SCENE SETTER FOR DEPUTY SECRETARY STEINBERG'S

C O N F I D E N T I A L SECTION 01 OF 04 TEL AVIV 000379

NOFORN
SIPDIS

FOR DEPUTY SECRETARY STEINBERG FROM AMBASSADOR CUNNINGHAM

E.O. 12958: DECL: 02/16/2020
TAGS: PREL PGOV ENRG IS
SUBJECT: SCENE SETTER FOR DEPUTY SECRETARY STEINBERG'S
VISIT TO ISRAEL

Classified By: AMBASSADOR JAMES CUNNINGHAM, REASONS 1.4(b)(d)


1. (C) Summary: I am pleased to welcome you once again to
Israel. Despite some areas of disagreement, we have a
strong
and dynamic bilateral relationship. The Strategic Dialogue
has
been an important mechanism since 2005. This will be a
significant opportunity to engage the Israeli government at
the
most senior levels at a time of political uncertainty, with
an
international environment that feels markedly more hostile to
Israelis than it did a year ago. While the domestic
discussion
of the GOI,s relationship with the U.S. Administration has
become
more reasoned over the past few months, Israelis in and out
of
government seek constant reassurance about the commitment of
the
Obama administration. With engagement with the Palestinians
stalled, regional relationships have suffered. Economic
growth
returned relatively early in Israel, and the primary
lingering
effect of the global financial crisis, unemployment,
continues
to subside. Growing the economy and increasing the
participation
of all segments of Israeli society are priorities for the
current
government, and they are striving to remain fiscally
conservative
while pursuing these goals. End Summary.

POLITICAL LANDSCAPE



2. (C) Overall, the Netanyahu government is solid. He has
carved
out a position firmly within the Israeli consensus, and he is
not
under any serious political pressure to change course. The
opposition, led by former Foreign Minister Tzipi Livni, has
had a
difficult time finding traction for its argument that it
generally
agrees with Netanyahu,s policy of a demilitarized
Palestinian
state next to Israel but claims his commitment to peace is
weak
and argues that lack of international confidence in his
approach
is leading Israel to disaster. Israelis remain concerned
about
what they see as increasing attacks on their legitimacy from
the
Goldstone Report, potential criminal prosecutions in Europe
under
universal jurisdiction, and increased calls for boycotts.


3. (C) Netanyahu is serious in his calls for a resumption of
negotiations, and he is aware that the lack of progress in
the
peace process is fueling much of the international hostility
towards Israel, as well as putting some strain on the
relationship
with the United States. The limited freeze on settlement
construction, while short of both the Palestinian and USG
expectations, was a difficult decision that carries a real
political and financial cost. Israelis believe that this
limited
freeze, combined with the actions the GoI has taken to
improve
conditions in the West Bank, should be sufficient
encouragement
to the Palestinians to restart negotiations. The GoI is not
willing to offer any more gestures, and has doubts that any
future
gestures will yield a different response from the
Palestinians.


4. (C) The Goldstone report is back in the headlines with the
recent UN Secretary General report on the subject and the
Israeli
submission of an update on its own investigations regarding
incidents during the war. Israeli leaders have developed a

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virtually obsessive reaction to the report, which they see as
an
assault on both the State of Israel and its democratic
institutions,
and an attempt to deny their right to self-defense against
terrorism. DRL Assistant Secretary Michael Posner recently
visited
Israel and engaged with them on this issue in-depth. The
Palestinian Authority's (PA) handling of the Goldstone
report, as
well as the PA,s continued effort to convince the
International
Criminal Court to investigate Israeli actions in Gaza, have
further
complicated Israel,s relations with the PA and pose a threat
to both
the potential for negotiations and the efforts to improve the
situation in the West Bank. In the meantime, Israelis
express
satisfaction with both Fayyad,s efforts to reform the PA and
with
the much improved performance of PA Security Forces, although
they
believe the PA,s assessments of its abilities on both fronts
are
overly optimistic. In Gaza, Israel policy is caught on the
horns of
a dilemma over Gilad Shalit and Hamas,s continued control
within the
Strip.


5. (C) On Iran, the GoI has accepted our policy of
engagement, but
Israel, particularly PM Netanyahu and DM Barak, continue to
regard a
nuclear Iran as an existential threat and a catastrophe for
regional
stability. The GoI has pushed for immediately enacting
tougher
sanctions and insists on keeping a military option available
as a last
resort. Iran was the main point of discussion during last
month,s
visit of NSA Jones. Israeli experts within and outside
government
argue that how the Iranian nuclear issue is resolved over the
next two
years will determine the perception of U.S. power for years
to come.


