SHIMON PERES DISCUSSES DISENGAGEMENT AND ECONOMIC

1. (C) SUMMARY: During a one-hour meeting in Tel Aviv on
March 31, Vice Prime Minister Shimon Peres told Senator Carl
Levin, accompanied by Senate staff and a delegation from the
Michigan Fund, that he and Prime Minister Sharon have similar
thoughts on continuing disengagement in the West Bank, but
differ on timing. Peres stressed that he will "not
embarrass" the PM, who wants to see how disengagement
proceeds and to have proof that the Palestinians are
dismantling terrorist infrastructure before taking further
steps. Peres acknowledged that the Palestinians are
reluctant to coordinate disengagement, but said he hopes that
they will cooperate at least on the handover of buildings
left behind by the settlers. He maintained that the
weaknesses of the Israeli electoral system and the lack of a
Palestinian political system "explain all of the maneuvering
on the peace process." In response to questions by Senator
Levin, Peres gave an Israeli assessment of the situation in
Iraq and the role played by Jordan, Syria, and Iran. Peres
stressed the importance that private groups and companies
play in fostering peace, welcomed the Michigan Fund
initiative, and outlined charity, business, and sports
projects where the group could be of help. END SUMMARY.



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Disengagement: Next Steps and Details


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2. (C) The CoDel asked about Israeli intentions once
disengagement is complete. Peres replied that he believed
that "after Gaza we have to continue in the West Bank." He
acknowledged that PM Sharon wants to see how disengagement
proceeds and have proof that the Palestinian Authority is
dismantling terrorist infrastructure before making any
decisions. "I am not going to embarrass him," Peres
insisted, but "I've clearly told him our intentions." Peres
said that Sharon had informed him that they "see eye-to-eye
on all the issues -- the difference is timing." Senator
Levin reiterated U.S. support for the disengagement plan.



3. (C) Senator Levin asked Peres about coordination with the
Palestinians and the status of property left behind by the
settlers. Peres replied that "the Palestinians will never
agree to coordinate" the larger aspects of disengagement.
Cooperation on property would also be difficult, he said, but
the only other options are destruction by either the Israelis
or Palestinians. Peres said it would be a "foolish" public
relations disaster and a "crime" for Israel to destroy the
property. He noted that the greenhouses could employ
hundreds of Palestinians and suggested that the Palestinians
convert two or three settlements into resorts.



4. (C) Peres maintained that the weakness of both Israeli and
Palestinian political structures "explains all of the
maneuvering on the peace process" and "makes us all more
Machiavellian than we intend." He said the Israeli electoral
system results in a multitude of parties in the Knesset, some
of which (he mentioned Likud and religious parties) are
themselves divided. This situation necessitates new
coalitions on each issue, he added, raising the cost of each
successive agreement to the point where there is "no chance
to agree on peace and religion" in one coalition. He claimed
the Labor Party had sacrificed all other issues to give PM
Sharon a majority for the disengagement plan, foregoing the
job of foreign minister, supporting a budget it did not like,
and voting for Sharon's proposed expansion of the Cabinet.
Peres said the Palestinian weakness stems not from their
political system, but from their lack of one.



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Views on Iraq, Middle East Peace, and the Region


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5. (C) Senator Levin asked about Israeli views on Iraq. "I
don't know who won the elections in Iraq," replied Peres,
"but clearly Saddam Hussein lost them." In Peres' opinion,
there is no alternative to a unity government that includes
Sunni representation and an appropriate role for the Kurds.
Peres described Jordan as "too weak" to play a role in Iraq,
despite the Hashemite family's historic ties to Baghdad. He
labeled Iran's desire for Shia states in Iraq and Lebanon and
support for Hizballah as "very dangerous." Peres said that
Syria is preoccupied with Lebanon, noting that 20 percent of
Syria's economy and much of the money it needs for arms
purchases comes from Lebanon.



6. (C) While praising the USG's strong pro-democracy agenda
in the Middle East, Peres cautioned that elections are not
enough. He urged the USG to "privatize peace" by building
the economic basis that leads to societal changes. He
praised the role of U.S. companies in computerizing the
Jordanian educational system and suggested that similar
efforts would work in Iraq, as they already have in India and
China.


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Peres Welcomes the Michigan Fund


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7. (C) Senator Levin introduced members of his delegation
from the Michigan Fund, explained the organization's
objectives, and stressed the importance of even symbolic
success stories. Peres welcomed the initiative, stressing
"we need to make peace economic, not just political." Peres
outlined his ideas for a social fund to help the Palestinian
Authority compete with Hamas and avoid a "catastrophe" in the
July elections. According to Peres' plan, the fund would pay
200,000 needy Palestinian families USD 100 per month. Peres
noted that he had originally hoped that the USG and the
Europeans would each fund half of this program, but had faced
donor fatigue in Europe and complications due to social
security reform in the U.S. Peres claimed that he had
nevertheless obtained a pledge of USD 40 million while in
Spain and still considers the fund important for its symbolic
value. As an alternative, U.S. donors could support
individual social projects, he said, mentioning successful
efforts such as a program treating Palestinian children
traumatized by the Intifada and the work of joint
Jewish-Palestinian cultural centers.



8. (C) Peres described Qualified Industrial Zones as "the
greatest success in the Middle East." He stressed the
importance of private sector involvement in creating jobs and
urged U.S. companies and investors to open businesses in
industrial areas in Gaza and the West Bank. He volunteered
assistance from his staff for any problems U.S. companies or
investors might encounter. As a final alternative, Peres
suggested that U.S. donors could build tennis clubs where
Palestinian and Israeli children could learn tolerance and
coexistence through sporting activities.



9. (SBU) Senator Levin inquired about the technologies being
installed to lower the hurdles to the passage of people and
products at checkpoints. Peres explained a USD 140 million
program, financed jointly by the World Bank and GOI, which
will use modern scanning technology to reduce border crossing
times to two or three hours for cargo.



10. (U) CoDel Levin did not have an opportunity to clear this
cable, but asked to receive a copy of it from H.

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