Message 2: Are there Partners to the Two-State-Solution?

Upon his return from the Camp-David summit in July 2000, Prime Minister Ehud Barak said on a famous speech that to his sorrow he did not find a partner on the Palestinian side. Since then the term “No Partner” has become a cornerstone in the public discussion in Israel on the peace process. Many Israeli commentators have claimed that the Palestinian leadership is inherently unwilling to reach a peace agreement with Israel, either because it is not willing to accept the right of Israel to exist, or the right of Israel to exist as a Jewish State, or because it is afraid of facing the many responsibilities that come with political independence. Recently, there are also many Palestinians who raise an opposite complaint and claim that there is “No Partner” on the Israeli side. They say that the Israeli leadership is not honest in its verbal support of the Two-State-Solution and is actually planning to keep the occupation and to keep its control over Palestinians as long as it can. In this message, we discuss this issue in light of the lessons we derive from our studies and we reach a somewhat more optimistic, but reserved, conclusion.


When discussing the issue of partners to the Two-State-Solution it is important to remember that this solution is not just a nice slogan and it is not just a subject of endless negotiations as well. The Two-State-Solution means a quite specific deal, which the two sides need to embrace in order to reach an agreement. We next describe the main elements that this solution should consist of, according to our studies (these elements appear in Message 1 as well). These are seven main elements. First, the borders between the two states should follow the 1967 border, with some swaps, which are equal in their total area and value on the two sides of the green line, and which are to be agreed upon by both sides. Second, on the two sides of the agreed political border in Jerusalem, there will be two capitals, the capital of Israel on the west and the capital of Palestine on the east.Third, each of the two states will have full independence within its territory, subject to the final status agreements. Economically, this means that each state will be able to conduct its independent economic policies. Fourth, the two states will respect the desires of the other for peace, security and prosperity. Fifth, a ‘territorial link’ that passes through Israel, but operates under Palestinian jurisdiction, will connect the West Bank to Gaza and enable free mobility between the two parts of Palestine, which will constitute a unified single territory. Sixth, the final status should include a solution of the problem of Palestinian refugees, which will not affect the demographic balance within Israel. The Aix Group undertook extensive effort on this issue, which shows that such an agreement is possible. Seventh and final, Jews, if they choose, will be able to live in Palestine, subject to Palestinian laws of immigration, citizenship and residency.


This description of the potential Two-State-Solution is vital in order to understand the current Israeli debate whether or not Israel has a partner for peace. It means that they can have a partner, but only for the type of agreement described above, that comes with a certain territorial price tag. The Israelis cannot find a partner who will agree to annexation of wide areas of the West Bank or to leaving all Jerusalem under Israeli annexation. They will find that the Palestinian leadership is committed to the Two-State-Solution and to coexistence with Israel if the borders are similar to the green line and if East Jerusalem will be the Capital of their state. This commitment has been expressed many times in many ways, both by Yasser Arafat and later by Abu-Mazen. It is part of the Oslo agreements, and it was part of the Palestinian positions in all the negotiations on the permanent status agreement.


We should of course be careful not to paint a too rosy picture. There is significant opposition to the Palestinian leadership, mainly by the Hamas and Islamic Jihad movements,which resist any agreement of Partition of Palestine and any recognition of Israel. It is hard to estimate the size of this opposition, but we cannot ignore the fact that in the last elections in Palestine, in 2006, the Hamas won. Nevertheless,it is reasonable to assume that not all the support Hamas received in that election was because of ideological identification. Much of this support reflected the failure of the PLO to reach an end to the occupation through negotiations with Israel. In contrast, Hamas could present the Israeli redeployment from Gaza in 2005 as a great achievement to the armed resistance and as another symbol to the failure of the strategy of negotiations. Remember that the Gaza redeployment was so unilateral, that it avoided even coordination with the Palestinian Authority. We can therefore conclude that if the Palestinian leadership will reach a negotiated agreement, it will enjoy a support of a majority of the Palestinian population. Interestingly, this analysis shows that the rejectionistsgain support from the fact that the leadership has not reached an agreement yet and from the refusal of Israel to accept the principle of the 67 borders. Namely, the Israeli policies and attitudes affect the political balance within the Palestinian people. It also means that even if Israel has a partner on the Palestinian side, its power has been eroding continuously and dangerously, mainly because we fail to reach the Two-States solution.


On the other side of the border, there are many Palestinians, who also feel that they do not have a partner on the Israeli side. They identify the right-wing government of Israel as rejectionists, who prefer to hold the territory rather than reach an agreement, and they observe a continuous move of the other political forces in Israel, from the left and the center, towards this rejectionist position. We claim that although there is a serious element of truth in this narrative, it is still wrong to claim that the Palestinians do not have a partner in Israel. As in the Palestinian side, it is not an absolute partner, but a conditional partner. The main condition in Israel is not the type of agreement, as on the Palestinian side, but the type of consideration, namely whether Israelis base their decisions on short run or on long run considerations.


