History of Israel.

History of Israel
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This History of Israel discusses the history of the modern State of Israel, from its independence proclamation in 1948 to the present. The independence of the modern State of Israel was achieved in 1948 after more than 60 years of efforts by Zionist leaders to establish sovereignty and self-determination in the Jewish National Homeland.

Map of Israel
State of Israel
Geography
Land of Israel · Districts · CitiesTransportation · MediterraneanDead Sea · Red Sea · Sea of GalileeJerusalem · Tel Aviv · Haifa
History
Zionism · Timeline ·Aliyah · Herzl · FlagBalfour · Mandate · 1947 UN PlanIndependence · Austerity · Refugees
Arab-Israeli conflict · Proposals
1948 War · 1949 Armistice · Suez WarSix-Day War · Attrition WarYom Kippur War · Lebanon WarIsrael-Lebanon ConflictPeace treaties with: Egypt, Jordan
Israeli-Palestinian conflict
Timeline · Peace process · Peace camp1st Intifada · Oslo · 2nd IntifadaBarrier · Disengagement
Economy
Science & technology · CompaniesTourism · Winemaking · Military industry
Demographics · Culture
Religion · Israeli Arabs · KibbutzMusic · Archaeology · UniversitiesHebrew · Literature · Sport · Israelis
Laws · Politics
Law of Return · Jerusalem LawParties · Elections · PM · PresidentKnesset · Supreme Court · Courts
Foreign affairs
Intl. Law · UN · US · Arab League
Security Forces
Israel Defense ForcesIntelligence Community · Security CouncilPolice · Border Police · Prison Service
Portal:Israel
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Contents[hide]
1 Background
1.1 Zionism
2 After World War II
2.1 1948 War of Independence
2.1.1 References
2.2 The Lavon Affair
2.2.1 Further information about the Lavon Affair
2.3 1956 Suez War
2.4 Six-Day War
2.5 The Yom Kippur War
2.6 The "Zionism is Racism" UN Resolution
2.7 Egyptian-Israeli Peace Process
2.8 Lebanon
2.9 First Intifada
2.10 Gulf War
2.11 Immigration from the former Soviet Union
2.12 Middle East peace process
2.13 Assassination of Rabin
2.14 Election of Netanyahu
2.15 Hebron and Wye River agreements
2.16 Visit of the Pope
2.17 Withdrawal from Lebanon
2.18 Second Intifada
2.19 Special elections and negotiations by Barak
2.20 Israeli West Bank barrier
2.21 Disengagement from Gaza
2.22 Election of Ehud Olmert
3 Foreign relations of the State of Israel
4 Economic History of Modern Israel
4.1 The Pre-state Background
4.2 The Formative Years: 1948-1965
4.3 The Arab-Israel Conflict
4.4 Growth and Economic Fluctuations
4.5 Policy Changes
4.6 The Challenges Ahead
5 References
6 Arab-Israeli peace diplomacy and treaties
7 See also
8 External links
//
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Background
Main articles: Jewish history, Land of Israel, and History of Palestine
The desire of Jews to return to their historical homeland was first expressed during the Babylonian captivity after 597 BCE. This became a universal Jewish theme after the Jewish-Roman wars, which included the destruction of Jerusalem by Titus in the year 70 CE, and the exile that followed. The Jewish diaspora and those who stayed continued to see the land as their spiritual home and as the Promised Land; there is no evidence of any interruption of the Jewish presence there for the last three millennia. For generations, the universal theme carried mostly religious overtones due to the belief that the Jewish people would return to Zion with the coming of the Messiah, i.e., only after divine intervention; some proposed or attempted to return earlier, but they were in a minority.
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Zionism
Main article: Zionism
By the mid-19th century, the Land of Israel was a part of the Ottoman Empire populated mostly by Muslim and Christian Arabs, as well as Jews, Greeks, Druze, Bedouins and other minorities. By 1844, Jews constituted the largest population group (and by 1890 an absolute majority) in a few cities, most notably Jerusalem. [1] In addition to these traditional religious Jewish communities, known as the Old Yishuv, the second half of the 19th century saw a new kind of Jewish immigrant, prevalently secular left-wing socialists who aimed to reclaim the land by working on it.
