ISRAELIS AND PALESTINIANS MEET ON GAZA RECOVERY

1. (SBU) MFA Deputy Director Irit Ben Abba called EconCouns
evening of June 2 to give a readout of the GOI-PA meeting on
end-use assurances and Gaza recovery. Ben Abba said the
meeting had been led by she and Karim Nashashibi and had gone
very well from the GOI perspective. So well, in fact, that
the GOI was rethinking its 'top down' approach to end-use
assurances in Gaza and has put its end-use mechanism on hold
for the moment while it explores a 'bottom up' mechanism with
the PA. Ben Abba said talks would continue, and that both
sides agreed to limit discussion of end-use assurances at the
June 8 Ad Hoc Liaison Committee meeting to a simple statement
that the GOI and PA were working together to develop such
assurances.



2. (SBU) Ben Abba said the PA was proposing to use the Gaza
banking system as its primary instrument for end-use auditing
and reporting, though the Palestinians are still working out
the specifics. She said Nashashibi had asked for Israeli
ideas on the type of auditing or other assurances that might
be useful. Ben Abba confirmed that both sides are looking at
three levels of assurances: 1) basic humanitarian needs,
which probably require no change from existing border
procedures; 2) repairs, which would call for something akin
to the end-use assurances offered under the earlier UNDP cash
program run through the banking system; and 3) assurances for
infrastructure and other major projects.



3. (SBU) EconCouns noted that cash-based repair programs
would require re-establishment of a building materials market
in Gaza via the Israeli border crossings. Otherwise, Hamas
would benefit both from collecting the value-added tax on
materials purchase for minor repairs and collecting the levy
on items brought in through the tunnels along the Philadelphi
corridor. Ben Abba agreed that the GOI would have to make
some hard decisions on expanding commercial traffic through
the border crossings, but said PA commitment to workable
end-use assurance measures would make it easier to argue for
such an expansion.



4. (SBU) The PA's desire to use the banking system, one of
the few Gaza institutions over which it still has direct
control, makes a lot of sense, according to Ben Abba. She
said Hassan Abu Libdeh would lead the PA side in future
discussions. However, given that the Joint Economic
Committee had already set up a subgroup to discuss how the
Palestinian Monetary Authority (PMA) is monitoring financial
activity in Gaza, she said the details of audits and other
end-use procedures could be developed by that subgroup. Ben
Abba confirmed that the next meeting of the subgroup would be
a technical discussion between the Bank of Israel/KPMG
consultants and their PMA counterparts on June 7.



5. (SBU) Comment: In our previous meetings with the GOI on
Israel's end-use mechanism, Emboffs had strongly underscored
the need for the Israelis to work directly with the PA in
developing an agreed mechanism to present to the donor
community. While we had hoped the two sides would have
already made significant progress in time for the AHLC
meeting, that did not happen. Nonetheless, it is encouraging
that they are talking now. It will be important for the USG
to support the outcome of those talks if the two sides reach
agreement on how best to move forward with Gaza recovery.

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