Tagarchief: Israel

November 2000

November 2000

November 2000

The Israeli – Palestinian dilemma

A short history

The recent explosion of violence in Gaza, on the West Bank and in some parts of Israel proper after the somewhat disputable visit of Ariel Sjaron the leader of the oppositional Likud party with an armada of police officers to the Temple mount, Al Aqsa, surprised many people in the world. The people, the world, had become used to some kind of agression and violent demonstrations in this rather volatile region but not of the intensity and scale as is and was happening this time around. On the contrary, the world still believed the peace process was more or less on track and the violence would be ended.

The eruption of violence after the visit of Sjaron, which was considered as an insult to the whole muslim community in the world, was in the first place an expression of the frustrations of the Palestinian community in the region.

The Palestinians have been promised a lot in the slowly developing peace process. A process which promised so much after decades of violence between Israel and the many Palestinian organisations. The peace process was however caught by the inertia of time and the political process of the Middle East. After a good head start the majority of the positive developments were slowed down if not nullified by the events around them. The Palestinians were granted some land and the right to establish the Palestinian Authority, PA, to administer the land under their control, Gaza and some parts of the West Bank. Events like the changes of the Israeli government after the elections, twice, and some terrorist attacks put everything to a temporary halt. These delays became more frequent and all social and economical progress was made impossible by the existing regulations like that everything had to be transported through Israel. This led to several new negotiations and a new interpretation and even re-writing of existing treaties.

In every new agreement the PA have been promised with more of the same transfer of land. This transfer of land and the sovereignity belonging to it has been in short delayed by two consecutive Israeli governments after radical elements of one of both sides tried to frustrate the peace process by an useless and senseless act of terrorist agression.

The peace process had been delayed by the above mentioned security problems and by four more contentional questions; the final status of Jerusalem, the return of the Palestinians living in the diaspora, the position of the Jewish settlements and the division of water in this water starved region.

The policy of delay, the seemingly immobile position of the Israeli government to adress the contentional questions to the satisfaction of the Palestinians and the problems with the economy of the areas under control of the PA created a lot of dissatisfaction in the population. There has been none to little progress in the last years and this made the people willing to use violence to warn and attent Israel and the world about their dissatisfaction.

The visit of Sjaron to the Temple mount was just an excuse to launch the violence against everything what was considered Israeli. The demonstrations quickly turned violent to express the dissatisfaction and this is the only way to receive the attention of the Israeli government and the world community.

As usual Israel closed, isolated, the territories under PA control and other Palestinian inhabited regions.

The conflict became even more serious as some soldiers lost the road and accidentally entered Ramallah they got victims of the dissatisfied mob. The mob simply lynched the sodiers without to much, interference, from the Palestinian police force.

The Israelis decided to react with determination against this kind of violence and called in the armed forces, the IDF. With the encirclement of the Palestinian villages with IDF armoured and infantry forces and the missile strikes of helicopters against Palestinian targets, police stations, infra-structure and other suspected buildings, the Israeli government tried to make a point that Israel would not accept the continuation of the violence.

Nevertheless, the violence, the demonstrations and the stone throwing continued without much care about the demands out of Israel to stop the violence. Which could be expected, as such a demand would be absolutely unacceptable for the Palestinians. The would not obey Israeli orders, who are in the view of many Palestinians the occupier of Palestinian land, land which 50-55 years ago belonged to them.

The renewed violence reached very quickly a status quo, as no party would be able to win. The Palestinians can not defeat the much superior Israeli army and the Israeli security forces can not pacify the region without the use of excessive force which would be politically suicidal. The former status quo, was beneficial for Israel, a slow moving peace process in which they did not need to sacrafice to much and without to much violence against Israeli interests.

In the new situation Israel was under fire, a public uprise of the Palestinians in the occupied territories Gaza and the West Bank but also problems with the Palestinians living in Israel proper. This was the first time that the socalled Arab-Israelians moved against the government and took part in the violence.