Mikveh Israel was founded in 1870 by Alliance Israelite Universelle, followed by Petah Tikva (1878), Rishon LeZion (1882), and other agricultural communities founded by the members of Bilu and Hovevei Zion.
In 1897, the First Zionist Congress proclaimed the decision "to establish a home for the Jewish people in Eretz-Israel secured under public law." [2]
The Balfour Declaration of 1917 asserted that the British Government "view[ed] with favour the establishment in Palestine of a national home for the Jewish people"..."it being clearly understood that nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine". This declaration was supported by a number of other countries, including the United States, and became more important following World War I, when the League of Nations assigned the United Kingdom the Palestine mandate.
Jewish immigration grew slowly in the 1920s; it increased substantially in the 1930s, due to political turmoil in Europe and Nazi persecution, until restrictions were imposed by UK in 1939. After the end of World War II, and the near-extermination of European Jews by the Nazis, international support for Jews seeking to settle in Palestine overcame British efforts to restrict immigration.
Since the Holocaust, Judaism has become overwhelmingly Zionist.[3] [4] [5] Today all of Reform, Conservative and Modern Orthodoxy is staunchly Zionist, and most Haredi Jews have changed from anti-Zionism (active opposition to Zionism) to non-Zionism (neutrality towards Zionism.) Secular non-Zionist Jewish movements are very rare today.
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After World War II
Following World War II, the British announced their intention to withdraw from the British mandate of Palestine. The United Nations General Assembly proposed the partition of Palestine into two states, an Arab state and a Jewish state, with Jerusalem to be under United Nations administration. Most Jews in Palestine accepted the proposal, while most of the Arabs in Palestine rejected it.
Violence between Arab and Jewish communities erupted almost immediately. Toward the end of the British mandate, the Jews planned to declare a separate state, a development the Arabs were determined to prevent. On May 14, 1948, the last British forces withdrew from Palestine, and the Jews, led by David Ben-Gurion, declared the creation of the State of Israel, in accordance with the 1947 UN Partition Plan.
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1948 War of Independence
Main article: 1948 Arab-Israeli War
Immediately following the Declaration of Independence of the State of Israel, Egyptian, Syrian, Iraqi, Jordanian, and Lebanese forces invaded the newly formed state on all fronts. In a desperate and costly war characterized by use of makeshift armaments and resourceful tactics, Israel eventually repelled the attacking armies, and then advanced its forces to occupy some of the territory set aside under the Partition Plan for the Arabs and for the City of Jerusalem. A cease fire agreement was signed between the two sides, with the current front line becoming the boundary between Israel and the Arab territories. As a result of the 1948 war, Israel controlled all the territory allotted to them under the Partition Plan, much of the territory allotted to the Arabs under the Plan, and half of what was to be the UN-administered City of Jerusalem. The remaining Arab territories were the West Bank and the Gaza Strip; the West Bank was administered by Jordan, while the Gaza Strip was administered by Egypt.
In 1949, under UN auspices, four armistice agreements were negotiated and signed at Rhodes, Greece, between Israel and its neighbors Egypt, Jordan, Lebanon and Syria. The 1948-49 War of Independence resulted in a 50% increase in Israeli territory, including western Jerusalem. No general peace settlement was achieved at Rhodes, however, and violence along the borders continued for many years.
As a result of this war, about 711,000 Arab refugees were created (according to the United Nations Conciliation Commission for Palestine[3]) and over 800,000 Jewish refugees were created. The latter figure includes all Jews who fled or were expelled from Arab states after Israel was created. Pro-Palestinian sources call these people emigrants, rather than refugees. Pro-Israeli commentators hold that the Jewish exodus from Arab lands, many of which communities had been established for more than 2000 years, came as a result of violence and persecution. About 600,000 of the Jewish refugees settled in the State of Israel, having neither intention nor willingness to return to their source countries; many of the Arab refugees, and their descendants, remain to this day in refugee camps run by the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA).
