Israel: background and relations with the United States.

Updated November 14, 2006

Summary

On May 14, 1948, the State of Israel declared its independence and was immediately engaged in a war with all of its neighbors. Armed conflict has marked every decade of Israel's existence. Despite its unstable regional environment, Israel has developed a vibrant parliamentary democracy, albeit with relatively fragile governments. The Kadima Party placed first in the March 28, 2006, Knesset (parliament) election; Prime Minister Ehud Olmert formed a four-party coalition government that has been enlarged to include one more. Israel has an advanced industrial, market economy in which the government plays a substantial role.

Israel's foreign policy is focused largely on its region, Europe, and the United States. The government views Iran as an existential threat due to its nuclear ambitions and support for anti-Israel terrorists. Israel concluded a peace treaty with Egypt in 1979 and with Jordan in 1994 but never achieved accords with Syria and Lebanon. It negotiated a series of agreements with the Palestinians in the 1990s, but the Oslo peace process ended in 2000, with the intifadah or uprising against Israeli occupation. Israeli and Palestinian officials have accepted but have not implemented the "Roadmap," the international framework for achieving a two-state solution to their conflict. Israel unilaterally disengaged from Gaza in summer 2005 and is constructing a security barrier in the West Bank to separate from the Palestinians. The victory of the Hamas terrorist group in the January 2006 Palestinian parliamentary elections has complicated Israeli-Palestinian relations. On June 25, the Hamas military wing kidnaped an Israeli soldier, provoking an Israeli military offensive to force his release. Israel unilaterally withdrew from southern Lebanon in 2000, but Hezbollah occupied the area and continued to fire rockets from it into northern Israel. Hezbollah sparked a war when it kidnaped two Israel soldiers on July 12; a cease-fire took effect on August 14. European countries collectively are Israel's second largest trading partner, and the EU participates in the peace process.

Since 1948, the United States and Israel have developed a close friendship based on common democratic values, religious affinities, and security interests. U.S.-Israeli bilateral relations are multidimensional. The United States is the principal proponent of the Arab-Israeli peace process, but U.S. and Israeli views have differed on various issues, such as the fate of the Golan Heights, Jerusalem, and Israeli settlements. The United States and Israel concluded a free-trade agreement in 1985, and the United States is Israel's largest trading partner. Israel has historically been the largest recipient of U.S. foreign aid. The two countries also have close security relations. Other issues in U.S.-Israeli relations include Israel's military sales to China, inadequate Israeli protection of U.S. intellectual property, and espionage-related cases. This report replaces CRS Issue Brief IB82008, Israel: Background and Relations with the United States, and will be updated as developments warrant. See also CRS Report RL33530, Israeli-Arab Negotiations: Background, Conflicts, and U.S. Policy, CRS Report RL33566, Lebanon: The Israel-Hamas-Hezbollah Conflict, and CRS Report RL33222, U.S. Foreign Aid to Israel.

 
Contents 
 
Most Recent Developments                                             1 
 
Historical Overview of Israel                                        2 
 
Government and Politics                                              3 
     Overview 
     Recent Political Developments                                   4 
     Current Government and Politics                                 6 
 
Economy                                                              7 
     Overview                                                        7 
     Current Issues                                                  8 
 
Foreign Policy                                                       9 
     Middle East                                                     9 
         Iran                                                        9 
         Palestinian Authority                                      10 
         Egypt                                                      11 
         Jordan                                                     12 
         Syria                                                      12 
         Lebanon                                                    13 
         Other                                                      14 
     European Union                                                 14 
 
Relations with the United States                                    15 
     Overview                                                       15 
     Issues                                                         16 
         Peace Process Trade and Investment                         16 
         Aid                                                        18 
         Security Cooperation                                       19 
     Other Current Issues                                           20 
         Military Sales                                             20 
         Espionage-Related Cases                                    21 
         Intellectual Property Protection                           22 
     U.S. Interest Groups                                           22 
 
List of Figures 
 
Figure 1. Map of Israel                                             23 
 
List of Tables 
 
Table 1. Parties in the Knesset                                      6 

Most Recent Developments

Israel engaged in a two-front war against U.S.-designated terrorist groups in response to the June 25 kidnaping of an Israeli soldier by Hamas and others near Gaza and the July 12 abduction of two Israeli soldiers from northern Israel by Hezbollah. (1) The Israeli public and parliament supported the war in Lebanon as a legitimate response to an attack on sovereign Israeli territory and a long overdue reaction to Hezbollah rocket attacks on northern Israel. During the war, however, the Israeli public and press increasingly questioned its prosecution. Charges levied against the government and military leadership include hesitant decision-making; poor intelligence concerning Hezbollah locations, arms, tactics, and capabilities; deficient training and equipment for mobilized reservists; tactics unsuitable for terrain and enemy; excessive reliance on air power; ill-prepared home front defense; and inadequate presentation of the Israeli view to international audiences.