An international conference of the two belligrents with the U.S.A., Russia, Jordan and Egypt in the Egyptian city of Sharm el-Sheikh should end the unrest between the two sides. What seemed to be impossible became possible, Israel and the PA came to the agreement to end the violence and they would try to restart the peace process.

They agreed that Israel would end the isolation and Jassir Arafart would call upon his people to end the violence.

The agreement to end the hostilities, the violence, will be difficult to fulfil as it will become difficult to persuade the Palestinians to end the resistance. The majority of the Palestinians are frustrated and dissatisfied about the current situations. They feel that their situation has not improved that much and if they resist, operate, against the hated Israeli occupiers, At least they will try to make the live of Israel a little more difficult. The stone throwing and even small scale attacks against Jewish people and property will therefore continue.

There will be some differences in the intensity of the violence but it will be very difficult to put the anger back in the box. In some respects it will increase as Palestinian groups, probably of the Tanzi organisation, the Fatah military wing, started to attack Jewish settlements with gunfire. The attacks took and take not only place in the occupied territories but also in Israel, especially the suburban of Jerusalem. Especially villages which were build after the 1967 war and are thus build on confiscated Palestinian property were targeted. This fact will also complicate the negotiations in all future peace negotiations, a lot of Palestinian land has been confiscated on a rather dubious legal base, according to international standards, and Jerusalem as been enlarged through the annexation of Palestinian counties. On the other hand the violence will remain the same, stone throwing and making the movement for the Israelis difficult.

The situation have got its own dynamic as the Israeli government is compelled to react on the Palestinian violence which will encourage the Palestinians even more and as the Palestinians suffer the most casualties and because there is an increasing understanding for the Palestinian situation, they are prepared to accept casaualties. The international community will condemn the Jewish use of violence and this will put Israel in the corner of the bad boy. Every action like the closure of the Palestinian areas to starve them into submission or the cancellation of the peace talks will back fire as this will only make Israel even look worser.

The use of violence in therfore advantageous for the Palestinian case of an independent Palestinian homeland and it simply feels good. They finally can do something against the Israeli occupation. Even if they have no change to win a military conflict with Israel, the violence permits them to win politically.

To put it bluntly every stone thrown by the Palestinians is an act of legitimate resistance, if they use firearms and somebody would get hurt it is seen as a cosmetic mistake. As long as they do not use bombs, missiles, explosives, limit the number of casualties in each attack and do not attack civilian targets in Israel proper they are on the save side. Any Jewish victims on the West Bank and in Gaza are ever more considered internationally as that it should not have happened but that it is their own fault. The Palestinians are ever more portrayed as the victims in an unequal and unfair fight. The Palestinians are fighting for a right cause against the mighty Israeli army with insuffucient and less capable equipment. And this is clearly an advantage to receive international political support.

But if Israel uses force, teargas and riot police, or even worser rubber-bullets, it will be considered as the brutal suppression of the poor Palestinians. If they hurt or even kill a Palestinian it is considered as the use of excessive, unlegitimate, force, not to speak about the use of missiles and the isolation of the PA territories which is ever more seen as absolutely out of bound.

As long as the Palestinians do not use heavy weapons and large scale operations with large number of casualties against light defended Israeli targets, like Kibbutzm the Israeli security forces are very limited in their actions. All Israeli actions will be thoroughly scrutinized by the international community on their merits, and excessive violence will be immediately become public knowledge so deteriorating the Israeli international position.

The dilemma

Israel and the Palestinians are, if they like it or not, sentenced to live with eachother. Some kind of co-habitation agreement has to be created that both groups can live together in this relatively small region. Both have a legitimate claim on living over there but to find a mutual acceptable agreement about where and how to live with eachother will remain difficult. The religious claim on Jerusalem will further complicate a solution.

