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FM AMEMBASSY TEL AVIV
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INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
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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