Inside storyShin Bet, IDF warnings dismissed by untrusting cabinet

Is the US poised to sanction an Israeli minister for the first time?

Some in administration suggest order Biden signed to target West Bank destabilizers should be used against Smotrich, whose withholding of funds has the PA on the verge of collapse

Jacob Magid

Jacob Magid is The Times of Israel's US bureau chief

File - Finance Minister Bezalel Smotrich addresses the press ahead of his Religious Zionism's weekly faction meeting in the Knesset, June 10, 2024. (Chaim Goldberg/Flash90)
File - Finance Minister Bezalel Smotrich addresses the press ahead of his Religious Zionism's weekly faction meeting in the Knesset, June 10, 2024. (Chaim Goldberg/Flash90)

During a Tuesday hearing on Capitol Hill, Democratic Senator Chris Van Hollen read aloud a passage from the executive order signed by US President Joe Biden in February targeting individuals or entities engaged in “actions… that threaten the peace, security or stability of the West Bank.”

He then pointed to Finance Minister Bezalel Smotrich’s reported efforts to block enforcement against illegal settlement construction and his withholding of hundreds of millions of dollars in Palestinian tax revenues from the Palestinian Authority and asked US Assistant Secretary of State for Near Eastern Affairs Barbara Leaf whether those constitute actions that destabilize the West Bank.

Leaf agreed that they did, predictably leading Van Hollen to ask why the US hasn’t gone on to sanction Smotrich.

The assistant secretary of state responded that the administration does not publicly discuss who it’s considering sanctions against, ending the line of questioning.

Privately, though, the idea has been raised by senior Biden aides in recent weeks, as alarm and frustration in Washington peak over the potentially imminent collapse of the PA, a US official told The Times of Israel, noting that Ramallah cannot continue to pay its employees without the tax revenues being withheld by Smotrich.

Such a step has never been taken against an Israeli minister, and the US official acknowledged that it is unlikely to be seen through. But the fact that it is even being considered highlights how concerned the US is about the possibility that Ramallah will stop functioning.

Gunmen march as mourners carry the bodies of Palestinians, some draped in Islamic Jihad terrorist group flags, during their funeral in the West Bank city of Jenin, May 23, 2024. (AP Photo/Leo Correa)

The Biden administration fears the collapse of the PA would lead to chaos in the West Bank that would be exploited by Hamas and Palestinian Islamic Jihad cells to open a new front to the war in Gaza, a second US official said.

Such a collapse would also scuttle US planning for postwar Gaza, where Washington hopes a reformed PA will eventually return, reuniting the West Bank and the Strip under one political entity and establishing a pathway to a future Palestinian state.

For both of these reasons, the US isn’t just looking at pressuring Israel to release the funds but is leaning on Arab allies to donate to Ramallah as well.

US Secretary of State Antony Blinken raised the issue during recent meetings with Arab counterparts, according to the second US official and an Arab diplomat.

But Blinken received the same answer each time — from Qatar, Saudi Arabia, the United Arab Emirates, Algeria, and Kuwait: “We’ll donate, but not before Israel releases the funds it’s withholding,” the Arab diplomat recalled, saying that no government in the region wanted to prop up an entity if Israel was going to bring it to its knees shortly thereafter.

While the administration is still pushing its Arab allies, it recognizes that Israel is the more relevant party for addressing the issue, the second US official said.

US Secretary of State Antony Blinken (L) gives a joint press conference with his Qatari counterpart Sheikh Mohammed bin Abdulrahman bin Jassim al-Thani (R) in Doha on June 12, 2024. (Ibraheem AL-OMARI / POOL / AFP)

The US has found common cause with the Israeli security establishment, which is equally concerned about the prospect of Jerusalem finding itself responsible for providing civil services for three million Palestinians in the West Bank, the US official said.

But this outlook is not shared by Smotrich and many members of Prime Minister Benjamin Netanyahu’s hard-right government, who routinely blame the IDF and the Shin Bet security service for failing to foresee Hamas’s October 7 onslaught.

“Some in the government want the PA to collapse so Israel can annex the West Bank, while others think the security establishment is crying wolf,” an Israeli official said, acknowledging that the IDF and the Shin Bet have long issued warnings about a potential PA collapse and third intifada.

“But this has been avoided in the past through Band-aid solutions that kicked the can down the road,” the official added.

The current conditions are uniquely volatile, the Israeli official said, pointing to the roughly 150,000 Palestinian workers who have been barred from returning to their jobs in Israel or the settlements since October 7. A similar number of public sector employees in the West Bank have been receiving just 50 percent of their salaries for at least the past two months. They include members of the PA security forces who cooperate with Israel to combat terrorism in the West Bank.

“This month [the PA could pay] 50% [of public sector salaries]. Next month it will be lower — maybe 25%. People will stop showing up for work. The PA won’t be able to function,” the Israeli official warned.

Responding to a request for comment, Smotrich’s office told The Times of Israel, “The minister believes that establishing a Palestinian state is dangerous and undermines the State of Israel.