Israel and the Palestinians have to divide the territory to allow both people to live in the area, allow the Palestinian fugitives in the neighboring countries to return and divide Jerusalem according the border of before 1967. If the muslims are not able to control their holy places, it will always remain a potential bone of contention. These are necessities for every Palestinian leader to achieve if he or she wants to remain in power.

The Israeli government has the same kind of set of demands and worries in regard of the Palestinian question. The loss of the occupied territories and eastern Jerusalem will be considered by Israel as, first, a security problem and second a religious-politically unwanted development.

The Israeli society has a problem with security. They are constantly looking to maintain the highest standard of security for their people and a former foe living so close to the population centres of Israel seems to be unacceptable. The divison of Jerusalem will be difficult if not impossible to sell to the population as a large part of the Israeli population regards Jerusalem as their political and religious capital, which is indivisable in their understanding. Another complicating factor is the annexation of several communities around Jerusalem by which Jerusalem have become much larger than ever before. Originally Jerusalem was much more smaller, the enlargement is therefore considered as a way to confiscate more land to the advantage of the Jewish population.

The land question is very important and without some kind of fair division of the territory and the division of Jerusalem any peace is simply impossible. Maybe one could exclude Jerusalem form the negotiations if Jerusalem would become some kind of separate entity, with no relations with what ever country. A religious city governed by the communities who live in the city.

However as long as the Palestinians are considered as a threat to Israel and need to be controlled and if possible kept on distance good neighborship will be impossible and a peaceful co-habitation will remain an illusion.

The Future

As stated before the current situation is rather complicated any violence of the Palestinians is being retributed by the Israeli security forces. The Palestinians throw stones, Israel responds with tear gas and rubber-bullets, the Palestinians have a shoot out with some radical religious Kibbutz inhabitants or the Tanzi attacks some towns in Israel, the Israeli response is to close the occupied territories and to fire some missiles at police stations and other governmental institutions. Israel will most likely try to regain the initiative in the battle in the occupied territories by trying to go after the Tanzi and mind-like militias but they will be most likely be unsuccesful as these organisations do not really reprensent a clear target. The heavy handed approach with armour, infantry, artilley and air power will be unuseful against a mobile, small and light adversary who will disappear quickly after every strike.

The harder appraoch might limit the violence and clashes somewhat but they will continue and will get harder as the Palestinians have nothing to loose and can only gain something in resisting the Israeli security forces. Israel will be punished internationally by the harder treatment of the Palestinian population.

This cycle of violence can continue forever, the Israelis can not be defeated in the field but the political costs to Israel will become very high. The relations with nearly all other countries will deteriorate which in the end could be much more harmful for the Israeli society and security.

The international reactions will be limited to the freezing or elimination of the diplomatic and trade relations with Israel. The western world, with the exception of the U.S.A., will convict Israel and will reduce the relations to the absolute minimum. The Arab world, of which some countries entered for the first time diplomatic relations with Israel will end these relations, the others will increase their negative attitude against Israel.

The chance for a war will be limited as no country in the region is able, even if they would co-operate, to militarily defeat Israel. The military superiority is simply to large and a war would only damage the Arab and Palestinian political position in the current situation. The goodwill will quickly be lost. As beside the inferior military capabilities, the Arab countries, with a few radical exceptions, are also not willing to start a war because it would bring to little but will be very expensive.

A small and short military stand off is more likely between Israel and Syria about some actions in or out of Lebanon than about the Palestinian question. In this case Israel will be the most likely aggressor because they would want to punish Syria for the involvement in the Lebanese/Hizbullah activities against Israeli targets.

The Arab oil producing countries wil also not use the oil supply as a weapon to support the Palestinian case, as is demanded by some radical elements in the Palestinian and Arab world. The current high oil prices are just what the Arab countries needed after a long term of very cheap oil. They will not destroy the big revenues they now get and desparately need. And it would be a big gamble if the use of oil as a weapon would get the desired results. It would be more likely to be unproductive. The Western world does not like to be black mailed, other oil resources could be tapped, substitute products could be invented or introduced and the Arab oil producing countries need the oil income to stay in power.

