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C O N F I D E N T I A L SECTION 01 OF 03 TEL AVIV 000279 
 
NOFORN 
SIPDIS 
 
FOR DEPUTY SECRETARY LEW FROM AMBASSADOR CUNNINGHAM 
 
E.O. 12958: DECL: 02/04/2020 
TAGS: IS ECON EFIN KWBG PREL PGOV
SUBJECT: SCENE SETTER FOR DEPUTY SECRETARY LEW'S VISIT TO 
ISRAEL 
 
Classified By: AMBASSADOR JAMES CUNNINGHAM, reason 1.4 (b) and (d) 
 
1.(C) Summary: I am pleased to welcome you to Israel on your 
first official visit as Deputy Secretary of State. You will 
see that despite some difficulties we have a strong and 
dynamic bilateral relationship. In addition to looking into 
the effect of USG resources spent in the region, I am pleased 
that you will meet with U.S. Mission members, the stewards of 
those resources.  Your visit will also encourage the Israelis 
you meet to ponder their future within a context of peace and 
security, capitalizing on a very valuable asset -- their 
culture of innovation.  The current atmosphere of political 
and military calm is clouded by uncertainty in an 
international environment that feels markedly more hostile to 
Israelis within the last year.  While the discussion has 
become more reasoned, Israelis in and out of government seek 
constant reassurance about the commitment of the Obama 
administration.  With engagement with the Palestinians 
stalled, regional relationships have suffered. Economic 
growth returned relatively early in  Israel, and the primary 
lingering effect of the global  financial crisis, 
unemployment, continues to subside. Growing the economy and 
increasing the participation of all segments of Israeli 
society are priorities for the current  government, and they 
are striving to remain fiscally conservative while pursuing 
these goals.  End Summary. 
 
--------------------------- 
EMBASSY TEL AVIV MANAGEMENT 
--------------------------- 
 
¶2.  (U) Embassy Tel Aviv manages a 50 million USD portfolio 
of allotments for its 27 ICASS subscribers.  We employ 583 
locally engaged staff and 185 Americans across the various 
agencies.  In 2009, Tel Aviv supported 59 VIP visits; 
including two SecState, 34 CODELs, eight General Selva, nine 
Senator Mitchell, six FPOTUS and 8700 other official TDY 
visitors. Space is one of the major management issues for 
Embassy Tel Aviv.  Since 2005, post has grown 35 percent in 
the number of American positions alone, with 12 new NSDD-38 
requests already made in 2010. 
 
------------------- 
POLITICAL LANDSCAPE 
------------------- 
 
¶3. (C) Overall, Netanyahu,s government is solid.  He has 
carved out a position solidly within the Israeli consensus, 
and he is not under any serious political pressure to change 
course.  The opposition, led by former Foreign  Minister 
Tzipi Livni, has had a difficult time finding traction for 
its argument that it generally agrees with Netanyahu,s 
policy of a demilitarized Palestinian state next to Israel 
but claims his commitment to peace is weak and argues that 
lack of international confidence in his approach is leading 
Israel to disaster. Israelis remain concerned about what they 
see as increasing attacks on their legitimacy from the 
Goldstone Report, potential criminal prosecutions in Europe 
under universal jurisdiction, and increased calls for 
boycotts. 
 
¶4.  (C) Netanyahu is serious in his calls for a resumption 
of negotiations, and he is aware that the lack of progress 
in the peace process is fueling much of the international 
hostility towards Israel, as well as putting some strain on 
the relationship with the United States.  The limited freeze 
on settlement construction, while short of both the 
Palestinian and USG expectations, was a difficult decision 
that carries a real political and financial cost.  Israelis 
believe that this limited freeze, combined with the actions 
the GoI has taken to improve conditions in the West Bank, 
should be sufficient encouragement to the Palestinians to 
restart negotiations.  The GoI is not anxious to offer any 
more gestures, and has doubts that any future  gestures will 
yield a different response from the Palestinians. 
 
¶5. (C) The Goldstone report is back in the headlines with the 
upcoming UN Secretary General report on the subject and the 
recent Israel submission of an update on its own 
investigations regarding incidents during the war.  Israeli 
leaders have developed a virtually obsessive reaction to the 
report, which they see as an assault on both the State of 
Israel and its democratic institutions, and an attempt to 
deny their right to self-defense against terrorism. 
Assistant Secretary Michael Posner recently visited Israel 
and engaged with them on this issue in-depth.  The 
Palestinian Authority's (PA) handling of the Goldstone report 
has further complicated Israel,s relations with the PA and 
 
TEL AVIV 00000279  002 OF 003 
 
 
poses a threat to both the potential for negotiations and the 
efforts to improve the situation in the West Bank.  In the 
meantime, Israelis  express satisfaction with both Fayyad,s 
efforts to reform the PA and with the much improved 
performance of PA Security Forces, although they believe the 
PA,s assessments of its abilities on both fronts are overly 
optimistic.  In Gaza, Israel policy is caught on the horns of 
a dilemma over Gilad Shalit and Hamas, continued control 
within the Strip. 
 
¶6.  (C) With regards to Iran, the GoI has accepted our policy 
of engagement, but Israel, particularly PM Netanyahu  and DM 
Barak, continues to regard a nuclear Iran as an existential 
threat and a catastrophe for regional stability.  The GoI has 
pushed for immediately enacting tougher sanctions and insists 
on keeping a military option available.  Iran was the main 
point of discussion during last month,s visit of NSA Jones. 
Israeli experts within and outside government argue that how 
the Iranian nuclear issue is resolved over the next two years 
will determine the perception of U.S. power for years to 
come. 
 
