VZCZCXRO3234
PP RUEHROV
DE RUEHTV #2281/01 2071353
ZNY SSSSS ZZH
P 261353Z JUL 07
FM AMEMBASSY TEL AVIV
TO RUEHC/SECSTATE WASHDC PRIORITY 2490
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RHEHAAA/WHITE HOUSE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY

S E C R E T SECTION 01 OF 02 TEL AVIV 002281
SIPDIS
SIPDIS
WHITE HOUSE FOR APHSCT TOWNSEND; TREASURY FOR U/S LEVEY; NSC FOR ABRAMS.

E.O. 12958: DECL: 07/16/2017 TAGS: PTER PREL KNNP KWBG EFIN IR IS
REF: TEL AVIV 1966

Classified By: Charge daffaires Gene A. Cretz for reasons 1.4 (B/D).

¶1. (S) SUMMARY: Frances Fragos Townsend, Assistant to the President for Homeland Security and Counterterrorism (APHSCT) met with Israeli National Security Council (NSC) officials on July 12. Danny Arditi, Head of the NSC Counterterrorism Bureau, presented a plan to facilitate increased financial support for the Palestinian government of Prime Minister Salam Fayyad, while mitigating the risks of new funding for terrorists and the Hamas "government" in Gaza. The core of the proposal was the establishment of an active Palestinian Financial Intelligence Unit (FIU) with supervision from the United States or the European Union. NSC Chairman Ilan Mizrahi offered Townsend a broader analysis of regional threats, focusing on the specter of Iranian influence and what he viewed as the growing confidence of al-Qaeda-related groups. NSC officials additionally presented an action plan for disrupting Hizballahs terrorist operations through an aggressive legal strategy against the organizations international criminal network. END SUMMARY.

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Terrorist Finance Controls Key to Gaza Policy
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¶2. (S) Brigadier General Danny Arditi, a counterterrorism advisor to Prime Minister Ehud Olmert, presented Townsend with a plan for increased cooperation with the Fayyad government, facilitated by improved monitoring of the Palestinian financial system. Arditi said that the objective was to damage the Hamas government in Gaza financially without creating a humanitarian crisis, and to buy time for Fatah to rebuild support. In Arditis view, the current closure of Gaza border crossings is not sustainable, with several thousand Palestinians currently waiting to enter Gaza through the Rafah crossing. Arditi said that sooner or later the GOI would have to deal with Hamas. At the same time, said Arditi, Israel and the Fayyad government are in agreement that they cannot allow free movement into and out of Gaza without a mechanism for controlling the flow of money and goods to terrorists and the Hamas government. (NOTE: Arditi added that Israel and Fayyad are both willing to open the Kerem Shalom crossing through Israeli territory. Hamas has repeatedly rejected such a solution, preferring to hold out for reopening Rafah for people and Karni for goods. END NOTE.)

¶3. (S) Arditis proposal called for the creation of an external oversight system, with assistance from the United States and/or the European Union. The proposed system would include the creation of a strong Palestinian FIU based in the West Bank, and "the adoption of Financial Action Task Force (FATF) rules by the Palestinian banking system." Without such oversight, Arditi expressed concern that Israeli banks would cut off their correspondent relationship with the Palestinians (reftel). Arditi said that Mossad Director Meir Dagan also advocates a new Palestinian "social security system" as an alternative to the Hamas Daawa system of charitable institutions, but Arditi remained skeptical on this point. Arditi asked Townsend who would be the right partner in the USG for the FIU plan, and inquired as to whether it would be well-received in Washington. Townsend recommended Under Secretary for the Treasury Stuart Levey as a natural counterpart, and suggested that the Israelis approach Deputy National Security Advisor Elliott Abrams on the question of support.

¶4. (S) Arditis presentation represented an attempt by the Government of Israel (GOI) to find a way forward in dealing with Hamas-controlled Gaza, but NSC officials admitted that the GOI does not yet have a coherent policy. The Gaza/West Bank split appears simple on the surface, said an aide to Arditi, but carries many inherent contradictions. "This is not the first time we have tried to help Fatah," he noted. NSC officials told Townsend that the Israeli Cabinet remains concerned about Hamas influence in the West Bank, and many are skeptical about the ability of Abbas and Fayyad to "turn back the wheel."

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NSC Head Sees "Axis of Fear"
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¶5. (S) Chairman Ilan Mizrahi stressed that process, not events, affects the spread of terror in the Middle East. He pointed to three major factors in the region that create the conditions for terrorism: the weakness of Arab and Muslim communities and states that fail to join the advances of the modern world; the erosion of the secular state and the rise of ethnic politics, particularly in Iraq, the Palestinian territories, and Lebanon; and the rise of political Islam. Mizrahi also noted that the clash between Sunni and Shia Islam tends to bring out the extremists on both sides. He pointed out that both sides support terror groups that further their interests, including the Gulf States and Saudi Arabia, despite the fact that some characterize them as "moderate Arab states" or "good guys." Mizrahi said that many Arab states would be better characterized as an "axis of fear," because they share a fear of Iranian influence.

¶6. (S) There are few forces restraining radical Islam, said Mizrahi, particularly now that the United States and Israel are viewed as weakened powers. Supporters of radical Islam believe that their cause is ascendant, he continued, given what they perceive as successes in Iraq, Afghanistan, Somalia, North Africa, Iraq, and Lebanon -- as well as growing militancy among Muslim communities in Europe and the Far East. Iran supports terrorism throughout the region, said Mizrahi, who asserted that Iran is currently sheltering two senior al-Qaeda operatives. Townsend agreed with Mizrahi that al-Qaeda-type groups were positioned for new strikes against the West, particularly originating in North Africa where al-Qaeda has gained from mergers with local organizations. Townsend said that terrorists were particularly determined to hit major oil facilities, and could potentially pursue a combination of big and small attacks over a period of time sweeping from Europe to the Middle East.

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Linking Crime and Terror
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¶7. (S) NSC officials made a presentation on current GOI efforts to pursue links between terrorism and criminal activity, including Hizballahs involvement in drug trafficking and money laundering. They thought criminal investigations could be used to disrupt Hizballahs operations, especially its financial resources. One NSC official working on the plan said that he was working with the New York District Attorney to prosecute criminal cases in that state. Mizrahi also contended that the professional level of criminality in North Africa, coupled with emigration to Europe, posed a real threat when combined with terror elements. Townsend added that given the visa waiver program with many European countries, this posed an additional threat to the United States. NSC officials queried Townsend on U.S. commitment to combating Hizballah, and received assurances that the organization remains a "tier 1 priority."

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COMMENT: GOI LOOKS TO U.S. FOR DIRECTION
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¶8. (S) It is not clear to what extent the NSC proposal for a Palestinian FIU and international oversight is official GOI policy. Israeli officials themselves admit that a clear policy has yet to crystallize fully, especially with regard to Palestinian institutions in Gaza. There appear to be several camps within the GOI on the issue of financial links with Gaza, with some advocating for a complete banking quarantine. This current proposal originated in the Israel Money Laundering and Terror Financing Prohibition Authority of the Ministry of Justice (reftel), and represents a more measured approach. Arditi and others are looking for a balance between humanitarian concern for the Palestinian population and effective tracking of possible terrorist activity. Arditi and the NSC are likely seeking U.S. support to strengthen their position in internal GOI discussions.

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