[Dr. Aaron Lerner - IMRA:

A generation from now, Israelis who take the trouble to read back on the
ancient history of 2012 will now doubt roar with laughter at the phrase
"sustainable solution, based on two states for two peoples" - knowing that
the "two states for two peoples" that could be a "sustainable solution"
mantra was pretty much recognized as a farce by most of the people mouthing
the phrase.]

Israeli Report to the Ad Hoc Liaison Committee
18 Mar 2012
Measures Taken by Israel in Support of Developing the Palestinian Economy
and Socio-Economic Structure

Report of the Government of Israel to the Ad Hoc Liaison Committee (AHLC)
Brussels, March 2012

- Full report (pdf)
http://www.mfa.gov.il/NR/rdonlyres/3EA95081-06AF-4FF7-977F-338D72FD8868/0/AHLCMarch2012.pdf

Executive Summary
"… So I’ve made clear from day one that I’m prepared to meet President Abbas
any place, any time to negotiate peace. And I make that clear again today. I
invite him to sit down and negotiate peace for both our peoples. President
Abbas, don’t walk away from peace; continue the negotiations."
PM Netanyahu at the Portuguese Synagogue in Amsterdam, January 18, 2012

The Government of Israel views the bilateral track with the Palestinians as
the only way to reach a sustainable solution, based on two states for two
peoples.

In the first three quarters of 2011, Palestinian economic growth slowed, as
real GDP in the West Bank rose by 5.8%, while growth in the Gaza Strip
continued to climb, with a 25.8% increase in real GDP. Unfortunately, the PA
faces a financial crisis, caused primarily by the shortfall in foreign aid,
growing arrears to suppliers and reaching the lending limit that the
domestic banking system can sustain. Another primary factor was the lack of
significant development in the private sector coupled with an inability to
increase income from internal resources, while the public sector remains the
largest employer in the West Bank. The current fiscal situation raises
doubts about whether the PA will be able to reduce its dependency on foreign
aid in the coming years.

In a time of regional political uncertainty and instability, the global
economic slowdown now hinders the capability of international donors to
assist the PA, and the PA enjoys very limited Arab financial support. Thus,
after three consecutive years of impressive economic growth in the West
Bank, PA financial stability is now challenged.

In 2011, Israel continued to implement its policy of support for economic
growth in the West Bank, inter alia by removing additional check points,
upgrading commercial crossings, approving projects in Area C, increasing the
number of permits for Palestinian employment in Israel, and pushing forward
an agreement to build four electricity substations in the West Bank to
increase the amount of electricity available for further economic
development.

Israel maintained bilateral dialogues with the PA aimed at supporting the
upgrade of Palestinian infrastructure, including: financial and customs
services, water and sewage infrastructure, the agriculture sector, and the
electricity network. Israel worked closely with the international community
in order to support projects, facilitate trade and contribute to improved
Palestinian governance and economic capacity.

Israel's policy in the West Bank contributed to maintaining growth in the
past year. Overall Israeli trade with the PA (goods and services) totaled
USD 4.308 billion, an increase of 2.1% compared to 2010. Israeli purchases
from the PA amounted to USD 815.9 million, an increase of 18.3%. Israeli
sales to the PA amounted to USD 3.492 billion, a decrease of 1.1% compared
to 2010.1 Tax revenue transferred by Israel to the PA increased by 5.9%2.

A higher volume of commercial goods was shipped from the West Bank via the
land crossings to Israel. In 2011, there was a 33% increase in commercial
movement of goods via the Allenby Bridge.3 Palestinian imports (excluding
Israel) amounted to USD 1,758,147,197, a 9.22% increase compared to the
parallel period in the previous year. Palestinian exports (excluding Israel)
amounted to USD 105,831,164 in 2011, a 13% increase compared to the parallel
period in the previous year.4

The aforementioned measures have been accompanied by security coordination
between the authorities on both sides, seeking greater security and improved
institutional capacity. Still, terror threats remain imminent from both the
West Bank and Gaza. In 2011, 563 terrorist incidents emanating from the West
Bank were recorded and 191 terrorist incidents were recorded in the area
surrounding Jerusalem. The death toll of terrorist incidents from the West
Bank rose for the second year in a row, taking 10 lives in 2011 (versus 8 in
2010).5

In the Gaza Strip, in the first three quarters of 2011, real GDP growth has
climbed by 25.8%.6 Unemployment dropped in 2011 to the lowest level in the
past 10 years. Israel's June 20, 2010 Civilian Policy has made a substantial
contribution to the economy.

The Palestinian Authority has no effective role, nor control, in Gaza, which
is still controlled by Hamas. During the past few months, security in
Southern Israel along the border with Gaza has been under constant threat.
The most recent serious escalation started on March 9, 2012 when, during a
four day period alone, over 300 projectiles were fired from the Gaza Strip,
171 hit Israeli territory, and 65 were intercepted while the remainder fell
within the Gaza Strip.7 This fire was aimed at heavily populated areas in
Israel, forcing a million Israeli citizens to take refuge in shelters.

This brutal attack came just half a year after the last attack, an
escalation that began in July 2011 and peaked in mid-August 2011, which had
been the worst escalation since Operation Cast Lead.

During both of these attacks, the area sustained a continuous, almost daily,
barrage of heavy rocket and mortar fire launched from the Gaza Strip into
Israeli territory. This fire was deliberately aimed at civilian targets,
hitting schools, residences and places of worship, and has reached major
population centers in Southern Israel, including Beersheba, Ashdod,
Ashkelon, and surrounding areas, paralyzing daily life. Three Israeli
civilians were murdered in the round of attacks this summer, while in both
rounds numerous civilians have been wounded or have suffered trauma, and
property has been damaged.

This unbearable security reality is an alarming reminder of the
proliferation of terrorist military capacity in Gaza, which jeopardizes
prospects for peace and stability for both Israelis and Palestinians.

Since June 20, 2010, and despite these ongoing attempts by Hamas and the
Islamic Jihad to terrorize Israeli cities and the crossings between Israel
and the Gaza Strip, Israel continues to implement its policy, a policy that
contributes to the economic and social recovery in Gaza.

Israel has approved 176 projects led by the international community in Gaza,
and has upgraded the infrastructure and capacity of the Kerem Shalom
crossing far beyond actual needs. More people are exiting Gaza for
humanitarian and commercial purposes. Agricultural exports have been
expanded and exports of furniture and textiles to international markets have
been approved. Date bars were also exported from Gaza to the West Bank in
March 2012. Thousands of tons of construction materials for international
projects have been shipped into Gaza, and a pilot for the recovery of ten
local private factories in Gaza has commenced.

Israel is committed to the understandings reached between Prime Minister
Benjamin Netanyahu and Quartet representative Tony Blair in February 2011,
containing measures in both the West Bank and Gaza. A significant part of
these measures have already been implemented. Through the Implementation of
its policy, Israel supports economic development in the West Bank and the
humanitarian sustainability in Gaza, while calling on the Palestinian
leadership to return to the negotiation table, to revive the bilateral track
which is the only way to reach a sustainable solution, based on two states
for two peoples.

1 ICBS
2 Israel Ministry of Finance
3 Excluding the import of vehicles. There was a 38% increase in the import
of vehicles in 2011.
4 Israel Customs Directorate
5 ISA
6 IMF
7 IDF Spokesperson