Conclusion

Israel can not be defeated or to put it differently, can not be forced to accept a solution which it does not want. Militarily and internally Israel is simply to strong to be forcefully subjected to an agreement. The military superiority is organisational, technological and morally. With other words the battle order, the doctrine-strategy-tactics and the training are superior, the equipment is much more capable and finally the Iraelis are fighting in their understanding for a just cause and if they would loose Israel, they would have no other place to go. These three factors have made them much better then everything around in the region.

The Palestinians, or for that matter, the Arabs are no match for the Israelis militarily.

The Palestinians are badly armed, trained and led and lack any clear organisational and combat structure. There are many different kind of organisations in the PA with different strengths, even if all are working to reach the same goal, the different masters and policies will make a coherent attack impossible. But this weakness can be used to reach more than could be expected from such a diversified force. They could slowly undermine Israeli capabilities and create a political advantage.

Israel has proved to be not very good at assymmetrical warfare as became clear during the intifadah and during their presence in the self proclaimed secuirty zone in southern Lebanon. The unrest, demonstrations and the guerilla style of warfare, in short low intensty conflict, proved to be difficult to handle for the high intensity conflict trained Israeli defence forces. Israel could retaliate against supposed headquarters of the Hizbullah and of the PA and they can destroy the infra-structure but they were and are unable to control the activities of the Hizbullah, the Hamas, the Islamic Jihad, the Tanzim and many other small and relatively weak Arab and Palestinian organisations. Not to speak about the stone throwing youths on the streets of the occupied territories who make the live of the security apparatus very difficult.

The Hizbullah, the Hamas and now the PA make use of the weakness of Israel to combat low intensity warfare. The Israeli security forces cannot suppress this elusive enemy which take the brunt of the casualties but also wound and kill Israelis, and slowly undermine the Israeli fighting power and moral in a drawn out conflict.

Israel is politically not able to accept to many casualties and the retaliation of Israel always looks and seems to be overdone, to excessive. Thus after being internally demoralized, the international community will cause the largest damage to Israel.

The Israeli weaknesses are the political perception of Israel in the world and the difficlties to accept casualties.

The position is especially undermined by the conduct of the armed forces in the field. The Israeli weakness is fully understood by the Palestinians, they play the resistance game to get as much as political support as possible and to demoralize the IDF that much that they will overreact and make mistakes.

On the short term the Palestinian and Arab activities, low intensity warfare, will not change to much but on the longer term Israel wil be forced to find a solution to the Palestinian problem, if they do not wat to become a pariah nation and loose to much of the desparately needed international support.

 

Standaard
July 2000

July 2000

July 2000

Prospects in the Middle East

Relations between Syria and Israel

The political relations between Syria and Israel have been focused on territory and on a totally out of control enemy perception understanding. The territorial dispute is based on the fact that Israel is illegally occupying Syrian territory, the Golan heights and that it had occupied a security zone in Lebanon for nearly two decades.

The enemy perception of both countries is much more diffuse as it can only partly traced back to facts, the majority of the perception is psychology, history and imaginative. The Syrian enemy perception is based on the historical battle between the good Arab/Islam and the bad Jewish/crusader contradiction. And on the idea that the young Israeli nation robbed Arab land, suppressed and extradited the Arab population and they continue to expand and behave rather aggressively.

The Israeli enemy perception is just as paranoid as it uses to consider every move of the other side as a conspiration against the existence of Israel. As Syria is allegedly not willing to accept Israel as an equal neighbor, it is and ally of Iran, it is supporting Islamic fundamentalism and through its influence in Lebanon it allowed the Hizbullah to operate freely against the Israeli Defence Force and its allies of the South Lebanese Army. The IDF and SLA were operating in the former security zone in Lebanon to protect Israel from infiltration and missile attacks out of the north.

