C O N F I D E N T I A L SECTION 01 OF 03 TEL AVIV 006454

SIPDIS

E.O. 12958: DECL: 12/07/2009
TAGS: PREL ECON EFIN KPAL GZ IS ISRAELI PALESTINIAN AFFAIRS GAZA DISENGAGEMENT
SUBJECT: NETANYAHU AND PERES PRESENT STARKLY DIFFERENT
ASSESSMENTS OF PALESTINIAN FUTURE TO CODEL TALENT

Classified By: Pol/C Norm Olsen for reasons 1.4(b) and (d).


1. (C) Summary: Finance Minister Binyamin Netanyahu told
CODEL Talent December 6 that the new Palestinian leadership
must show serious intent to fight terror and corruption
before receiving any "gifts" from the U.S. or Israel.
Netanyahu said that the GOI should simply "walk out of the
Gaza Strip and leave the place to whatever bad Palestinian
government fills the vacuum," and he identified corruption
"so endemic that it chokes everything," rather than GOI
closure policy, as the primary negative factor affecting the
Palestinian economy. Labor leader Shimon Peres was more
upbeat in a separate meeting with CODEL December 6, saying
that while he would defer "for a few years" any discussion
with the Palestinians of the status of Jerusalem or refugee
return, he saw no reason why serious discussion on border
issues could not commence much sooner. Peres called the
Palestinians "the most democratically developed Arabs," and
advised donors to press the Palestinians to codify the
separation of powers in a constitution as soon as possible to
boost donor confidence that money donated would be well
spent. Peres said that bringing the security services under
control is the biggest challenge currently facing the PA, and
lamented the fact that they had become so politicized under
Arafat. Neither Peres nor Netanyahu would assign a specific
dollar amount to the costs associated with the GOI's
disengagement plan, with Peres demurring, he said, because
the cost is so high that everyone is reluctant to discuss it.
End Summary.


2. (SBU) Senator James Talent, accompanied by Military
Legislative Assistant Lindsey Neas, Legislative Fellow Lore
Aguayo, and Navy Senate Liaison Deputy Director Cpt. James
Stein, met separately with Minister of Finance Binyamin
Netanyahu and Labor Party leader Shimon Peres December 6.
Poloff (notetaker) accompanied.

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Squeeze the Palestinians, Cautious but Tough with t

he Saudis
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3. (C) Minister of Finance Binyamin Netanyahu told CODEL
Talent December 6 that Arafat's death might open up
possibilities with the Palestinians that absolutely did not
exist while Arafat was alive. Calling Arafat the embodiment
of the pan-Islamists and the pan-Arabists, Netanyahu said
that even Shaykh Yassin (the spiritual leader of Hamas,
killed by an IAF missile strike in April 2004 in Gaza City)
"kowtowed to Arafat," accepting what Netanyahu called
Arafat's "dual hats." Netanyahu said that the Oslo Accords
had "empowered Arafat the dictator," providing him money,
weapons, and prestige, with only the hope that he would push
the Palestinian people towards peace in return. The
international community, Netanyahu continued, woke up 10
years later and realized that the opposite had occurred, and
Palestinian frustration with Arafat had been re-directed into
increased hatred of Israel.


4. (C) Netanyahu said that if the new Palestinian leadership
wants anything from either the U.S. or Israel, then they must
first show some serious intent to take action against
terrorism and corruption. "Squeeze them," Netanyahu said,
"and just maybe you will get some sort of result." If Israel
is wise, it will simply "walk out of the Gaza Strip and leave
the place to whatever bad Palestinian government fills the
vacuum." Radical Islam threatens not only the West,
Netanyahu said, but Islam itself. In response to Senator
Talent's question, Netanyahu said he does not believe that
Saudi Arabia is "waking up." On the contrary, Netanyahu
called Saudi Arabia a furnace that is breeding more radical
elements and spreading them all over the world. While he
applauded the U.S. for taking on what he called the worst of
regimes in Afghanistan and Iraq, Netanyahu advised caution in
Saudi Arabia, fearing that any subsequent regime there could
well be worse for U.S. and Israeli interests than the one
currently in power.