On July 5, 1950, the Knesset passed the Law of Return which granted all Jews the right to immigrate to Israel. Even prior to the passing of that law, immigrants flocked to Israel, some assisted by Israeli authorities. From 1947 to 1950 some 250,000 Holocaust survivors made their way to Israel. "Operation Magic Carpet" brought thousands of Yemenite Jews to Israel.
The early years were not easy for the newly founded state, and a state of austerity was put into force on 1949, not to be fully annulled until 1959.
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References
1947 UN resolution
Map of 1947 UN division
Refugees (Jewish Virtual Library)
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The Lavon Affair
Main article: Lavon Affair
After Gamal Abdal Nasser came to power in Egypt of 1952, relations between the U.S. and Egypt improved. This was viewed as a threat to Israel. In an incident which later shocked the Israeli public when the facts came to light, and which then brought down its government, a handful of individuals in the Israeli government and the Mossad conspired to undermine relations between the U.S. and Egypt. This group orchestrated a bombing campaign against American governmental and civilian installations in Egypt, including an American library in Alexandria and Cairo, an MGM Cinema, and other American owned business buildings.
The campaign was halted in 1954 by the arrest of two agents who had attempted to place a bomb; this led to the collapse of the cell and the imprisonment or execution of most of its members by Egypt. Some quarters maintain that Israel did not do enough to protect its agents, prompted by allegations of torture and mistreatment of the bombers by the Egyptian authorities.
In the following internal investigation, Brigadier Binyamin Gibli claimed that the Defence Minister, Pinhas Lavon gave a verbal order to carry out the operation. The Chief of Staff of that time, Moshe Dayan, agreed with him. As a result of the scandal, now known as the Lavon Affair, Lavon was forced to resign. David Ben-Gurion replaced him in office. In 1960, following new evidence from a secret 1958 trial of a suspected double agent, Lavon asked Ben Gurion to exonerate him. Ben-Gurion refused, since he could not believe that officers of the Israeli army, which he had built himself, would be able to commit such a dishonest action as framing Lavon.
In 1960, a committee of seven ministers set up to investigate the matter revealed the forging of a document used by Moshe Dayan and Shimon Peres, then Deputy Minister of Defense, to deflect responsibility for the botched 1954 Egyptian operation onto Lavon. A subsequent hearing revealed that Peres, Dayan and Brigadier Abraham Givli were also involved. The conclusions of the committee were accepted by the government. Despite attempts to censor the details of the case on grounds of national security, the Lavon Affair led to a second scandal, and Ben-Gurion's forced resignation due to the inability of the government to act due to political considerations. The Israeli public reacted with outrage when they learned the truth about the conspiracy.
In the following 1961 elections, Ben-Gurion declared that he would only accept office if Lavon was fired from the position of the head of Histadrut, Israel's labor union organization. His demands were accepted; however in 1963 he quit again in the wake of the scandal. His attempts to make his political party MAPAI resolve this issue during 1964-1965 turned against him, and Ben-Gurion was forced to leave.
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Further information about the Lavon Affair
Doron Geller: The Lavon Affair [4]
List of books and articles covering the affair [5]
Jack Riemer: Author unravels the scandal that brought down Ben-Gurion [6]
Israeli government's summary (in Hebrew)[7]
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1956 Suez War
Main article: 1956 Suez War
The Suez Crisis came about as conflict between Egypt and Israel increased in 1956, with Egypt sending guerrilla forces into Israeli territory and Israel launching frequent incursions into Egyptian territory in response. Egypt blockaded the Gulf of Aqaba, and closed the Suez canal to Israeli shipping. Egypt also nationalized the canal, to the fury of its previous European controllers. In response, France and the United Kingdom entered into a secret agreement with Israel to take back the canal by force. In accordance with this agreement (which was not officially admitted until very much later), Israel invaded the Gaza Strip and the Sinai Peninsula in October 1956. Israeli forces reached the canal in short order and then French and British forces stepped in on the pretext of restoring order.
