Israel promises some relief to hemorrhaging West Bank economy in covert meet with PA officials

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

Jamal Hemmou displays old record players in front of his shop in the West Bank city of Nablus, January 17, 2023. (Jaafar Ashtiyeh/AFP)
Jamal Hemmou displays old record players in front of his shop in the West Bank city of Nablus, January 17, 2023. (Jaafar Ashtiyeh/AFP)

Senior Israeli security officials held a covert meeting with their counterparts from the Palestinian Authority in Tel Aviv on Tuesday to discuss efforts to calm tensions in the West Bank ahead of Ramadan, which begins next month, an Israeli official and a senior diplomat familiar with the matter tell The Times of Israel.

Attending the sit-down were National Security Council chairman Tzachi Hanegbi, Shin Bet chief Ronen Bar and COGAT head Ghassan Alian on the Israeli side and intel chief Majed Faraj and Civil Affairs Minister Hussein al-Sheikh on the PA side.

The sides discussed measures that Israel can take to help address Ramallah’s ongoing economic crisis, intensified by Jerusalem’s withholding of hundreds of millions of dollars in tax revenues; its ban on the return of roughly 150,000 West Bank Palestinian workers to jobs in Israel and the settlements since the October 7 terror onslaught; its wartime ban on Israeli Arabs entering Palestinian cities where many of them shop; and the installation of numerous additional checkpoints throughout the West Bank, which further limit movement and economic activity.

The Israeli officials told their PA counterparts that they would take a number of steps to address the situation, including reducing the number of checkpoints, reducing the number of arrest raids, allowing a subset of several thousand workers above the age of 45 to return to their jobs in Israel and reopening several Palestinian cities to Arab Israelis, the two sources told The Times of Israel.

The sources said the Israeli security officials expressed optimism that the pledged measures would be approved by the government, though they are likely to face pushback from its majority hardline members who have long equated the PA to the Hamas terror group.

As for the still unresolved tax revenue issue, the senior diplomat said the Israeli security officials indicated that Jerusalem would be willing to offer more flexibility on the issue.

Israel has been withholding NIS 275 million ($75 million) in tax revenues that it collects on Ramallah’s behalf. The figure amounts to the sum that the PA typically uses to pay services and employees in Gaza. The Israeli cabinet voted in November to withhold the Gaza portion from the monthly transfer on the grounds that the funds could be funneled to PA-rival Hamas.

PLO Secretary General Hussein al-Sheikh, centre, welcomes US Secretary of State Antony Blinken before his meeting with Palestinian President Mahmoud Abbas in the West Bank town of Ramallah, Wednesday, Feb. 7, 2024. (AP Photo/Mark Schiefelbein, Pool)

The PA subsequently held talks with the United Arab Emirates and Norway about Abu Dhabi or Oslo offering Ramallah a monthly loan to compensate for the withheld funds, the diplomat told The Times of Israel last month.

However, Israel blocked the PA from advancing with the loan, threatening to withhold the entirety of the tax revenues, which make up the vast majority of the PA’s budget, the diplomat says.

While the Gaza portion of revenues typically makes up $75 million or 25 percent of the monthly transfer, those figures have been far lower since the outbreak of the war, given how the enclave’s economy has grounded to a halt.

The Israeli officials at the Tel Aviv meeting indicated that Jerusalem would be willing to lower the amount of the Gaza revenues it would withhold each month to be proportional to the current economic situation, the diplomat says.

A Palestinian man inspects the damage to a money exchange shop, after a raid by the Israeli army, in the city of Ramallah in the West Bank on December 28, 2023. (Zain JAAFAR / AFP)

While the PA would still be barred from using the tax revenues to pay for services in Gaza. Israel approved a framework last month under which the Gaza portion will be sent to Norway, which will hold onto the funds until far-right Finance Minister Bezalel Smotrich authorizes their funneling to the PA. Oslo hasn’t formally accepted the proposal.

In order to pay for Gaza services and employees in the meantime, the PA will use the smaller amount of tax revenues it collects independently in the West Bank, the diplomat says.

The US has blasted Israel’s withholding of the funds, effectively accusing Jerusalem of theft and highlighting that they belong to Ramallah.

However, it backed the framework adopted by the cabinet last month and urged the PA to accept it, even though Ramallah warned that it gave too much authority to Smotrich, who has called for dissolving the PA entirely.

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