Message 1: Why the Two-State-Solutionhas not Been Achieved?

The conflict between Israelis and Palestinians has torn this region and its people apart for almost a hundred years, since the end of World War I and the British occupation of Palestine. It has gone through many violent eruptions and through periods of relative,though tense, calm. Since 1967, the conflict became more intense as Israel controlled all of historic Palestine and all the Palestinians in the country. Throughout this long and bloody conflict, there have been many attempts to find a solution, either by short-term agreements or by trying to reach a long-run resolution. Today we find ourselvedwithin the framework of the Oslo Agreements, which set a temporary Palestinian Autonomy, but this arrangement is not functioning well. This is a short-run agreement that is now being implementedfor over 20 years, and that, in itself is a problem. Israel has not applied the agreement fully on one hand, and on the other hand,it has not prevented many rounds of violence, like the Second Intifada and the armed clashes around Gaza since its evacuation in 2005. Hence, we are still in search for a long-run solution to this conflict, and the need for such a solution seems to grow over time.


Of the many ideas for a long-run solution to the Israeli-Palestinian conflict, the Two-State-Solution is probably the oldest and most popular one. It appeared first in the Peel Commission Report in 1937. It stood at the heart of the Partition Decision by the UN in 1947, which enabled the founding of the State of Israel. This has been the only solution that came up in the negotiations that were initiated by the Oslo Agreement sincluding at Camp-David in 2000 and during the Olmert government in 2007-2009. The Two-State-Solution has become the standard solution in all global political discussions and it enjoys the overwhelming support of the international community. Despite all that, however, 15 years of barren negotiations between the two sides have failed to achieve this solution, thereby shedding doubts regarding its potential implementation and success. These doubts are strongest among Israelis and Palestinians. In these messages, we wish to argue against such doubts. We do it under various hats. First, we are a group that studies the economics of the conflict and of the peace process.From this unique and special position and with the many lessons we learned from our studies, we have learned to appreciate the importance, the feasibility and the necessity of the Two-State-Solution. Second, we are a group of Israelis and Palestinians who have cooperated for more than 13 years, and continue to cooperate, in studying these issues and this experience has taught us that the Two-State -Solution is the only way to reach understanding and true cooperation between people on the two sides of the conflict.


We will devote much of this message to understanding why we did not reach the Two-State-Solution yet. There are three main types of opposition to this solution. The first is the opposition of Israeli extremists, which include supporters of greater Israel, settler organizations, political parties like the “Jewish House,” or even many politicians in the Likud. This opposition puts significant pressure, sometimes political, by promoting settlement expansion and harsh military measures, and sometimes through violent means, like the murder of Rabin, that play a part in derailing the peace process. The second extremist opposition is on the Palestinian side, which consists mainly of Hamas and Jihad Islami movements that oppose any long-run agreement with Israel.Thesemovements also play a part in derailing the peace process, mainly by their involvement in military actions that often lead to violent eruptions of the conflict.This in turn increases Israelis’hesitation regarding the peace process. It is important to note that these two forms of opposition, by extremists on both sides, have much similarity in principle. Both oppose the idea of any peaceful solution between Israelis and Palestinians and both prefer to continue the conflict until one side reaches complete victory over the other side.


The third opposition to the Two-State-Solution is a less explicit opposition and is,in our view, the most potent in derailing the process. This third type of opposition consists of those in Israel that support a Two-State-Solution in principle, but are not willing to pay the full price of such an agreement. They are not ready to pay the required territorial price, of going back to the 1967 borders and they are not ready to lose control over the Palestinians and to grant them true independence. On June 14, 2016“Haaretz” published a leak from a government meeting, in which Netanyahu said, that he has a mixed position on the Arab Peace Initiative. On one hand, he is ready to accept the Arab recognition and normalization of relations with Israel, but on the other hand, he will never accept the return to the 67 borders. Actually, this position is not unique to Netanyahu and the Likud. Large parts of the labor party and other centrist parties in Israel also share this view.