“[He is withholding these funds] because the PA finances terrorists and is acting against the State of Israel in the international arena. If the PA wants to avoid collapse, it should simply stop funding terrorism,” Smotrich’s office added

Palestinians queue to withdraw money from an ATM in the main market in Ramallah city in the West Bank on June 9, 2024. (Jaafar ASHTIYEH / AFP)

Band-aid solutions

Israel collects most Palestinian tax revenues on the PA’s behalf and is obligated by the Oslo Accords to transfer them to Ramallah on a monthly basis. These funds amount to roughly 70% of the PA’s annual revenue.

In recent years, Israel began unilaterally siphoning off tens of millions of dollars to offset the stipends the PA pays to Palestinian terror convicts imprisoned by Israel and the families of slain attackers — a policy that Leaf indicated Tuesday that Ramallah is nearly finished amending.

But since being tapped by Netanyahu to head the Finance Ministry in December 2022 — and even more so since the outbreak of the Israel-Hamas war — Smotrich has moved to further limit the amount of money Israel transfers to the PA.

After Hamas’s October 7 onslaught, the far-right minister pushed the cabinet to pass a decision withholding what amounted to a quarter of the total tax revenues — used by the PA to pay for services and employees in Gaza — on the grounds that the funds could reach Hamas.

The PA for months refused to accept any of the tax revenues in protest of that move, but the US coaxed it into accepting a new framework in February under which Norway would hold onto the Gaza portion of the tax revenues instead of Israel until Smotrich okayed their release.

The finance minister announced the end of that framework in May after Norway joined Spain and Ireland in recognizing the State of Palestine.

Illustrative: The municipality building of Ramallah, the West Bank seat of the Palestinian Authority, is adorned with the flags of Spain, Ireland and Norway on May 24, 2024, in appreciation of the three countries’ intent to recognize Palestinian statehood, announced the previous day. (Ahmad Gharabli / AFP)

The US and other international stakeholders have since been scrambling to find a new country to serve as a guarantor for the continued Israeli transfer of tax revenues to the PA.

Meanwhile, Smotrich has pledged to withhold the entirety of the Palestinian funds until the Israeli government adopts a series of punitive measures against the PA over the moves taken by Norway, Spain and Ireland, in addition to Ramallah’s support for the cases against Israel in the International Court of Justice and the International Criminal Court.

Smotrich also threatened not to renew a waiver, beyond the month of June, that extends indemnity to Israeli correspondent banks that transfer money to Palestinian banks in the West Bank. The expiration of the waiver would severely hamper the West Bank economy, which is intrinsically dependent on Israel due to the power imbalance between the sides.

On Sunday, the cabinet held a meeting to discuss the punitive measures sought by Smotrich, which include legalizing a series of West Bank settlement outposts that were built in violation of Israeli law and advancing plans for the construction of thousands of new settler homes.

The steps are aimed at placating Smotrich so that he’ll release some of the Palestinian tax revenues and extend indemnity to Israeli correspondent banks, according to the Israeli official.

File – Prime Minister Benjamin Netanyahu (right) and Finance Minister Bezalel Smotrich at the Knesset in Jerusalem, March 13, 2024. (Yonatan Sindel/Flash90)

The Israeli official said that Netanyahu and Strategic Affairs Minister Ron Dermer believe Smotrich will agree to release the last two months of tax revenues that he has withheld once the cabinet approves the punitive steps against the PA.

However, the US official was unsatisfied with the scheme, saying the sides would find themselves in the same situation a month or two down the line “if and when [Smotrich] decides to hold up the funds again.”

“These funds cannot continue to be held for ransom. They belong to the Palestinians,” the US official said.

Not wanting to legitimize many of his extremist views regarding the Palestinians, the Biden administration has imposed an effective boycott of Smotrich, refusing to meet with him or fellow far-right cabinet minister Itamar Ben Gvir.

Accordingly, Washington’s ability to influence the finance minister is limited, and it’s unclear whether a Smotrich sanctioned by the US Treasury Department would be more likely to cooperate with the Biden administration.

Smoke rises from the village of Duma in the West Bank, after settlers entered the village and set cars and houses on fire following the murder of 14-year-old Benjamin Achimeir, April 13, 2024. (Itai Ron/Flash90)

The idea would be to first threaten to add Smotrich to the Treasury sanction list, but this will only be done if the US is prepared to follow through, said the first US official, indicating that the administration is not there yet.

The Arab diplomat acknowledged that temporary fixes may well be the best the Biden administration and its Mideast allies can hope for with the current Israeli government, arguing that a new coalition would be needed in order to take the steps necessary for ensuring the long-term stabilization of the West Bank and Gaza.

However, Netanyahu’s bloc in the Knesset appears relatively stable, and even if early elections were called, they likely wouldn’t be held until at least the end of the year.

“I’m not sure the PA has that long,” the Arab diplomat said.

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