US nods at Smotrich’s steps to ease PA financial crisis, but calls them insufficient
State Department says all tax revenues must be transferred after finance minister agreed to partial release, adds corresponding banking deal should be extended for 12 months, not 4
Jacob Magid is The Times of Israel's US bureau chief
The United States on Tuesday welcomed Finance Minister Bezalel Smotrich’s recent decisions to temporarily extend Israel’s corresponding banking relationship with the Palestinians and to release some of the tax revenues withheld from the Palestinian Authority.
However, State Department spokesperson Vedant Patel clarified that both moves were insufficient amid continued concerns about the PA’s potential collapse.
Smotrich last week agreed to extend indemnity to Israeli banks working with Palestinian ones in the West Bank for an additional four months and agreed to partially release three months’ worth of tax revenues that Israel collects on the PA’s behalf.
The tax revenues did not include a significant portion that the PA uses to pay for services and employees in Gaza, which Israel claims would end up in the hands of Hamas if paid. This portion makes up roughly 40 percent of the revenues.
The pair of concessions by Smotrich were made in exchange for the security cabinet approving a series of sanctions against the PA over its support for efforts against Israel in the International Criminal Court and the International Court of Justice, along with decisions by three European countries to recognize Palestinian statehood.
Those sanctions included the legalization of five wildcat outposts that were built largely on private Palestinian land, along with this week’s advancement of plans for over 6,000 new settlement homes.
The Defense Ministry body that authorizes settlement construction will convene on Wednesday and Thursday to approve plans for those settlement homes.
The projects include the expansion of settlements located deep in the West Bank. Among them is one plan for more than 1,000 housing units in the Gvaot settlement, which is currently a small settlement community of roughly 60 homes.
The left-wing Peace Now watchdog said that another project slated for advancement would effectively create a new settlement because it would build a new neighborhood in the Yakir settlement that is located on the other side of the road leading to the town.
While the international community considers all settlements illegal, Israel differentiates between settlement homes built and permitted by the Defense Ministry on land owned by the state, and illegal outposts built without necessary permits, often on private Palestinian land. In recent years, though, Israeli governments have increasingly sought to regulate the wildcat outposts, rather than demolish them.
Asked during a press briefing about the quid pro quo agreement Smotrich orchestrated, Patel said the US “welcome[s] reports that Israel will extend the corresponding banking relationship for four months… But our call is for Israel to extend corresponding banking for at least 12 months.”
The Palestinian economy relies heavily on this relationship to process transactions made in Israeli shekels. Some 53 billion shekels ($14 billion) were exchanged at Palestinian banks in 2023, according to official data.
As for the tax revenues, Patel stressed that “these are funds that belong to the Palestinian Authority,” calling on Israel to release the remainder of the funds. “We have made these concerns clear to our partners in Israel at the highest level and will continue to engage with them on that issue,” he said.
On the moves to further expand Israel’s presence in the West Bank, the State Department spokesperson said: “We view the expansion of settlements and outposts as inconsistent with international law and something that only serves to weaken Israel’s security.”
“Unilateral actions like settlement expansion and legalization of outposts are detrimental to a two-state solution. We’ll continue to use the tools at our disposal to expose and promote accountability for those who threaten peace and stability in the region,” he added.
“It is clear that the primary goal of the current government, from its decisions to its actions, is the dismantling of any possibility for a political solution between Israelis and Palestinians. Since the start of the war, the Israeli government has focused all its efforts on building, developing and investing in construction across the West Bank,” Peace Now said in a Tuesday statement of its own.
Smotrich has refused to release the Palestinian tax revenues since April, bringing the authority to the brink of collapse, despite repeated warnings by Israel’s security establishment. The tax revenues account for some 70% of the PA’s annual income.
US President Joe Biden’s 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 US official told The Times of Israel last month, adding that the concerns are shared by the Israeli security establishment.
Already then, the official indicated that the quid pro quo would not satisfy the administration, warning that the sides are liable to find themselves in the same situation a month or two down the line “if and when [Smotrich] decides to hold up the funds again.”
