GOI CONCERNED MECHANISM TO PROVIDE AID TO

1. (C) Summary: During a May 12 meeting with the Ambassador,
MFA Deputy Director General for Economic Affairs Yossi Gal
and Deputy Director General for Europe Ron Curiel expressed
concern about the EU offer to develop a mechanism to deliver
assistance to the Palestinians, fearing it might be used to
pay salaries of PA officials. The Ambassador said that the
U.S. opposes using the mechanism to pay salaries and intends
to actively work to shape the mechanism. Gal viewed the
decision by the private petroleum company Dor to discontinue
supplying Palestinian gasoline stations as a commercial
dispute over nonpayment rather than a humanitarian crisis.
Gal said that Livni,s proposal to release collected tax
revenues to purchase medical assistance for the Palestinians
has not yet been finalized by the government. The Ambassador
suggested that the GOI make progress on legislation to
criminalize labor trafficking prior to PM Olmert,s trip to
Washington. Gal said that the GOI is interested in
continuing the Middle East Regional Cooperation Program
(MERC) and the Middle East Cancer Consortium (MECC), but with
private Palestinian partners only as long as Hamas is in
control of the PA. Gal said the Israeli Embassy in
Washington could raise with U.S. officials GOI interest in
getting USAID to review its decision to terminate the
Cooperative Development Research Program (CDR). End summary.




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CONCERN ABOUT MECHANISM, NO TO SALARIES


--------------------------





2. (C) On May 12, the Ambassador met with MFA Deputy Director
General for Economic Affairs Yossi Gal and Deputy Director
General for European Affairs Ron Curiel to discuss the
statement issued by the Quartet at its May 9 meeting and
Israel's approach toward assistance to the Palestinians.
Curiel said that the GOI does not want humanitarian relief to
lead to a lessening of political pressure on Hamas. If Hamas
does not comply with the Quartet conditions, Gal said, the
onus should be on Hamas and not Israel. Gal, who had just
finished a meeting with EU Middle East envoy Marc Otte, said
that whatever mechanism the EU devises to provide assistance
to the Palestinians, it is most important that Hamas not
claim credit. The mechanism should not be seen as giving
legitimacy to Hamas. He said one of the problems that the
GOI has with the payment of salaries is that it helps to
legitimize Hamas because of the necessity to have contact
with various PA ministries, such as the Ministry of Finance.
Gal said FM Livni has said that Israel will work with the
mechanism, but will draw the line at payment of salaries.
The Ambassador said the U.S. firmly opposes payment of
salaries and will actively work to shape the mechanism.



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DOR GAS CUTOFF


--------------------------





3. (C) The Ambassador raised the issue of the gasoline supply
by the Israeli company Dor due to non-payment by
Palestinians. Gal stressed that Dor is a private company
that sells to a PA monopoly, which in turn sells to private
gasoline stations in Gaza and the West Bank. The GOI could
not and would not would assume the responsibility for funding
private companies dealing with Palestinians. He also
wondered what has happened to the money consumers are paying
for fuel. He said the fact that Dor has not received payment
is the source of the problem. If Dor refuses to continue
supplying fuel until it gets paid, it is a commercial dispute
and not a humanitarian crisis. (Note: In a meeting with the
Ambassador on May 14, FM Livni appeared willing to consider
the possibility of using tax revenues to support a
humanitarian fuel reserve ) to supply fuel to hospitals,
ambulances, trucks in the transport of humanitarian goods,
etc. - administered by UNRWA or a reputable NGO. End note.)



--------------------------



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RELEASE OF TAX REVENUES TO PURCHASE MEDICAL GOODS


--------------------------



--------------------------





4. (C) The Ambassador said that the best way to keep world
pressure on the Hamas government is to ensure that the
&story8 is not the suffering of the Palestinians and
pointed to press reports of children dying, because they
could not get dialysis. Gal said that Livni,s proposal to
use PA tax revenue now held in escrow to purchase medical
assistance for the Palestinians has not yet been finalized by
the government. Gal said the proposal shows the GOI,s
willingness to help with the health humanitarian crisis. He
said that the GOI could take one of three approaches:
purchase medicine in Israel and transfer it to hospitals;
give money directly to WHO and work through that
organization; or, try to work through NGOs. Gal said more
Palestinians had sought care in Israeli hospitals in the last
three months and that FM Livni had asked about the ownership
or control of Palestinian hospitals (three are Hamas-run but
the rest are not). The Ambassador suggested the GOI also
work with East Jerusalem hospitals; it would be easier for
the GOI to control their contacts.