In order to understand this issue better, we need to report briefly the results of our latest study that focused on the cost of the status quo to Israel and to Palestine. Our study has shown that the costs of the status quo and of the continuing occupation are higher than people usually think. The formal defense costs of Israel are between 6 to 7 percent of GDP, but there are additional costs. The main one is the alternative cost of conscription through delay to accumulation of human capital. There are costs that citizens pay directly, like security guards or building a safe room in each apartment, or other public costs, which are not in the defense budget, like the civil administration of the territories. All these costs add up to close to 13 percent of GDP. This is a significant burden. In addition, we have shown that the eruptions of violence in the Israeli-Palestinian conflict tend to cause recessions, which are also quite costly. These are high costs, but the costs of the conflict on the Palestinian side are much higher. We focused mainly on Palestinian economic growth and found that GDP per worker, also called labor productivity, declined significantlyin Palestine since the Oslo Accords. We have also examined the causes of this decline and found two main explanations. One is the sharp decline in total factor productivity due to barriers to mobility, caused by the system of obstructions to mobility, through roadblocks, checkpoints, the separation wall, and the systematic separation of Gaza from the West Bank. The second cause for the decline in growth is the lack of capital deepening, which is a result of many restrictions on investment and by the high risk in Palestine. According to our calculations, the loss due to missing economic growth is above 80 percent of GDP annually. Our studies have therefore found that both sides suffer significant economic losses from the occupation and the continuation of the conflict, but the Palestinians suffer much higher losses. The same holds also with respect to losses of life, which we did not include in the calculation.


The fact that the Palestinians lose much more from the conflict than Israel points, through a standard cost-benefit analysis, at their interests in reaching the Two-States solution. They can gain significantly from it, both in the long run and in the short run. Reaching an agreement means for them an end to a continuing bloodshed, end of occupation thatdisrupts severely their daily lives, achieving national independence and gaining control over their own fate, and opening the road to economic development, once they remove the hurdles of occupation. Of course, economic growth takes time, but output can start growing immediately, and after more than twenty years of economic stagnation, this is very desirable. For the Israeli side reaching an agreement with the Palestinians is very rewarding in the long-run, as it reduces the continuing bloodshed in Israel, reduces the risk of recessions and increases disposable incomes significantly. But we need to remember that reaching an agreement also involves a considerable short term political cost to Israel. Israel will have to relocate large numbers of settlers and to evacuate occupiedterritory it feels strongly about. An agreement on a Two-State-Solution might involve Israel withdrawal from many small settlements across the West Bank, but also from large towns like Kiryat-Arba and Ariel. Such moves will create a great internal dispute in Israel and we cannot ignore the possibility that it even might lead to some internal violence, with a highprobability thatit can be very similar to the type of conflicts experienced by France during the French withdrawal from Algeria. Although the Israeli government will be able to overcomesuch difficulties with time, this is viewed as very costly.


In Message 1 we describe the reluctance of many in the Israeli political establishment to pay the territorial price required by the two state solution. Here we fine-tune this observation. There are indeed many Israelis, who oppose paying the territorial price.But there are many other Israelis who are willing to pay the territorial price, but are afraid of the high political price, of a massive evacuation of settlements, and of a deep Israeli political dispute that might become violent and might even lead to some serious internal violence. There are no easy solutions to these fears, but there is one simple fact everyone needs to bear in mind. The political cost of the Two-State-Solution for Israel is not going to decline over time. On the contrary. The longer the settlements are there, the more they develop and expand, as more people are born and grow up in the settlements, the harder it will be to implement the agreement. Hence, the political cost of the Two-State-Solution is actually rising over time.


This analysis should touch on other worries as well. The main one is that we cannot implement the Two-State-Solution in reality any more, due to the large scale of Israeli settlement activities and due to the large changes on the ground, like the complete lack of contact between Gaza and the West Bank. People are afraid that these changes have become so deep that they are irreversible and thus,they might prevent the implementation of the Two-State-Solution. We interpret these worries as fears of the political cost to Israel from such an implementation. What is irreversible is not the physical settlement activity, but the political turmoil that will follow its dismantling in the short run. Relocation of the settlements is not a geographical problem, but it is a very big political problem. Adding Hamas in some form into the future relations between Israel and the Palestinians is not a security issue, but rather a political one. It is not certain, but we can assume that if the majority of the Palestinian society will adopt the agreement, Hamas will be under significant pressure to adjust to the new situation, just as it adjusted to the new Palestinian Authority. Such dramatic moves that come with the implementation of the Two-States solution, call for bold steps. Such steps might be very costly in the short run, but they carry the only hope that Israel might be able to base its future existence in the Middle East on sounder and safer foundations.


We can therefore summarize this message in an optimistic but reserved tone. We think that we can still achieve the Two-States solution. There are partners on both sides for this agreement, but they are not sufficiently strong. The Palestinians will be partners if Israel agrees to respect their minimum conditions. If not, the support to an agreement among them will decline. The Israelis, on the other hand, will be partners, if they internalize the willingness to accept the huge political short-run cost for the long run gains of such an agreement.In all cases, it is clear that the occupation will probably end at some point, either due to internal processes or due to international interventions, because the Palestinians will never accept life under occupation. But occupation might end in a terrible conflict, which will leave relations between the two sides completely ruined, or it can end in a political settlement, which may open the gate for better relations in the future. This is the option of the two-state-solution, which is still available. The future will tell which road will be taken.


References from research by the Aix Group:The Economic Road Map (2003);Economic Dimensions of a Two-State-Solution between Israel and Palestine, volumes I (2007) and II (2010), The Economic Costs of the Conflict to Israel, Palestinian Economic Development, both in Economics and Politics in the Israeli Palestinian Conflict (2015).


Are there Partners to the Two-State-Solution?