ISRAELIS AND PALESTINIANS MEET ON GAZA RECOVERY

UNCLAS TEL AVIV 001182 SENSITIVE SIPDIS NSC FOR MARA RUDMAN AND PREM KUMAR, TREASURY FOR DAN MOGER E.O. 12958: N/A TAGS: EAID EFIN PREL KPAL IS SUBJECT: ISRAELIS AND PALESTINIANS MEET ON GAZA RECOVERY REF: 06/02/09 GOLDBERGER EMAIL ¶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. ********************************************* ******************** Visit Embassy Tel Aviv's Classified Website: http://www.state.sgov.gov/p/nea/telaviv ********************************************* ******************** CUNNINGHAM