The security zone in Lebanon has now been eliminated by Israel just as the current prime-minister, Ehud Barak, promised to do so as he was elected. The withdrawal was however not an organised affair in the sense of a negotiated withdrawal. It was an unilateral affair, Israel wanted to limit, end, the casualties in Lebanon which seemed to increase every year as the IDF and SLA were sitting ducks in the attacks of the elusive Hizbullah. The Hizbullah gained the initiative in the fight about southern Lebanon were as the IDF and SLA were forced on the defensive and were limited to patrol the region to show presence and to react out of their strenghtened positions and incur losses during the very well planned Hizbullah ambushes, attacks and mines/boobytraps.

The much heralded peace process which should solve all problems between Syria and Lebanon on one side and Israel on the other side was weakened by the several seperate agreements of Israel and its hostile neighbors and it collapsed after a draft agreement leaked to the press and this compromised the position of Hafez al-Assad who considered himself as the protector of the Arabs and the man who would not sacrifice the Arab case like Egypt, Sadat, Jordan, Hussein, and the PLO, Arafat, had done to reach a peace agreement with Israel. Assad wanted an Arab all encompassing agreement agreed between equals without any sweeteners to facilitate some kind of compromise to the sole advantage of Israel. The collapse of the peace process was therefore not about facts but about procedures. Very simplified, Israel should first withdraw, or show the intention to do so, before Syria could negotiate directly and seriously and accept any peace treaty. The leakage made Assad look like exchanging the Golan for peace something he refused to do.

The relations with Syria seemed to be in a stalemate as no side was able nor willing to give up something. The recent dead of the lion of Damascus, the long sitting president of Syria, Hafez al-Assad, could bring some changes to the relations between the long time foes.

Changes in Syria

The relations between Israel and Syria were heavily influenced by the person of Hafez al-Assad. As the longest sitting president in the region, Assad was present at all developments between the two countries. And the military success of Israel in the three wars against Syria made Assad very suspicious to Israeli proposals to promote peace in the region. Everything short of an unconditional total return of the Golan heights was unacceptable for Syria. The return should therefor happen before a peace treaty could be completed. The Golan is Syrian territory so exchanging your own property for something in return is like a cigar out of your own cigarbox. A compromise with regard to the time table or giving Israel larger parts of the Golan would be unacceptable.

The dead of Assad could eventually change the situation as his successor could and would be more open to a compromise on the timetable and even to some overdone Israeli security concerns.

Immediately after the dead of Assad it was decided by the political elite in the country, the topbrass of the Baath party, to nominate Hafez al-Assad’s son, Bashar al-Assad, as the new president. As the continuity and the positions of the party could be protected best with Bashar as president. And after all it was the wish of Hafez al-Assad

The parliament supported the choice of the Baath party and in turn voted that the age to be eligible as president was to be lowered from 40 to 34, the age of Bashar. The parliament nominated Bashar for the same reasons as the Baath party, continuity and the preservation of stability.

The people of Syria will most likely support the election of Bashar as the new president as Assad is at the moment quite popular in the country and they will like to fulfil Assad’s last wish to have Bashar as president. The referendum in the second week of July 2000 will endorse the choice of Bashar al-Assad. The people of Syria are thereby moderate in their wishes as they want economic progress and a little more freedom like a more liberal press and the access to the World Wide Web. And they assume, Bashar as a young and educated men will most probably fulfil their demands.

The biggest opposition against Bashar will come form the Islamic-Sunnite fundamentalists, a militant opposition movement who demand a new start and the end of the authoritarian Baath regime. The militants have been harshly suppressed with a culmination in 1982 when approximately 20.000 got killed after an uprise against the Assad government. In 1982 they failed as Assad could rely on his security forces. Bashar on the other hand is more vulnerable as he still has to receive the loyalty of the armed and security forces. But it will be very unlikely that they would support the militants as they will pose an equal threat to the security forces as to Bashar.