The Israeli, French and United Kingdom forces were victorious, but withdrew in March 1957 due to pressure from their ally, the United States, which did not approve of the Suez War. The United Nations established the UN Emergency Force (UNEF) to keep peace in the area.
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Six-Day War
Main article: Six-Day War.
In June 1967, the united Arab military command amassed troops along the Israeli borders, while Egypt closed the Straits of Tiran and Nasser insisted that the UNEF leave Egypt. The Six-Day War began when on June 5, 1967, the Israeli air force launched preemptive attacks destroying the air force of Egypt, later the same day neutralising the air forces of Jordan and Syria. Israel then defeated (almost successively) Egypt, Jordan and Syria. By June 11 the Arab forces were routed and all parties had accepted the cease-fire called for by UN Security Council Resolutions 235 and 236.
Israel gained control of the Sinai Peninsula, the Gaza Strip, the Golan Heights, and the formerly Jordanian-controlled West Bank of the Jordan River, including East Jerusalem. On November 22, 1967, the Security Council adopted Resolution 242, the "land for peace" formula, which called for the establishment of a just and lasting peace based on Israeli withdrawal from territories occupied in 1967 in return for the end of all states of belligerency, respect for the sovereignty of all states in the area, and the right to live in peace within secure, recognized boundaries.
In retaliation for repeated Egyptian shelling of Israeli positions along the Suez Canal, Israeli planes made deep strikes into Egypt in the 1969-1970 "war of attrition". In early 1969, fighting broke out between Egypt and Israel along the Suez Canal. The United States helped end these hostilities in August 1970, but subsequent U.S. efforts to negotiate an interim agreement to open the Suez Canal and achieve disengagement of forces were unsuccessful.
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The Yom Kippur War
Main article: Yom Kippur War.
The Yom Kippur War began on October 6, 1973 (the Jewish Day of Atonement) when the Syrian and Egyptian armies launched a simultaneous attack on Israel and inflicted a short lived defeat on the surprised Israeli Defence Force (IDF). After the first 24-48 hours the wars momentum shifted to Israel and within three weeks the invaders were pushed back, the land recaptured and a UN peacekeeping force put in place.
As a result of the shock sustained by Israeli society in the aftermath of the war, the Israeli government started negotiations for security on its borders. On January 18, 1974, a Disengagement of Forces agreement was signed with the Egyptian government, and on May 31, with the Syrian government. On the international scene, the Arab world retaliated by imposing an oil embargo on countries trading with Israel. The government of Japan announced on November 22, 1973 that it would reconsider its relations with the Israeli government unless it withdrew from all territories occupied in as a result of the 1967 Six Day War.
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The "Zionism is Racism" UN Resolution
On November 10, 1975, the United Nations General Assembly adopted Resolution 3379 which asserted Zionism to be a form of racism. The General Assembly rescinded this resolution on December 16, 1991 with Resolution 4686.
(See also Zionism and racism, Israel and the United Nations.)
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Egyptian-Israeli Peace Process
In November 1977, Egyptian President Anwar Sadat broke 30 years of hostility with Israel by visiting Jerusalem at the invitation of Israeli Prime Minister Menachem Begin, who was elected as the prime minister earlier that year in the 1977 election, in what is known as the Mahapakh. During a 2-day visit, which included a speech before the Knesset, the Egyptian leader created a new psychological climate in the Middle East in which peace between Israel and its Arab neighbors seemed a realistic possibility. Sadat recognized Israel's right to exist and established the basis for direct negotiations between Egypt and Israel.