When we talk about the price of the Two-State-Solution people may ask why is this price so rigid? Why are the two sides not able to negotiate freely the territorial price of peace? Our analysis leads to the conclusion that the margins of a possible agreement between the Palestinians and the Israelis are indeed quite narrow and it is actually, a “take it or leave it” deal for both sides. The issue of agreement is crucial here. It is true that the Israeli side is much stronger than the Palestinian side. It is stronger militarily, economically, where the Israeli GDP is more than 50 times larger than the Palestinian GDP, and diplomatically, where Israel enjoys much closer relations with the US and with other Western powers. Despite this asymmetry, Israel cannot impose an agreement on the Palestinians, if it does not provide for their minimum requirements. It cannot force them to capitulate to an agreement that will be less than full independence and which they will view as extremely unfair. We next turn to outline the main ingredients of such an agreement.


A large part of our work in the Aix group has focused on the economic elements and aspects of a potential peace agreement. In order to do it, we had to analyze first how a potential political agreement between Israel and Palestine might look like, in order to add to it the economic building blocks. Thus, guessing the contours of a potential future peace agreement has been the first step in our analysis. Our first conclusion has been that the only possible agreement between the two sides, if reached, will be the Two-States solution. We have analyzed thoroughly the alternative long-run solution of one state, and concluded that it cannot address the legitimate claims of both sides. It would not provide satisfactory answers to Jewish-Israeli claims for self-determination, and it would not meet the aspirations of the Palestinians for self-determination in their own state. Furthermore, the coexistence within one state of two peoples, of which one is much richer and much more developed economically than the other, will induce strong asymmetry in political power between the two communities. This will further amplify the economic gaps between them, mainly through control over land. Furthermore, history shows that Israelis were willing to accept the partition solution at some specific historical conditions. They never agreed and might probably never agree to give up their own state. Hence, the one state idea can never be a result of an agreement, and insisting on this option can only lead to continuation and intensification of the conflict. The analysis of how a future peace agreement will look like teaches us not only that it will probably be a Two-States agreement, but also how about its main features, if it is to be agreed upon by both sides.


In our analysis,we have reached the conclusion that such a Two-State-Solution must be based on the following seven major pillars. First, the borders between the two states should follow the green line, which is the June 4th 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, two capitals will exist, the capital of Israel on the west and the capital of Palestine on the east.The research of Aix Group on Jerusalem elaborates the various options of how such a divided city can function and whether it should have a physical border or only a political border between the two cities. 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. The Aix Group has found that the best way to reach such economic independence is to institute a Free Trade Zone between the two countries. This will enable the two states to enjoy the fruits of free economic contacts between them, without imposing economic policies on each other. 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. The research of Aix Group has shown that the best mean for such a territorial link is a road, which will have the lowest costs of production and will allow greatest flexibility for future uses.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. The estimated cost of such a solution to the refugees’ problem is 100 billion dollars, but many donor countriesare expected  toshare this cost, in addition to Israel and Palestine. Seventh and final, Jews, if they choose, will be able to live in Palestine, subject to Palestinian laws of immigration, citizenship and residency.


According to our analysis of the two sides and their minimum requirements, we have reached the conclusion that each of these pillarsis a necessary part of the Two-State-Solution. When we observe the current positions of the two sides, it appears that the major disagreements between them today are on the return to 1967 borders and on the partition of Jerusalem between the two states. While the Palestinians insist on return to the green line, with small swaps, and on regaining control over East Jerusalem, the Israeli positions still insist on annexation of large parts of the West Bank and on keeping all, or most, of Jerusalem within Israel. On the other issues, like the territorial link, economic agreements, and the problem of the refugees, the possibility of reaching an agreement seems to be more likely. These disagreements do not necessarily imply that asolution is not achievable. Israel and Palestine can reach an agreement once Israel will recognize the basic Palestinian territorial demandsof return to the 1967 border with agreed upon swaps and partition of Jerusalem.


