Is the Hard Line Against Hamas Working?

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If former World Bank chief James Wolfensohn's appointment by the international community to help lay the economic foundations of Palestinian statehood was an expression of optimism in the prospects for peace following Israel's withdrawal from Gaza last year, then his resignation last Sunday should sound an alarm. Trained as a banker rather than a diplomat, former World Bank chief Wolfensohn didn't mince words about his reasons for stepping down. He said the current U.S.-Israeli financial blockade of the Hamas-led Palestinian Authority looks set to destroy the administrative institutions on which a two-state solution would be based, and negate 12 years and billions of dollars of investment by the international community in establishing the infrastructure of Palestinian self-rule. Moreover, he suggested, it is sure to plunge Palestinian society deeper into the vortex of poverty — which would make it more fertile ground for just the brand of Islamist extremism that the U.S. is trying to defeat.

The new Israeli government seated on Thursday has made clear that it plans to redraw the borders between Israel and the Palestinians on its own terms, insisting that it will not negotiate with a Palestinian government led by Hamas. But Wolfensohn is warning that the current siege of the West Bank and Gaza makes it increasingly unlikely that what will emerge on the Palestinian side of Israel's new border wall will be a viable state at all.

Once the U.S. and European Union forbade him from working with the new Hamas-led Palestinian government, Wolfensohn's job became untenable. Israeli papers report that Wolfensohn's decision also came in response to the U.S. — at the behest of Israeli officials — blocking a plan by Britain, the E.U. and the Arab League to have salaries of PA employees paid directly into their bank accounts, bypassing the Hamas administration. U.S. Treasury officials have warned that any banks processing such transactions would face sanctions from Washington, and none dared risk being shut out of the international finance system. That blocked a plan by Middle Eastern governments such as Iran, Qatar and Saudi Arabia to provide the tens of millions of dollars needed to pay the salaries on which close to half of Palestinian households depend.

By actively ensuring that the people who provide the educational, health and all other basic services in the West Bank and Gaza cannot be paid, the Bush administration is effectively aligning itself with a drive to bring down the Palestinian Authority unless Hamas agrees to formally renounce violence, recognize Israel and abide by previous peace agreements. Although the movement is currently observing a unilateral ceasefire and is beginning, under Arab pressure, to articulate terms on which it may talk peace with Israel, it is unlikely to give in to the U.S. and Israeli demands.

While the financial blockade is clearly an effective weapon against a government led by what the U.S. and E.U. deem a terrorist organization, the decision to use it appears to be premised on a fanciful notion of what will follow if it succeeds. Wolfensohn's warnings foresee a long siege, which he says would leave three quarters of the Palestinian population living in poverty within two years. But Washington may be banking on a quicker result: By putting the squeeze on ordinary Palestinians and forcing a breakdown in governance, some Israeli and U.S. officials may be hoping that President Mahmoud Abbas would be able within a few months to dissolve the Palestinian government and call new elections — as he last week reminded everyone that he has the authority to do.

The problem is that Abbas, and his party, Fatah, may fare even more poorly in an election called under such circumstances than they did in the January poll that brought Hamas to power. And if Hamas is returned for a second time, the stalemate would simply deepen. The alternative might be to back Abbas seizing control over all the levers of government without new elections. But that would not only make a mockery of the Bush administration's stated commitment to democracy in the Arab world; it would likely set off a Palestinian civil war that would have negative implications for Israel as well as other U.S. interests and allies throughout the region.

Fatah was rejected by Palestinian voters because of its rampant corruption and its failure to bring tangible gains to the Palestinians. In the months since its drubbing at the polls, the movement has further discredited itself on the Palestinian street, where its gunmen are mounting attacks on both Israel and on Palestinian institutions in the hope of undermining the new Hamas government. The idea that Fatah can, in the near future, be voted back into power looks farfetched to close observers of Palestinian politics. Indeed, many fear that if the decision by the Islamists to enter democratic politics is thwarted by the West, the real beneficiaries will not be Fatah, but al-Qaeda — which has long told Hamas that entering democratic politics is a dead-end road for an Islamist movement. The U.S. may yet prove it right.