In September 1978, U.S. President Jimmy Carter invited President Sadat and Prime Minister Begin to meet with him at Camp David, and on September 11 they agreed on a framework for peace between Israel and Egypt and a comprehensive peace in the Middle East. It set out broad principles to guide negotiations between Israel and the Arab states. It also established guidelines for a West Bank-Gaza transitional regime of full autonomy for the Palestinians residing in these territories and for a peace treaty between Egypt and Israel. The treaty was signed on March 26, 1979, by Begin and Sadat, with President Carter signing as witness. Under the treaty, Israel returned the Sinai peninsula to Egypt in April 1982. In 1989, the governments of Israel and Egypt concluded an agreement that resolved the status of Taba, a resort area on the Gulf of Aqaba.
Further information from pro-Israel sources: [8], [9]
The Arab League reacted to the peace treaty by suspending Egypt from the organisation and moving its headquarters from Cairo to Tunis. Sadat was later assassinated by members of the Egyptian army which had opposed his efforts to make peace with Israel.
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Lebanon
In the decades following the 1948 war, Israel's border with Lebanon was quiet compared to its borders with other neighbors. After the expulsion of the Palestinian fedayeen (fighters) from Jordan in 1970 and their influx into southern Lebanon, however, hostilities on Israel's northern border increased. In March 1978, after a series of clashes between Israeli forces and Palestinian guerrillas in Lebanon, Israeli forces crossed into Lebanon commencing Operation Litani. After passage of Security Council Resolution 425, calling for Israeli withdrawal and the creation of the United Nations Interim Forces in Lebanon peace-keeping force (UNIFIL), Israel withdrew its troops.
In July 1981, after additional fighting between Israel and the Palestinians in Lebanon, President Ronald Reagan's special envoy, Philip C. Habib, helped secure a cease-fire between the parties. During this time the Palestine Liberation Organization (PLO) launched attacks against northern Israel using rockets and artillery. The PLO simultaneously engaged Lebanese Christian forces.
In June 1982, Israel responded by invading the southern half of Lebanon during the 1982 Lebanon War to drive out the PLO, initially from Southern Lebanon and then altogether. While a few Lebanese did at first welcome the Israelis, almost all Lebanese came to resent Israeli occupation. Heavy Israeli casualties and a lack of clear goals led to increasing disquiet at the war among Israelis as well.
In August 1982, the PLO withdrew its forces from Lebanon. With U.S. assistance, Israel and Lebanon reached an accord in May 1983 that set the stage to withdraw Israeli forces from Lebanon. The instruments of ratification were never exchanged, however, and in March 1984, under pressure from Syria, Lebanon canceled the agreement. In June 1985, Israel withdrew most of its troops from Lebanon, leaving a small residual Israeli force and an Israeli-supported militia in southern Lebanon in a "security zone," which Israel considered a necessary buffer against attacks on its northern territory. Israel finally withdrew from this zone in 2000, during the Prime Ministership of Ehud Barak, fulfilling UN Security Council Resolution 425. Lebanon has since claimed a small area of the Golan Heights called "Shebaa Farms" which Israel captured from Syria in 1967.
Further information from pro-Israel sources: [10], [11]
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First Intifada
Main article: First Intifada.
In response to the continuing Israeli occupation of the West Bank and Gaza Strip regions, Palestinians began the first Intifada (uprising) in 1987. Israel responded with strong military and police resistance, but failed to end the fighting. The first intifada continued until 1991.
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Gulf War
Main article: Gulf War
In 1990, Iraq invaded Kuwait, triggering the Gulf War between Iraq and a large allied force, led by the United States. Iraq, seeking to inflame Arab public opinion and draw Arab states out of the alliance (and possibly to Iraq's side), attacked Israel with 39 Scud missiles. Under pressure from the United States, Israel did not retaliate. Instead, it accepted U.S. assistance in deflecting the attacks. One man in the Ramat Khen neighborhood in Ramat Gan was killed by a MIM-104 Patriot anti-missile missile which went astray. Between 7 and 13 people died from asphyxiation due to gas mask misuse. Statistical analysis suggests that 30-80 excess deaths occurred, mostly from heart attacks due most likely to "emotional stress and breathing difficulties" (Journal of the American Medical Association, Volume 273(15), 19 Apr 1995, pp 1208-1210).