Israelis have been debating the war since it was concluded. Critics note that the kidnaped soldiers are still in captivity and that Hezbollah retains its arms and has been strengthened politically. The government claims success in forcing Hezbollah from the border and in degrading its arms, particularly in destroying its long-range rockets, and in pressuring the Lebanese government, aided by international forces, to assert itself in south Lebanon. Israeli officials took Hezbollah leader Shaykh Hassan Nasrallah's admission that he would not have authorized the July 12 action if he had known how strongly Israel would react as confirmation that the group had been weakened and that Israel's deterrence had been strengthened. (2)

Nonetheless, public opinion polls indicate little support for the government and its main coalition partners, Prime Minister Ehud Olmert's Kadima Party and Defense Minister Amir Peretz's Labor Party. (3) Meanwhile, support for the rightist Likud and Yisrael Beiteinu parties and their leaders, Benjamin Netanyahu and Avigdor Lieberman, has increased. However, elections are not imminent because Members of the Knesset are unlikely to vote no confidence in the government because many are likely to lose their seats in an early vote.

The incumbents have no plans to resign. Olmert is not challenged as leader of his Kadima Party. Peretz's hold on Labor's helm may be more insecure as his internecine foes include prominent personalities and appear to be increasing. They include former Ben Gurion University President Avishay Braverman and former Shin Bet (Israeli counterintelligence and internal security service) head Ami Ayalon, who were high on the Labor list in the last election but failed to get cabinet posts. The next Labor leadership primary is scheduled for May 2007 but may be postponed.

In October, Olmert broadened the coalition in order to stabilize it, bringing in Yisrael Beiteinu and increasing the government's strength in the Knesset to 78 out of 120 seats. Yisrael Beiteinu leader Lieberman became Deputy Prime Minister and Minister for Strategic Threats. Olmert claims to have sought Lieberman because Peretz may be unable to enforce discipline on Labor Knesset members to enable passage of the 2007 budget. Olmert agreed to support Lieberman's proposal to change the electoral system by providing for the direct election of the prime minister and abolishing the president's office, with the latter's powers to be transferred to the prime minister, and increasing the electoral threshold from 2.5% to 4%, among other steps. The fate of the proposal is uncertain. (Labor) Minister of Culture and Sport Ophir Pines-Paz resigned from the government to protest the inclusion of what he labeled a party with "racist characteristics," i.e., Yisrael Beiteinu. Pines-Paz now intends to run for the Labor leadership.

As a result of the war, the government has shelved plans for unilateral disengagement from the West Bank. Many Israelis believe that unilateral disengagements from the south Lebanon and the Gaza Strip had enabled the transformation of those regions into terrorist bases and led to war. Kadima, which won election on a promise of disengagement, may need a new vision.

On November 1, Former Jewish Agency Chairman Sallai Meridor was appointed as the next Israeli ambassador to the United States.

Historical Overview of Israel (4)

The quest for a modern Jewish homeland was launched with the publication of Theodore Herzl's The Jewish State in 1896. The following year, Herzl described his vision at the first Zionist Congress, which encouraged Jewish settlement in Palestine, a land that had been the Biblical home of the Jews and was later part of the Ottoman Empire. In 1917, the British government issued the Balfour Declaration, supporting the "establishment in Palestine (which had become a British mandate after World War I) of a national home for the Jewish people." Britain also made conflicting promises to the Arabs concerning the fate of Palestine, which had an overwhelmingly Arab populace. Nonetheless, Jews immigrated to Palestine in ever greater numbers and, following World War II, the plight of Jewish survivors of the Nazi holocaust gave the demand for a Jewish home greater poignancy and urgency.

In 1947, the U.N. developed a partition plan to divide Palestine into Jewish and Arab states, with Jerusalem under U.N. administration. The Arab states rejected the plan. On May 14, 1948, the State of Israel proclaimed its independence and was immediately invaded by Arab …