Palestinian Authority Prime Minister Ismail Haniyeh addresses the media. (Maan Images)

U.S. aid to Israel and the Palestinians

The Bush Administration has discouraged Israeli Prime Minister Ehud Olmert from discussing Israel's request for an additional $1.2 billion in U.S. aid (on top of the $2.5 billion already given to Israel this year) when he visits the White House this week. The request, meant to fund economic development of the Galilee and Negev regions, was put on hold since the Hurricane Katrina disaster in the Gulf. Many now say that Israel may not push the request -- not because of the situation in the Gulf -- but because a heftier request to fund Olmert's "Convergence Plan" (expected to cost up to $10 billion) is on the way.

Meanwhile, all U.S. aid to the Palestinians stands frozen. Last month, the U.S. suspended more than $400 million in assistance to the Palestinians as the new Hamas government took office. Since the suspension of international aid (the European Union is withholding $600 million in aid) a humanitarian crisis in the Occupied Palestinian Territories continues to worsen. In addition to the lost aid, Israel also refuses to turn over $50 million a month in taxes it collects on behalf of the Palestinian Authority as required under the Oslo accords. More than 160,000 public sector employees have gone without salaries for months. Food and medicine shortages are growing and families report not being able to afford basic staples. The World Health Organization predicts a "rapid decline of the public health system towards a possible collapse" in Gaza and "no access or limited access to preventive programs" like immunization for much of the population.

In light of the current controversies surrounding aid to both Israel and the Palestinians, the IMEU provides answers to these frequently asked questions:

How much and what kind of aid does the U.S. provide to Israel?

Israel, with a population of roughly 6.3 million, receives more U.S. aid each year than any other country, and has held that distinction since 1976. Between 1949 and 1996, Israel received $62.5 billion in foreign aid. This is roughly the same amount given to all the countries of sub-Saharan Africa, Latin America and the Caribbean combined during the same time period. Since 1996, the total has grown from $62.5 billion to nearly $100 billion in U.S. foreign aid.

Most of the U.S. aid is for Israel's military and its weaponry. Israel's annual aid package has averaged $3 billion in grants over the last twenty years, about two-thirds of it for military aid. Since FY1999, an Israeli plan to reduce its economic dependence on foreign aid has led to gradual transfers from economic to military aid. Over a 10-year period, the plan calls for a $120 million reduction in the $1.2 billion in economic aid Israel receives each year and a $60 million increase in military aid each year. In 2005, for example, military grants amounted to $2.22 billion, and economic aid to $360 million. The 2006 budget includes $2.28 billion in military grants, and $240 million in economic aid. (See CRS Issue Brief for Congress, Israel: U.S. Foreign Assistance)

Since 1974, much of U.S. military aid to Israel has been given in the form of loans for which repayment is waived. Were military aid to be given in the form of grants, Israel would have to accept the presence of a U.S. military contingent to oversee the program, something Israel would rather not submit to. And so the aid is given as a "loan" for which repayment is waived, technically avoiding the label of a grant. From FY1974 through FY2003, Israel has received more than $45 billion in waived "loans."

Beyond this military and economic aid, Israel has also received support for special military research and development projects (such as $625 million to develop the Arrow missile), and for other special needs (including roughly $1.5 billion since 1973 to resettle Jewish immigrants and refugees).

The U.S. government has also authorized $10 billion in loan guarantees for Israel since 1992. These guarantees are worth hundreds of millions of dollars to Israel as they allow the Israeli government to borrow money from commercial lenders at more favorable rates and terms. Since then, the U.S. has subtracted about $773 million - the amount believed to be spent by Israel on illegal settlements in the Occupied Territories - from the $10 billion loan guarantees. This has left $9.26 billion still available in guarantees, against which Israel has borrowed about $6.6 billion - meaning, to date, that the sanction has had no direct impact on Israel whatsoever. A FY2003 supplemental appropriations included an additional $9 billion in loan guarantees.

Does Israel enjoy any special privileges not available to other recipients of U.S. aid?

Yes. Israel is granted special terms governing its use of U.S. aid that are generally not available to other countries:

• The U.S. gives economic aid directly to the government of Israel rather than allocating funds for specific projects. This means Israel is not required to account for how the funds are used.

• The U.S. gives aid to Israel in one payment during the first 30 days of the fiscal year, rather than in quarterly installments as is the case with other countries. USAID officials estimate a cost to the U.S. of between $50 million and $60 million a year to borrow funds for Israel's early, lump-sum payment.

• While U.S. military aid is normally intended to be used by countries to purchase U.S. goods and services, Israel is allowed to spend part of its aid on Israeli goods. It also receives offsets on purchases from U.S. military contractors by requiring them to buy components or materials from Israeli manufacturers.

Does aid to Israel violate U.S. law?