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Immigration from the former Soviet Union
In 1990, the Soviet Union permitted Soviet Jews to emigrate from the Soviet Union to Israel. Prior to this, the Soviet government had prohibited those members of its Jewish population (approximately three million) who wished to emigrate from doing so. Several hundred thousand chose to leave once the restrictions were eased. There has been some doubt expressed as to how many of these emigrants were Jewish according to Jewish law. Traditional Jews expressed these concerns due to issues of Jewish unity.
Additional concerns centered on the ability of these immigrants to adapt to Israeli culture and find suitable employment. [12]
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Middle East peace process
Main article: Peace process in the Israeli-Palestinian conflict.
The coalition's victory in the Gulf war opened new possibilities for regional peace, and in October 1991 the U.S. President, George H.W. Bush and Soviet Union Premier, Mikhail Gorbachev, jointly convened a historic meeting in Madrid of Israeli, Lebanese, Jordanian, Syrian, and Palestinian leaders. This meeting became the foundation for ongoing bilateral and multilateral negotiations designed to bring lasting peace and economic development to the region.
On September 13, 1993, Israel and the PLO signed a Declaration of Principles (DOP) (text of DOP) on the South Lawn of the White House. The declaration was a major conceptual breakthrough achieved under the Madrid framework. It established an ambitious set of objectives relating to a transfer of authority from Israel to an interim Palestinian authority. The DOP established May 1999 as the date by which a permanent status agreement for the West Bank and Gaza Strip would take effect. Israel and the PLO subsequently signed the Gaza-Jericho Agreement on May 4, 1994, and the Agreement on Preparatory Transfer of Powers and Responsibilities on August 29, 1994, which began the process of transferring authority from Israel to the Palestinians.
Further information from pro-Israel sources: [13],
Tensions with Jordan were lessened on July 25, 1994 when the two nations signed the Washington Declaration which formally ended the state of war that had existed between them since 1948. On October 26, 1994, Israel and Jordan signed a historic peace treaty at a border post between the two countries, witnessed by US President Bill Clinton, accompanied by US Secretary of State Warren Christopher. Israel ceded a small amount of contested land to Jordan, and the countries opened official diplomatic relations, with open borders and free trade. Govt Israel, Govt Jordan
Prime Minister Yitzhak Rabin and PLO Chairman Yasser Arafat signed the historic Israeli-Palestinian Interim Agreement on the West Bank and the Gaza Strip on September 28, 1995, in Washington, D.C.. The agreement, witnessed by President Bill Clinton on behalf of the United States and by Russia, Egypt, Norway, and the European Union, incorporates and supersedes the previous agreements and marked the conclusion of the first stage of negotiations between Israel and the PLO.
The accord broadens Palestinian self-government by means of a popularly elected legislative council. It provides for election and establishment of that body, transfer of civil authority, Israeli redeployment from major population centers in the West Bank, security arrangements, and cooperation in a variety of areas. Negotiations on permanent status began on May 5, 1996 in Taba, Egypt. As agreed in the 1993 DOP, those talks will address the status of Jerusalem, Palestinian refugees, Israeli settlements in the West Bank and Gaza Strip, final security arrangements, borders, relations and cooperation with neighboring states, and other issues of common interest.
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Assassination of Rabin
The assassination of Prime Minister Rabin by a right-wing Jewish radical on November 4, 1995 climaxed an increasingly bitter national debate over where the peace process was leading. Rabin's murder left Israel profoundly shaken, ushered in a period of national self-examination, and produced a new level of national consensus favoring the peace process.