In our many discussions and deliberations the Israeli members of the Aix Group became convinced that Israel should accept theterritorial principle of the return to the 1967 border with some possible agreed upon adjustments, for four main reasons. The First reason is that Israel cannot reach an agreement without such acceptance, thereby perpetuating the conflict.Faced with a choice between ending the conflict and the bloodshed against giving up on a limited territorial addition, we believe that saving human lives prevail. Second, all the international community acceptsthese principles. Even when the US, Israel’s closest ally, tried to mediate between the two sides in 2000, it issued the well knownClinton Parameters, which accepted the principles of return to the 1967 borders, with swaps, and of the partition of Jerusalem accordingly.Third, and very important, there is an element of fairness in these demands. The green line divides the countryinto two states for the two peoples, with 78 percent of historic Palestine going to the state of Israel and 22 percent tothe state of Palestine. This partition is already highly asymmetric. The Palestinians have agreed to accept this partition and in doing so they admit that they are willing to accept, grudgingly, the outcome of the 1948 War. This is an enormous national sacrifice on their behalf. Hence, it is highly unfair to ask them to give up more land and settle for much less than these 22 percent. We can support this claim also by standard utilitarian economic theory. Since marginal utility is diminishing, and since the Palestinians have much less of the land than the Israelis, their marginal utility from any square meter of land is much higher than that of Israel. Fourth, in previous negotiations with other Arab countries Israel did not succeed to obtain territories beyond the 67 border. This was the case with the Peace agreement with Egypt, with the Peace agreement with Jordan and with the failed negotiations with Syria. The Palestinians are therefore under significant pressure from the Arab world not to agree to such concessions. All these arguments point in one direction, that Israel cannot reach an agreement unless it accepts the principle of the return to the green line with some swaps. In other words, this is the only game in town and the only way to reach an agreement and to end the cycle of violence between the two peoples.


If this is the only way to reach an agreement between the two sides, it becomes clearer why we did not reach such an agreement yet. It is because the mainstream Israeli establishment has not yet reached the point of willingness to pay the required territorial price for an Israeli-Palestinian agreement. We learn it from the experience of the past negotiations on a permanent status solution, since 2000. The first round of negotiations began before the Camp David summit, reached its peak in this summit but actually continued later until the Taba meeting, just before the end of the premiership of Ehud Barak. In this round of negotiations, Barak insisted on keeping 10 percent of the West Bank under its control (at Taba, while in Camp David the figure was even higher). In these negotiations, Barak also insisted on keeping Jerusalem united under Israeli rule, and was willing to grant the Palestinian only a limited control over one or two villages east of Jerusalem (Abu-Dis), as a Palestinian capital. Clearly, this was much less than the Palestinian minimum demands, as described above. The next round of negotiations took place during the Olmert government during the years 2007-2009. There were two tracks in this round, one by the Minister of Foreign Affairs Livni, and one by the Prime Minister Olmert, who negotiated directly with the Palestinian president Abu-Mazen.The only track that progressed was the one led by Olmert and at the last week of his term he handed the Palestinian president Abu-Mazen a far-reaching proposal, that accepts in principle the return to the 67 borders with swaps and the division of Jerusalem. According to Abu-Mazen (in a later TV interview), the proposal was very good and the two sides were very close, but it still required some further negotiations. There were two problems attached. First, Olmert was leaving office due to severe charges of corruption and it was clear that he could not push the negotiations to a successful end. Second, Olmert was isolated in his government in support of these propositions. Both the minister of foreign affairs Livni and the minister of defense Barak passed warnings to the Palestinians that the Israeli government will not support the Olmert proposal. This episode highlights our main claim. First, once the principles of return to the 67 border and division of Jerusalem are accepted, there is a possibility of reaching an agreement. Second, the Israeli political mainstream was not ready to accept these principles in 2009 and hence the negotiations failed.


We can therefore conclude this discussion with the following conclusion. The fact that Israelis and Palestinians have failed to reach an agreement on the Two-State-Solution does not mean that this is a dead end. It is not because they cannot reach it ever. They will reach this solution on the day that the mainstream of the Israeli political spectrum will accept that reaching a peace agreement involves a territorial price and will be willing to pay this price. The price tag is clear and simple: a return, with small swaps, to the 67 borders and the division of Jerusalem between two capitals, to Israel and to Palestine.


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).