Another big threat to the newly elected president is the claim of Rifaat al-Assad, his uncle and brother of Hafez, to the presidency. Rifaat tried to take over power in 1983 after which he has been exiled in Marbella, Spain. Rifaat considers himself as the most able to become president and he might still have some friends in the country. But the influence should not be overestimated as most friendships and alliances will not survive 17 years of exile and out of power/influence. The lack of support became evidently as the security forces claimed that they will arrest Rifaat if he would show up in Syria.

Finally, the most immediate threat to Bashar are the armed and security forces. Some general might like to do what Hafez al-Assad did and take over power. Bashar, not a military man by trade, is dependent on the goodwill of the armed and security forces to stay in power. The position of Bashar is somewhat saver because of the economical problems, the negative international impact of coup d’etat by the military and the acceptance of the military of Bashar as an acceptable alternative with no strong links to no side and with no ambitions to become involved in the armed forces..

The policy of Bashar will therefore be centred first on the consolidation of his position. Create alliances in the administration, Baath party and with the all important military and security apparatus. Secondly, improve the economy of the country and satisfy some demands out of the population, like a little bit more freedom. And only on the third place Bashar will move outside and will talk about stability in the region.

Any speculation about Bashar or his policy because he is someone new in the region with fresh ideas like the kings of Jordan and Morocco should be very careful. It is correct thay they are all high educated young men without being brought up of the old connections/hierarchy system, until now free of to the old bad habits and no direct involvement in old nasty conflicts. They are young, are not compromised by history and are highly educated but the leaders of Jordan and Morocco are much more powerful in creating a new policy. Bashar is contrarily much more dependent on allies in the administration, Baath party and the military. Bashar can be more open to new ideas, compromises, in negotiations but in the end he is dependent on the approval of his sponsors in the old hierarchy. This will limit any new and changing policy in the Middle East political constellation.

The impact on the region

The situation in the region, Syria, Lebanon and Israel, will not experience big changes on the short term. The impact of the change of power in Syria will only become visible if certain conditions in Syria will be fulfilled and at best become visible on the medium term.

The first and most important condition for change will be the survival of Bashar al-Assad as president of Syria. Secondly Bashar should be able to implement economic reforms, create progress and a liberalisation of the society. This should put him in a strong position to enforce the foreign policy we all expect from him. Namely to put Syria on the chart as a sensible country with the aim to reach a peace agreement with Israel and help the region to achieve political, economical and social progress. This idea might be however a little bit to much wish thinking.

Political reality will force Syria, Bashar, to small internal changes to reach eventually even smaller changes in Syria’s foreign policy. Bashar will most likely be able to become and stay president but a fast agreement with its neighbours and essentially at the expense of Syria will be out he question. The influence of Hafez al-Assad and the still large influence of the Baath party and military will only allow small deviations from the Hafez al-Assad designed peace plan. The return of the Golan heights might eventually be part of the peace treaty instead of a condition before the peace treaty. But any more compromises will be very difficult to gain from Syria.

The virtual stand still between Israel en Syria will only change slowly. But Syria and Israel will come closer together in the coming two years. The path towards cooperation will be an uphill and slow one. It will take patience and stamina from both sides to continue the peace process. The expectations are high and both sides want to maximise the results in all negotiations to satisfy the demands out of both countries. Israel wants security, the right to keep some Kibbutzim on the Golan and most of the water. Syria wants the return of the Golan heights according to the borders of 1967 when they lost them to Israel. Syria wants to Golan back without to many, to none, conditions. Essentially, this has been more or less accepted in negotiations with Israeli officials but political pressure out of Israel forced Israel to demand some additional rights and territory. A compromise is certainly possible but it has to be sweetened to be acceptable to both sides.

The instability in Lebanon will most likely lessen after Israel left the country. There will be some differences about the exact border demarcation and some attacks from the Hizbullah but now Israel is able to respond better to any attack. And the Hizbullah will be much less effective because they lost their striking power. The Hizbullah lost the territorial advantage and the initiative both very important in fighting a much stronger foe. The problems, border demarcation, in Lebanon are thereby now better suited to be ended by negotiations. The international dimension, Syria’s and Iran influence, has been eliminated making it a problem between two countries so much more controllable.

