Israeli cabinet deal will save West Bank from economic crisis at a cost

In return, Mr. Smotrich would agree to release some money to the agency and extend the bank waiver, officials said, although he has not yet announced those moves. But even if that temporary reprieve is in place, Mr. Smotrich could demand more concessions in the future.

The details and timeline for legalizing the five outposts were not immediately clear. While much of the international community views Israeli settlements in the West Bank as a violation of international law, the outposts are illegal under Israeli law; allowing them to grow and expand is legal.

While Israel’s military campaign continues in Gaza, an economic crisis is also taking place in the West Bank, where tens of thousands of people have lost their jobs because of the war, and Palestinian civil servants have not been paid their full salaries. enough for months, and near-daily Israeli raids disrupt even basic travel.

Mr. Smotrich has used his position to deliver blow after blow to the Palestinian Authority, which administers parts of the West Bank under Israeli occupation. He has withheld much of the Palestinian government’s budget, threatening not to renew key waivers that protect Israeli banks working with Palestinian partners.

The measures have alarm Biden administration, which wants the Palestinian Authority to have a role in running post-war Gaza. US officials are also concerned that the economic downturn in the West Bank could lead to increased violence in the territory, which has not seen a mass uprising in months. Israel’s deadly military operation.

The Palestinian Authority has drifted from crisis to crisis for years, struggling to pay off outstanding debts as international aid dries up. Israel often withholds taxes it collects on behalf of the government to punish its leaders. At other times, Israel sent tens of millions of dollars to maintain the operation.

But many call the West Bank’s current economic predicament the most difficult yet.

Following the Hamas-led offensive on October 7, tens of thousands of Palestinians who had worked in Israel were no longer allowed to enter, creating mass unemployment overnight. Israeli military strikes, road closures and tighter checkpoints have further strangled the Palestinian economy.

Before the war, Mahmoud Abu Issa, 53, earned more than $2,000 a month — a dream salary in the poverty-stricken West Bank — as a construction worker in Israel. He has been unemployed since Israel banned most Palestinian workers, except for occasional work as a day laborer for about $10 a day.

His son, who worked with him in Israel, began building houses before the war began. He said because their salaries were gone, the house was not yet complete.

“We sit day and night, hoping something will change,” said Mr. Abu Issa. “But nothing happens.”

Under the agreement, Israel collects and transfers hundreds of millions of dollars in taxes to the Palestinian Authority. Mr. Smotrich has kept that money, taking up a large portion of the Palestinian Authority’s budget, exacerbating the country’s financial crisis.

As a result, the Palestinian leadership has struggled to pay its employees, who number at least 140,000, according to Palestinian Finance Ministry officials. Many have received only partial salaries, often irregularly, for years; last month, most received just 50 percent of their salaries.

Shadi Abu Afifa, a father of four who lives near Hebron, saw his $930 monthly salary as an officer in the government’s security force cut in half last month. He said his family stopped buying cooking gas and gave up other modest luxuries, like home internet, to try to save money.

“If the economy improves, we can start to feel hope again,” Mr. Abu Afifa said. “Because right now, we are in a terrible, suffocating situation — war, unemployment, everything piles up.”

US officials have pressed the Israeli government to release the money, fearing that further economic hardship could lead to more violence in the West Bank. Jake Sullivan, the national security adviser, has called for the money to be released “without further delay”.

Last month, after three European countries said they would recognize a Palestinian state, Mr. Smotrich announced he would not extend the exemption — set to expire on July 1 — that shields Israeli banks from liability when they do business with Palestinian banks.

Lacking their own currency, Palestinians often use the Israeli shekel. If Palestinian banks want to offer shekel accounts, they must maintain links with Israeli banks and rely on them to process shekel transactions.

Israel’s Finance Ministry has granted Israeli banks a waiver on compensation since 2017, according to Lilach Weissman, a spokesman for the Israeli Finance Ministry. Banking experts say that if the waiver is not renewed, Israeli banks will likely sever ties with their Palestinian partners.

“The consequences will be dire and dangerous for everyone,” said Akram Jerab, chairman of the board of directors of the Quds Bank, which has 31 branches in the West Bank.

At a cabinet meeting late Thursday that lasted well past midnight, Smotrich agreed to temporarily extend the exemption for another four months, Eytan Fuld, a spokesman for the minister, said. It’s unclear what will happen after that.

If he ultimately follows through on his threat to let this waiver pass, it could also have economic consequences for Israel, experts say. Palestinian merchants will not be able to use banks to pay Israeli suppliers for imported goods. And there would be no way for Palestinians to pay Israel for essential goods such as fuel, water and electricity, said Azzam al-Shawwa, a former top Palestinian banking executive.

“Israel’s trade is tied to Palestine,” al-Shawwa said in an interview. “Palestine is one of the biggest trading partners with Israel. Is Smotrich willing to lose that?”

Rawan Sheikh Ahmad Contribute report.