickering
as to ‘who goes first’.”[124] We pushed Dr Howells on the applicability of the step-by-step approach envisaged by the Roadmap. He replied in candid
terms:

Whenever I have gone out and spoken to Palestinians or Israelis about this, I have not got the sense that there is a step-by-step approach. The rejection of such an approach is at its most
extreme, I think, in Israel . I suspect that six or seven years ago, or maybe even 10 years ago, they decided that they would start to think about unilateral action as opposed to the process until
then, which had been a case of saying ‘You do this, we’ll do that’ in a succession of steps. I suspect that the decision to build the barrier was the first unilateral step. Getting out of Gaza was
probably the second.[125]

We were struck that in the three hours of oral evidence we heard from the Minister and his officials, the Roadmap received little mention. When we asked the then Foreign Secretary Mrs Beckett
whether she felt the Roadmap, following the Hamas takeover of Gaza , was now dead, her reply of “No, not necessarily” did not inspire confidence.[ "#note126">126]

We conclude that the Roadmap for Peace has largely become an irrelevance in the dynamic of the Arab-Israeli conflict. The unwillingness of the Quartet to
challenge robustly the failure by both sides to meet their obligations has undermined its usefulness as a vehicle for peace. However, we recommend that whilst the process of the Roadmap has failed,
its objectives-an independent, democratic and viable Palestinian state peacefully co-existing with a secure Israel and an end to the occupation that began in 1967-must remain the basis for a solution
to this conflict.

ISRAELI-PALESTINIAN RELATIONSHIP

In the absence of any progress on the Roadmap, and the refusal of the EU and US to engage with Hamas, some developments were made in the relationship between Prime Minister Olmert and
President Abbas. Israel promised the transfer of $100 million in frozen tax funds (around a sixth of the total it owed to the Palestinians at the time) to President Abbas following a bilateral
meeting in December last year.[127] The US Secretary of State, Condoleezza Rice, played an important role in establishing bi-weekly meetings
between Olmert and Abbas in the spring of 2007. Dr Rice has herself called for the development of a “political horizon” for the Palestinians in these discussions.[ "n128">128] We asked Dr Howells what he felt she meant by this. He replied that she was attempting to develop “a clearer picture of what exactly we are trying to get to” as
a final settlement between Israel and Palestine.[129]

President Abbas and Prime Minister Olmert met in Egypt in June 2007 to discuss recent developments. President Abbas urged Israel to “start serious political negotiations, according to an
agreed timeframe, with the aim of setting up an independent Palestinian state.”[130] Prime Minister Olmert said that his ambition was to arrive at
such talks in the future. He commented that an opportunity had “been created to advance seriously the political process in the region”, and that he did not intend to let it pass.[ "n131">131]

In her written submission, Nomi Bar-Yaacov argued that in the light of recent developments, confidence-building measures such as prisoner releases the halting of targeted killings would be
welcome, but they would be “insufficient” to “restore confidence in a peace process.” She argued that “serious negotiations on a comprehensive peace settlement” were required to focus on “an end to
occupation now.” She suggested that the Quartet should come up with a new peace plan for the Middle East, with a strict time-line.[132] At the time
of preparing this Report, President Bush has called for a peace conference on the Middle East later in the year, but his spokesperson confirmed that such a conference would not include discussions on
final status issues such as borders. An Israeli spokesperson said that Israel was “very clear” that it would not discuss “at this stage” the three issues of Jerusalem , borders and refugees.[ "n133" id="n133">133]

ARAB INITIATIVE FOR PEACE

In 2002, Saudi Arabia proposed the Arab Initiative for Peace which was subsequently adopted by the League of Arab States.[134] The crux of
the plan involves a two-state solution, with Israel in its 1967 boundaries. An independent Palestinian state would have East Jerusalem as its capital. There would be a “just solution” for Palestinian
refugees and Israel ’s relations with the entire Arab world would be normalised.[135] Israel rejected the plan at the time. In 2007, the Saudi
Government re-submitted the plan to the Arab League, where it again won unanimous approval. Before the summit itself, Dr Gooderham told us that Israel was reconsidering its approach to the plan:

The sense that we have is that there might be a greater readiness now on the part of the Israeli Government to look at the initiative. Clearly, that is not to suggest that they will swallow it
whole, but they might be ready to recognise it as a significant document and initiative, and to recognise the desire on the part of a large number of Governments in the region to see a solution to
the conflict and to be ready, as part of that solution, to recognise Israel in a diplomatic sense as well as an existential sense.[136]

We suggested to Dr Gooderham that the issue of the right of return for Palestinian refugees was a contentious one with Israelis. He replied:

It has always been understood that that was one issue that will have to be addressed in any final status settlement or negotiation. It would be for the parties themselves to determine how that
principle should be applied.[137]

Dr Gooderham told us that the Government welcomed the plan when it was first launched in 2002.