The influence of Syria, including the Syrian armed forces in Lebanon, will also become lesser as Lebanon, especially the Lebanese population, is getting enough of the Syrians in the country. Israel has already withdrawn thus eliminating the main reason for Syria to be around and more importantly the Syrian population is getting enough from the deployment in Lebanon as being stationed there is more dangerous and very expensive. Socio-economic pressures will force the Syrian government to evaluate the deployment in Lebanon.

The region will become a little bit more safe on the medium term as the political differences are replaced by social and economical questions which are finally receiving more attention. The new leaders of the region are more or less forced to change their policies, the long term dominating security/military policy has become to expensive and socio-economic problems are increasing. The change of policy has become more urgent as the political motivated support from the now disfunct Soviet Union had ended. This meant all military expenses were now for their own account, and no friendship prices, all products and services only against hard currencies. The countries, especially Syria, have to spend more on defence to maintain existing capabilities but the costs have become higher, the revenues lower and the socio-economic demands larger, ergo, change your policy before you will go bankrupt, be forced to change your policy or being put out of office.

So the new leaders will most likely adress the new problems and have the advantage that they are not inhibited by the old contradictions which led to several wars and conflicts in the recent history of the region. A negotiated solution to all existing problems seems to be very likely but these negotiations will take some time and all negotiating skills will be used, including threats and walk-outs, to improve the situation. The road towards more stability and cooperation is however entered and a return will be ever more difficult.

Standaard
October 1997

October 1997

October 1997

Israel, an outlook – Rotating stocks into small and mid caps.

Israel, an outlook

Since the election of the Benjamin Netanyahu coalition into government the situation in the Middle-East has changed dramatically. Not only the political landscape changed but also the economical and social situation turned into misery.

Netanyahu promised in his election tour peace with security but the reality brought, ones he was in power, insecurity without peace. The peace process has been put on ice. The Israeli government considered the needed action to sustain the peace process as a danger to the security of Israel. It restarted the building and enlargement of settlements on the West Bank, it demolished houses of Palestinians which were allegedly illegal and it did to a certain extent destroyed the economical buildup of the Palestinian entity.

The Netanyahu government could not stop the suicide bombings which happened every time the peace process seemed to get going again. Netanyahu accused the Palestinians for not doing enough to destroy the terrorist organisations of Hamas and Jihad. The Palestinian authorities are however not competent and lack the intelligence organisation to combat those organisations. A further problem with the terrorist organisations is their cell structure which makes eliminating them very difficult. And the Hamas is not only active with violence against innocent civilians but it also has a very large humanitarian organisation. It supports schools, medical centers and poor people. By destroying this part of Hamas would mean an end to the Arafat government in the Palestinian entity. Especially if Arafat is not able to replace the services of the Hamas humanitarian organisation.

The political change

The internal situation in Israel is no more stable than during the previous government, probably even less secure. A large number of people are dissatisfied with the situation. The Israelis because the terrorist organisations continue with their “senseless” bombings and the Palestinians because their chance for an “independent state” is getting very unlikely.

Netanyahu seems to get away with his confrontational policies which supposed to bring more security to Israel while at the same time keep as much influence and territory as possible. The opposition in the Knesset but also the people on the street can not stop nor change the policy of Netanyahu.

The international community disapproves this policy but without backing this disapprovement with any sanctions. And as long as Israel is supported by the U.S.A. it does not have to care to much about the feelings abroad.

This policy will however deliver no security on the long term, it is even doubtful if it can guarantee any security on the short term. All the actions of the Israeli forces in Israel, the West Bank, Gaza and even in Lebanon proved to be very ineffective and expensive in terms of human lives.