6. (C) Deteriorating relations with Turkey are also a
concern, and
many Israelis believe that Turkey will continue to move
inexorably
away from Israel and the West and closer to Syria and Iran
due to
internal politics and a new regional strategy. On Lebanon,
most GoI
officials believe another war with Hizbullah is just a matter
of time,
but they are in no rush to provoke anything and believe
Hizbullah, at
least for now, also has no interest in a fight. However,
they repeat
both publicly and privately their belief that all of Lebanon
will be
held accountable for Hizbullah actions now that Hizbullah is
a partner
in the government.

Lieberman and the MFA,s Image
--------------


7. (C) Israeli analysts of the GOI,s decision-making
process have long
argued that the MFA carries too little institutional weight
when
compared to the IDF and intelligence agencies. In the
Netanyahu
government, that imbalance has been further accentuated by
the
appointment of Avigdor Lieberman as Foreign Minister, as well
as by the
rising importance of the NSC and particularly of NSC head Uzi
Arad in
internal foreign policy discussions. Netanyahu offered
Lieberman the
Foreign Ministry fully aware of Lieberman,s record of

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provocative public
remarks and his penchant for a pugilistic approach to
diplomacy, but
Netanyahu apparently calculated that the damage would be
manageable and
off-set by the political benefits in terms of coalition
stability. In
practice, Netanyahu has largely sealed Lieberman off from the
most
important foreign policy issues, including relations with the
U.S. and
negotiations with the Palestinians, with Netanyahu consulting
most
closely on these issues with Barak and President Peres.
Nonetheless,
Lieberman has inflicted damage on the conduct of Israel,s
foreign
relations and has forced Netanyahu on several occasions to
intervene,
most recently when Netanyahu was forced to reiterate
Israel,s peaceful
intentions toward Syria following threats by Lieberman
against the Asad
family. Deputy Foreign Minister Danny Ayalon,s actions, in
particular
his highly publicized effort to humiliate the Turkish
Ambassador, have
further contributed to the marginalization of the Foreign
Ministry and
may also cause lasting damage to Ayalon,s political future.


8. (C) The Israeli National Police have been investigating
Lieberman,s
alleged involvement in money laundering, obstruction of
justice, and other
charges for a number of years, but the investigation came to
a head shortly
after the coalition was formed. Last August, the INP
recommended that the
Attorney General indict Lieberman, but outgoing Attorney
General Mazuz did
not finish his review of the file before leaving office at
the end of
January. The new Attorney General, Yehuda Weinstein, is
likely to need at
least six months to study the issue. The Israeli political
class assumes
that Weinstein will issue an indictment and that Lieberman
will step down,
but the timing is uncertain. Meanwhile, Lieberman is keeping
his commitment
to Netanyahu to support the PM,s policies in the inner
cabinet, even while
his public comments continue to cause political heartburn.


ENERGY SECURITY



9. (C) The Israelis have made a strong push to include
energy security in
this year,s strategic dialogue. Israel,s Economic Council
Chair Eugene
Kandel proposed that the SD energy security discussion focus
on:
a) Strategic reasons for and means of weaning the
industrialized world
from excessive dependency on petroleum (policy measures and
technological
means); and b),strategies to manage the economic and
geopolitical effects
of a shift to less dependence on petroleum. Israel would
like to address
how it can secure its energy supply for the future.
Currently about
70 percent of electricity production comes from (imported)
coal, and about
20 percent from natural gas, increasingly from the pipeline
from Egypt,
which came online in February 2008. Alternative energy,
especially
renewable sources, are a priority for the Government of
Israel, and Israel
strives to maintain OECD-consistent environmental standards.
Commercial
quantities of natural gas discovered offshore at the end of
2008 (with
more following, including limited onshore oil reserves) have

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the potential
to relieve Israel,s energy import dependence. Israel needs
to make
important decisions about how to manage its newly-discovered
petroleum
resources, including related infrastructure priorities, and
will need to
determine how large a role (domestic) natural gas should play
in Israel,s
energy mix. Israel anticipates that its bid for OECD
membership will be
approved soon. Once Israel joins the OECD, it could apply to
join the IEA.


10. (SBU) I believe your visit will advance discussions for
partnership in
many arenas, and I extend a warm welcome to you and your
staff.

Cunningham