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Election of Netanyahu
In February 1996 Rabin's successor, Shimon Peres, called early elections. Those elections were held in May 1996 and were the first featuring direct election of the prime minister, resulted in a narrow election victory for Likud Party leader Binyamin (Bibi) Netanyahu and his center-right National Coalition (Likud) and the defeat of Peres and his left-of-center Labor/Meretz government. On the run up to the election the polls showed that Peres would win a comfortable margin, but a spate of suicide bombings reinforced the Likud position for security. Hamas claimed responsibility for most of the bombings.
Despite his stated differences with the Oslo Accords, Prime Minister Netanyahu claimed to continue their implementation, but his Prime Ministership saw a marked slow-down in the Peace Process. (Netanyahu supporters argue that this slow-down was in response to Palestinian terrorism.)
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Hebron and Wye River agreements
Prime Minister Netanyahu signed the Hebron Protocol with the Palestinian Authority on January 15, 1997. The Protocol resulted in the redeployment of Israeli forces in Hebron and the turnover of civilian authority in much of the area to the Palestinian Authority. Since that agreement, there has been little progress in the Israeli-Palestinian negotiations. A crisis of confidence developed between the parties as the parties had difficulty responding to each other and addressing each other's concerns. Israel and the Palestinians did agree, however, in September 1997, to a four-part agenda to guide further negotiations: security cooperation in the fight against terror; further redeployments of Israeli forces; a "time-out" on unilateral actions that may prejudge the outcome of the permanent status talks; and acceleration of these talks. The U.S. sought to marry continued implementation of the 1995 Interim Agreement with the start of the accelerated permanent status talks. In order to overcome the crisis of confidence and break the negotiating impasse, President Clinton presented U.S. ideas for getting the peace process back on track to Prime Minister Netanyahu and Chairman Arafat in Washington in January 1998. Those ideas included all aspects of the September 1997 four-part agenda and would allow for the start of accelerated permanent status negotiations. The Palestinians agreed in principle to the U.S. ideas.
The U.S. continued working intensively with the parties to reach agreement on the basis of U.S. ideas. After a 9-day session at the Wye River Conference Center in Maryland, agreement was reached on October 23, 1998. The Wye Agreement is based on the principle of reciprocity and meets the essential requirements of both the parties, including unprecedented security measures on the part of the Palestinians and the further redeployment of Israeli troops in the West Bank. The agreement also permits the launching of the permanent status negotiations as the May 4, 1999 expiration of the period of the Interim Agreement.
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Visit of the Pope
On Mar. 21 2000 Pope John Paul II arrived in Israel for an historic visit [14].
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Withdrawal from Lebanon
In 2000, Israel unilaterally withdrew its remaining forces from the "security zone" in southern Lebanon. The UN Secretary-General had conclude [15] that, as of June 16, 2000, Israel had withdrawn its forces from Lebanon in accordance with UN Security Council Resolution 425. Lebanon claims that Israel continues to occupy Lebanese territory called "Sheeba Farms"; but the UN insists that Sheeba Farms is Syrian, not Lebanese, territory. Further information from pro-Israel source: [16]
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Second Intifada
Israeli opposition leader Ariel Sharon visited the Temple Mount on September 28, 2000, sparking Palestinian riots. This marked the beginning of the al-Aqsa Intifada. Israel claims that the Palestinians had been planning violence far in advance of Sharon's visit, and that his visit was used as an excuse for the planned violence to be launched. In his book The High Cost of Peace, Yossef Bodansky describes the event: "When Sharon expressed interest in visiting the Temple Mount, Barak ordered GSS chief Ami Ayalon to approach Jibril Rajoub with a special request to facilitate a smooth and friendly visit... Rajoub promised it would be smooth as long as Sharon would refrain from entering any of the mosques or praying publicly... Just to be on the safe side, Barak personally approached Arafat and once again got assurances that Sharon's visit would be smooth..." (p354)
In October 2000, Palestinians destroyed a Jewish shrine in Nablus, Joseph's Tomb. They also stoned worshippers at the Western Wall and attacked another Jewish shrine, Rachel's Tomb. Further information from pro-Israel source: [17]