The U.S. Department of State regularly reports serious human rights abuses committed by Israeli troops in the Occupied Territories, implicating such U.S. laws as the Arms Export Control Act, which bars arms transfers to countries that abuse human rights and which stipulates that U.S. military equipment may be used only for internal security or defensive purposes.

Despite the violations, neither Congress nor the President has ever taken serious steps to ensure that U.S. arms are employed by Israel in a manner consistent with U.S. law.

Finally, the U.S. prohibits Israel from using U.S. aid in the Occupied Territories. Yet, because we give economic aid directly to the government of Israel, without allocating it to specific projects, there is no way to determine whether Israel is using U.S. aid in the Territories.

How much and what kind of aid does the U.S. provide to the Palestinians?

U.S. economic aid to the Palestinians has averaged about $85 million per year since the Oslo Accords were signed in 1993. No military aid has been given to the Palestinians. Roughly 80 percent has been funneled through USAID contractors and 20 percent through private voluntary organizations.

Congressionally-approved aid for the Palestinians cannot be used to fund the Palestinian Authority (PA) directly, unless the President submits a national security waiver to Congress. The President has invoked this waiver on four occasions:

• In 1993-1994, the U.S. gave $36 million through the Holst Fund at the World Bank for direct assistance to the PA and $5 million for the Palestinian police;

• In 2003, the U.S. announced that it would provide $20 million in direct aid to the PA for infrastructure projects;

• In 2004, President Bush approved another $20 million in direct assistance to the PA. However, the $20 million was immediately transferred to Israel's electric company to pay Palestinian utility bills. (See CRS Report: U.S Aid to the Palestinians)

In 2005, President Bush promised $350 million in aid to provide Palestinian Authority President Mahmoud Abbas the means to carry out reforms and provide economic revitalization and hope to Palestinians after nearly four decades of Israeli military occupation. Congress reduced the aid package to $200 million, of which:

• $50 million went to Israel to build terminals at checkpoints;

• $5 million went to an audit of PA accounts; and

• $2 million went to Hadassah, the Women's Zionist Organization of America.

The aid package was seen as an attempt to strengthen Abbas in relation to Hamas in advance of Palestinian elections. Yet Congress reduced the package, added new reporting requirements, attempted to eliminate the presidential waiver and prohibited direct aid to the PA, in effect accomplishing the opposite. Many questioned why Congress placed more conditions on aid to the Palestinians after Abbas' election than it did while Yasser Arafat led the PA.

How is aid to the Palestinians used?

A majority of the international aid given after the signing of the Oslo Accords was used for development projects in the West Bank and Gaza Strip. However, due to Israel's destruction of Palestinian infrastructure and strangulation of the Palestinian economy since the latest major round of Israeli-Palestinian violence began in September 2000, international funds have been shifted from development projects to emergency relief. According to a World Bank report the number of Palestinians living below the poverty line of $2 a day tripled from September 2000 to the end of 2002. The United Nations reported in 2003, that since September 2000, Israel caused $217 million worth of damage to Palestinian agriculture, and between $700 million and $800 million in damage to Palestinian infrastructure, with a total of $1.1 billion in physical damage to the Palestinian economy. In response to the devastation of the Palestinian economy, the ratio of development projects to emergency relief changed from 7:1 before September 2000 to 1:5 by 2002.

Are there any restrictions placed on aid to the Palestinians?

In addition to prohibiting direct aid to the Palestinian Authority (even before Hamas came into power earlier this year), Congress mandated that U.S. aid to the Palestinians be closely monitored. The FY2006 Foreign Operations Appropriations Act, for example, specified that up to $1 million in economic aid for the Palestinians could be used by the USAID Inspector General for audits and inspections of the West Bank and Gaza aid program. The act also required the U.S. Comptroller General to conduct its own audit of all funds for the bilateral West Bank and Gaza program.

Congress has also restricted assistance to the Palestinian Broadcasting Corporation and has specified that no U.S. assistance can be provided to a future Palestinian state unless the Secretary of State certifies, among other things, that the leadership of the new state has been democratically elected, is committed to peaceful coexistence with Israel, and is taking appropriate measures to combat terrorism.

Coinciding with Olmert's visit, the House of Representatives today passed H.R.4681, the Palestinian Anti-Terrorism Act of 2006. Introduced after Hamas' electoral victory, the bill goes far beyond reiterating the current U.S. ban on direct assistance to the Palestinian Authority. It includes provisions that restrict U.S. humanitarian aid; designate Palestinian territory as a "terrorist sanctuary" thus triggering restrictions on U.S. exports; deny visas to Palestinian officials to visit the U.S., even if they have no connection to Hamas; require the State Department to audit U.N.-funded programs in the region to eliminate "duplicative efforts" and ensure "balance" in the approach to Israeli-Palestinian issues; and deny Palestinians the ability to receive assistance through international financial institutions. A Senate version of the bill (S.2370) has been referred to the Senate Foreign Relations Committee and currently has 86 co-sponsors.