We conclude that the Arab Initiative for Peace is a positive
proposal that deserves serious consideration by all parties. We recommend that the Government continue to support the Initiative, and that it facilitate where possible discussion between the parties
on contentious issues such as the right of return for Palestinian refugees.

ECONOMIC ASPECTS OF PEACE

The new Prime Minister Rt Hon Gordon Brown MP and his close allies have recently been emphasising the importance of economics when considering the Middle East Peace Process. In his speech to
Chatham House in June 2007 (which we referred to earlier in this Report), Ed Balls argued that the international community needed an “economic roadmap” to accompany the political process. He insisted
that there was “no chance of a lasting political settlement” when faced with “high unemployment, rapidly rising poverty and economic collapse in Gaza and the West Bank .” Mr Balls identified five
broad actions that would be required:

• Stabilise the Palestinian economy by addressing the fiscal crisis and controlling the growth of public sector
  jobs;
• Acknowledge the asymmetry in the Israeli and Palestinian economies. In 2005, Palestinian GDP was only 7 per
  cent of Israel ’s, and the average Palestinian income was only 6 per cent that of an Israeli. Greater economic co-operation between the two is required;
• Improve security to allow freer movement in the Occupied Palestinian Territories . Israel ’s roadblocks and
  security measures at the moment have left the Palestinian economy “hopelessly fragmented”;
• Encourage Palestinian economic diversification;
• Support the Palestinian private sector.[138]

We received written evidence from the Portland Trust, a private not-for-profit foundation that is committed to promoting peace and stability between Palestinians and Israelis through economic
development. It drew an analogy between the conflict resolution required in the Middle East and the economic instruments used in generating a peaceful solution in Northern Ireland . The submission
suggested that the UK has been “instrumental in the development” of Loan Guarantee Schemes in the Occupied Palestinian Territories and that the Government was “an impressive advocate” of highlighting
the importance of economics in the Middle East.[139]

In May 2007, the World Bank published a report on freedom of movement and access for Palestinians in the West Bank . It noted there were “severe and expanding restrictions” on movement,
“contrary to a number of commitments” undertaken by Israel and the Palestinian Authority, most recently the Agreement on Movement and Access signed in November 2005.[ "n140">140] The World Bank stated:

While Israeli security concerns are undeniable and must be addressed, it is often difficult to reconcile the use of movement and access restrictions for security purposes from their use to expand
and protect settlement activity and the relatively unhindered movement of settlers and other Israelis in and out of the West Bank. [141]

In its written evidence to the Committee, the Council for Arab-British Understanding (CAABU) quoted UN figures that Israel has put in place over 546 checkpoints and obstacles to movement in the
West Bank, and that this was helping to fragment authority in the territory.[142] In our last Report on Foreign
Policy Aspects of the War against Terrorism, we noted that this figure had been under 400 in November 2005.[143] In a written answer in
May, the then FCO Minister Rt Hon Ian McCartney MP said that the Government continued “to raise our concerns about movement restrictions” with the Israeli Government and called on both parties to
implement the 2005 Agreement on Movement and Access.[144] The Under-Secretary of State for International Development, Shahid Malik, noted on 5 July
2007 that the Israeli security restrictions make Palestinian trade “impossible”. He illustrated this by stating that the cost of transporting a container from Gaza to the West Bank is as much as that
of moving it from the West Bank to China . He argued that this, as well as the presence of 500,000 Israeli settlers in the West Bank , has had “huge consequences for the economic, cultural and social
fabric of Palestinian life.”[145]

We conclude that the Government’s focus on developing an economic roadmap for peace in the Middle East is to be strongly welcomed. However, we further
conclude that the expansion of Israeli roadblocks and the growth of illegal settlements in the West Bank are among the factors that have had a very damaging impact on the economic situation in the
Occupied Palestinian Territories . We recommend that, in its response to this Report, the Government provide the Committee with an update on what progress has been made on implementation of the
Agreement on Movement and Access. We recommend that the Government also provide its objective assessment of whether the removal of checkpoints and roadblocks would present a credible threat to the
security of the State of Israel .