The external postion is even as bad. The security zone in Lebanon is becoming more and more a killing field for Israeli soldiers. Even the most elite of the IDF, Israeli Defence Forces, get massacred in Lebanon by a reinvigorated Islamic resistance of the Hezbollah, Amal and even the Lebanese army.

The relations with the Arab neighbours seems to deteriorate with the day. Only Jordan tries to save the peace process. There are even rising tensions with Syria who is accused by some Israeli military officers of preparing a war against Israel to regain the Golan.

The internal and external position of Israel is undermined by the one-sided approach of Netanyahu who promised peace with security but delivered insecurity without peace.

The social and economical situation

Since the election of Netanyahu and freezing of the peace process the economy has turned bad. The growth has returned to low levels, the state expenditures are not inline with the diminishing tax returns and the unemployment is rising again. The peace process was the stimulant of an incredible economic growth in Israel. But the harsh policies of Netanyahu destroyed the confidence of foreign investors, hampered the export of Israeli products and even reduced the consumer demand in Israel.

The weak Israelian economy and the even worser if not to say disatrous economy of the Palestinian entity could be the seed of even more instability in the future. In this situation there easily starts a reinforcing spiral of social misery which leads to a greater attractiveness of extreme religious organisations in Israel, Gaza and the West Bank.

The fundamentalistic groups in both territories are already becoming more powerfull because of a growing membership and especially in Israel because of the important role they play in the coalition government.

The deteriorating economy will reinforce their influence in the society. This will eventually increase the contradiction between the two opposed groups, Judaism and Islamism. Between those two fundamentalistic groupings peace will be impossible and a disaster only a matter of time.

The Israel – Palestine relation

If we consider the difficulties described above it will be absolutely necessary to give the peace process which started in Oslo another chance. The two important parties, the governments of Israel and the Palestinian entity, have to come together again and start talking to implement the Oslo accords.

To get peace with security sacrifices are necessary by both parties. The Israeli goverment has to grant the Palestinian entity the means to build a viable economy in their own territory. By this way Arafat will be in the position to eliminate the humanitarian part of the Hamas and eventually will also be able, with Israeli training and suppport, to eliminate the armed wings of the Islamic terrorist organisations.

The Palestinian authorities in cooperation with Israeli security services should do their best to minimise the influence and actions of the several terrorist organisations. They should do this not only if there is heavy pressure from Israel and the U.S. but make it a part of their policy. If a thorough plan is carefully executed the terrorists will have difficult job to survive.

In the mean time total security will not be possible for Israel but if the peace process will be fully implemented the terrorist threat can be minimised. This together with an economical recovery of Israel and the Palestinian entity will be the only possibility for a lasting peace. The Arabs and the Israelis will not become friends but in this way they can live together. That is a mighty advance on the hostility from this year.

Rotating stocks into small and mid caps

The New York stock exchange showed its volatile behaviour in the last month. The blue chips of the Dow went down and up where as the Russell 2000 seemed to outperform all expectations.

We remain however positive about the future of the blue chips. Therefore we maintain our buy rating on the stocks we listed in our last report. We envisage a continuation of the volatility but at the end of the year we expect the Dow Jones Industrials at around 8.200 maybe 8.400. The large caps, the multi-national companies, with a low P/E rating and an attractive product package and export potential still offers some very good chances to make a more than average return.

The small and mid cap stocks will also see some impresssive growth on the short term. They might even outperform the big caps on the short term. The booming American economy will be a guarantee for the performance of the Russell 2000.

We like the following mid and small cap companies. They will most probably show a better performance than their counterparts. In the defence sector we like Tracor, Stanford Telecom, Viasat and Orbital Sciences. In the transport sector we expect a lot from US freightways, Comair and Atlantic Coast Airlines. Further we like companies like Method, Vesta, Swiss International, HS Resources, Coach USA, Baker Fabric, Analog Devices and Measurement Specialties.

All these stocks could be an interesting investment but we prefer the larger international companies because they offer a better potential on the long term and that is the game we like most.

 

 

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