5. (C) Curiel said that the GOI must first resolve a legal
problem before proceeding with the release of tax collections
in any case. He said that using PA tax revenues to pay for
electricity is permitted through an agreement previously
signed between the PA and the GOI. No such agreement exists
for the purchase of medical assistance. The Ambassador
offered that if Israel saw fit to deal with Mahmud Abbas on
such issues, it would make things easier. Gal said he does
not believe the GOI will reach an agreement regarding working
with Abbas before PM Olmert,s May 23 visit to Washington.
The Ambassador said that reaching a decision before the trip
would be useful and there would be intense interest in
Washington on the GOI position. He added the longer it took
to reach a decision, the harder it would be to keep all
parties, especially the EU, on the same page regarding
contact with the Palestinians.



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PERMITS FOR PALESTINIAN WORKERS


--------------------------





6. (C) Curiel said the GOI has no interest in weakening the
Palestinians, economic and social situation. Noting that
MOD Peretz has announced that he would approve 8,000 permits
for West Bank workers to enter Israel, the Ambassador asked
whether permits would be issued to Gazan workers as well; the
economic condition in Gaza is weaker than in the West Bank.
(Note: A COGAT official told econoff May 12 that Peretz had
yet to issue the announced West Bank permits and would not do
so until after the Jewish holiday on May 16. The official
believed that Peretz did not need Cabinet approval for this
decision. End note.) Gal opined that the present
government, especially Peretz, will not be as tough on such
issues as the Sharon government. Nevertheless, he was not
sure that the Israeli public is receptive to the idea of more
Palestinian workers. The Ambassador said that if permits are
not issued to workers, it becomes a trafficking and a
security issue, because those seeking jobs will find ways to
enter Israel, and terrorists would exploit the same avenues.
He stressed that if those legitimately seeking work were
vetted and issued permits, then law enforcement and security
services can focus on those without permits, who are in the
country for other reasons.



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TRAFFICKING IN PERSONS


--------------------------





7. (C) The Ambassador mentioned a recent article in the New
York Times that said that the fight against trafficking in
persons (TIP) is a high priority for the Bush Administration.
The Ambassador noted that PM Olmert had made statements on
fighting TIP during the recent Knesset election campaign. He
said it would be helpful to have progress on pending
legislation to criminalize labor trafficking, such as having
the pending bill pass its second reading, prior to the trip
to Washington. He said that there are criminal penalties for
sex trafficking, but only fines for labor trafficking, which
many employers consider part of the cost of doing business.
The Ambassador asserted that if there were criminal penalties
for labor trafficking, then its incidence would decrease
markedly.



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MERC/MECC


--------------------------





8. (C) The Ambassador informed Gal the U.S. has decided to
continue supporting the Middle East Regional Cooperation
program (MERC) and Middle East Cancer Consortium (MECC), but
only with vetted independent Palestinians interested in
working with Israeli counterparts. Gal said that the GOI is
also interested in continuing these programs, which also
involve Jordan and other countries. The GOI,s only
condition, Gal said, is that there be no contact with the PA
and that no PA officials are involved.



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COOPERATIVE DEVELOPMENT RESEARCH PROGRAM


--------------------------





9. (C) The Ambassador and Gal discussed the Cooperative
Development Research (CDR) Program, which USAID Washington
has decided to terminate. Gal said that the program paired
U.S. money with Israeli expertise for various projects in
developing countries. Israel would like USAID Washington to
review its decision and continue the CDR program, which has
provided important support for Israel's efforts to build
relations in the developing world, Gal said. Currently, Gal
said, Israel is looking for alternative partners, such as the
World Bank or the EU, who have resources for working in Third
World countries. The Ambassador suggested that the GOI might
want its Embassy in Washington to discuss the issue with U.S.
officials. Gal said that the Israeli Embassy could easily do
that.

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