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"Feeding the Crocodile"
--------------


5. (C) On Iran, Netanyahu said that it is absolutely vital
that Iran be prevented from acquiring nuclear weapons.
Should they acquire a nuclear arsenal, Netanyahu predicted
that Israel would feel it immediately, even if indirectly, as
Hizballah would have an even stronger umbrella under which to
hide. Asked about the European negotiations with Iran on
Iran's nuclear enrichment program, Netanyahu was extremely
skeptical, noting that Europe tends toward accommodation
rather than confrontation. Each European regime, Netanyahu
said, is trying to "feed the crocodile," casting off elements
such as support for Israel or a tough stance against radical
Islam in the hope of appeasing the very people they should be
opposing.

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It's Corruption, Not Closures
--------------


6. (C) Netanyahu said that Palestinian labor markets are
completely dependent on Israel, a circumstance that has a
major negative impact on the Palestinian economy, now that
labor movements have been all but curtailed. He blamed
corruption "so endemic that it chokes everything," however,
as the primary factor affecting the Palestinian economy.
Calling Palestinian society tribal by nature, Netanyahu said
enforcement of legal norms and the right to property are
essential missing elements. When asked what the U.S. could
do to further reforms in the Palestinian areas and in the
Arab world as a whole, Netanyahu said, first, continue to
promote President Bush's agenda of zero tolerance for
terrorism and for bringing democracy to the Middle East.
Second, dismantle (unspecified) regimes that are hopeless
cases for reform. Third, continue to fight the battle for
hearts and minds of the people in the region.

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Peres: Palestinians Need to De-Politicize the Armed Forces
-------------- --------------


7. (C) In a separate meeting December 6, Labor Party leader
Shimon Peres was guardedly positive regarding developments
with the Palestinians, saying that, while he would not
negotiate with them per se, he would "begin a dialogue."
Major issues, Peres continued, such as refugee return and the
status of Jerusalem, will have to wait for four or five
years, because neither the Palestinians nor the Israelis are
in a position to compromise now. That being said, Peres was
confident that a solution to border issues could be worked
out. Calling the Palestinians "the most democratically
developed Arabs," Peres told Senator Talent that he would
recommend to the Palestinians that they draft and adopt a
constitution firmly defining the separation of powers as soon
as possible after the January elections. Donors, including
the Saudis, could then be effectively mobilized to support PA
institutions.


8. (C) Peres said that the biggest challenge facing the
Palestinians now is the urgent need to bring their security
forces under control. Although Abu Ala'a is now head of the
Palestinian National Security Council and thus in charge of
all of the armed forces, Arafat had allowed the security
forces to become politicized and the leaders of the various
groups to become political leaders in their own right. The
Palestinians, Peres predicted, will not be able to disarm the
terrorist groups by force. Instead, it is essential that the
PA offer a political solution backed up by a credible threat
of force. Peres agreed with Senator Talent that increasing
numbers of Arabs and Muslims are interested in
democratization and more rights for women. Peres was less
confident, however, as to the Arab countries' willingness to
take on the difficult actions necessary to satisfy this
demand and join the rest of the world.

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Disengagement Cost Remains Unclear
--------------


9. (C) Both Peres and Netanyahu were reluctant to assign a
specific cost to disengagement. When asked, Netanyahu did
not answer directly, saying instead "we will get back to
you." Peres was somewhat less circumspect, albeit no more
specific, saying that, although the GOI "has an idea" of the
cost, people are avoiding the question because that cost will
be so high. Peres agreed with Senator Talent's assessment,
however, that regardless of the expense, disengagement would
ultimately lower costs for Israel in the long run.

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Netanyahu: Economic Reform
--------------


10. (C) Netanyahu said that he is cutting government
spending and taxes in Israel "with a vengeance," adding that
he intends to remove mono- and duopolies in such areas as
utilities, refineries and the postal service. Entitlements
are being cut as well, Netanyahu said, comparing his efforts
to transform the Israeli economy to the New Zealand
government's efforts in the 1980's. By taking this "all at
once" approach, he said, Israel will get the maximum positive
impact from these steps, adding jokingly that it also helped
to "consolidate all the strikes."


11. (U) CODEL Talent cleared this cable.

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