¶7.  (C) Deteriorating relations with Turkey are also a 
concern, and many Israelis believe that Turkey will continue 
to move inexorably away from Israel and the West and closer 
to Syria and Iran due to internal politics and a new regional 
 strategy.  On Lebanon, most GoI officials believe another 
war with Hizballah is just a matter of time, but they are in 
no rush to provoke anything and believe Hizballah, at least 
for now, also has no interest in a fight.  However, they 
repeat both publicly and privately their belief that all of 
Lebanon will be held accountable for Hizballah actions now 
that Hizballah is a partner in the government. 
 
------------------ 
ECONOMIC LANDSCAPE 
------------------ 
 
¶8.  (SBU) The Israeli economy weathered the global downturn 
relatively well, registering GDP growth of 0.5  percent in 
¶2009.  GDP per capita in nominal terms was USD 26,075 and 
growth forecasts for 2010 are in the 3.5  percent range.  The 
deficit in 2009 was 5.15 percent of GDP, lower than the 6 
percent target set by the GoI primarily due to higher than 
expected tax venues.  Ministry of Finance officials believe 
that the external nature of the global  crisis -- primarily 
hitting exporters of financial goods and markets such as 
derivatives -- limited damage to the local economy. 
 
¶9.  (SBU) In addition to a relative lack of sophistication in 
Israel's banking sector, the country's status as a high-tech 
goods exporter allowed for quicker rebounding than in the 
U.S. and Europe. Although total exports declined 13.2 percent 
for the year in 2009, imports declined more sharply, by 15.4 
percent.  However,  industrial exports (excluding diamonds) 
as a percentage of exports of goods increased, accounting for 
83 percent of the total according to data from the Central 
Bureau of  Statistics.  This appears to be due to a sharp 
increase in shipments of electronic components and computers, 
mostly accounted for by the opening of a new Intel production 
site in Kiryat Gat in early 2009. A return to export growth 
in Israel depends on the rate of global recovery, and the GoI 
recently announced an export guarantee plan to encourage 
exports and take on a measured part of the risk exports face. 
 
 
¶10.  (SBU) With a two-year budget in place, a measured and 
balanced monetary policy carried out by Bank of Israel 
Governor Stanley Fischer, and a fiscal program that has 
brought the debt-to-GDP ratio down to 78 percent from a 
height of close to 100 percent in 2003, Israel feels its 
admission to the OECD is all but guaranteed.  The extended 
fiscal outlook for 2011 remains shaky, given planned tax cuts 
and the need to meet several budgetary obligations coming 
due. Nonetheless, the government is considering another 
two-year budget (2009-10 was its first) in hopes of retaining 
political stability and locking in  multi-year budget 
commitments.  Pending admission to the OECD has brought about 
many positive outcomes, including a  push to reach an 
break-through IPR agreement and the impetus to address 
several socio-economic issues that endanger Israel's future 
economic success. 
 
¶11.  (SBU) Israel,s economy, despite strong pre-crisis 
growth, is weaker than it appears.  There are two  economies: 
 a progressive knowledge-based economy that engages 9 per 
cent of the workforce, is globally quite competitive, and 
highly productive; and a far larger manufacturing and 
 
TEL AVIV 00000279  003 OF 003 
 
 
services economy which faces risks from  globalization, with 
productivity stagnant.  Israel's labor participation rate at 
55% is among the lowest of developed countries, largely due 
to uniquely Israeli socio-religious factors.  Engaging more 
people in productive employment will be key in coping with 
the growing number of retirees as the post-WWII baby 
generation leaves the workforce.  However, engaging the 
underemployed groups -- chiefly  Arab-Israelis and 
ultra-orthodox Jews -- poses a major challenge. 
Demographically these groups provide a  growing percentage of 
the young Israeli population, and both groups lag in terms of 
education and civic  engagement.  The Ministry of Finance has 
announced its intention to ensure that expected growth 
reduces social gaps, in contrast to 2004-2008. 
 
¶12.  (SBU) Investing in its culture of innovation is also 
primary goal for the GoI, and creating linkages to 
under-represented groups within Israel, as well as regional 
linkages, provides one of the discussion points we hope you 
will explore with your interlocutors here.  The combination 
of human capital and strong government support that has  made 
Israel a world leader in renewable energy and  information 
technology requires preservation.  As the GoI  investigates 
venture capital fund support in the field of  life sciences, 
and the Tel Aviv Stock Exchange inaugurates a biomed index, 
it will be useful to encourage the GoI to extend the global 
reach of the solutions they implement. Global health, 
renewable energies, and food security are but some of the 
issues that stand to benefit from the continued enhancement 
of Israel's high-tech prowess.  Much as the IDF has recently 
exemplified the best of Israel's exercise of global 
citizenship in its mission to Haiti, the fruits of her 
innovation culture address global needs as well, improving 
agriculture through water technologies and bringing 
affordable renewable energy possibilities to underdeveloped 
markets. 
 
¶13.  (SBU) I believe your visit will advance discussions  for 
partnership in many arenas, and I extend a warm welcome  to 
you and your staff. 
 
CUNNINGHAM 
Cunningham