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Special elections and negotiations by Barak
With the Peace Process increasingly in disarray, Israeli Prime Minister Ehud Barak called a special election for Prime Minister. Barak was hoping that a victory for him would give him renewed authority in negotiations with the Palestinians. But Barak's hopes were not to be, and in 2001, opposition leader Ariel Sharon was elected as Prime Minister of Israel in the 2001 special election to the prime ministership. Further information from pro-Israel source: [18] A map of Barak's proposal at the Camp David Talks in October 2000 may be found here: [19]
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Israeli West Bank barrier
In recent years, much of the Israeli public and political leadership has lost confidence with the Palestinian Authority as a peace partner, claiming that many Palestinians view the peace treaty with Israel as a temporary measure only. By the same token, some groups in the Israeli left have asserted that Israel has never abided by the terms of any proposal it has agreed with the Palestinians: [20] and has attempted to discredit all genuine peace proposals, regardless of their origin: [21]

The approved barrier route as of May 2005
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Disengagement from Gaza
On December 18, 2003, Former Prime Minister Ariel Sharon announced he would consider a unilateral withdrawal from parts of the occupied territories in order to make it easier for long term management of the ongoing intifada. This was crystallized as a plan for total withdrawal from the Gaza Strip, while maintaining most of the settlements in the West Bank. The US government announced its support for the plan on April 14, 2004. The first phase of the plan regarding the work of technical committees to work out logistical details was approved by the Israeli cabinet on June 6, 2004.
On October 26, 2004, Sharon's withdrawal plan was ratified by the Israeli parliament. The civilians were evacuated from Gaza (a minority forcibly) and the residential buildings demolished after August 15, and the disengagement from the Gaza Strip was completed on September 12, 2005, when the last Israeli soldier left the Gaza strip. The military disengagement from the northern West Bank was completed ten days later.
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Election of Ehud Olmert
After Ariel Sharon suffered a severe hemorrhagic stroke, the powers of the office were passed to Ehud Olmert, who was designated the "Acting" Prime Minister. On April 14, 2006 [6], Olmert has been elected Prime Minister after his party, Kadima, won the most seats in the 2006 legislative elections.
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Foreign relations of the State of Israel
Main article: Foreign relations of Israel.
Ever since the establishment of Israel in 1948, the state has faced problems in its foreign policy. In 1948, Israel was in diplomatic isolation resulting from being boycotted by its Middle Eastern neighbours. As an alternative, the Israeli government began developing ties with distant countries. The Israeli government sought to establish good relations especially with the U.S. government, and the newly independent states in Africa and Asia. On January 9, 1950, the Israeli government extended recognition to the People's Republic of China, but diplomatic relations were not established until 1992. On May 15, 1952, diplomatic relations were established with the government of Japan.
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Economic History of Modern Israel
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The Pre-state Background
The history of modern Israel begins in the 1880s, when the first Zionist immigrants came to Palestine, then under Ottoman rule, to join the small existing Jewish community, establishing agricultural settlements and some industry, restoring Hebrew as the spoken national language, and creating new economic and social institutions. The ravages of World War I reduced the Jewish population by a third, to 56,000, about what it had been at the beginning of the century.
As a result of the war, Palestine came under the control of Great Britain, whose Balfour Declaration had called for a Jewish National Home in Palestine. Britain’s control was formalized in 1920, when it was given the Mandate for Palestine by the League of Nations. During the Mandatory period, which lasted until May 1948, the social, political and economic structure for the future state of Israel was developed. Though the government of Palestine had a single economic policy, the Jewish and Arab economies developed separately, with relatively little connection.
Two factors were instrumental in fostering rapid economic growth of the Jewish sector: immigration and capital inflows. The Jewish population increased mainly through immigration; by the end of 1947 it had reached 630,000, about 35 percent of the total population. Immigrants came in waves, particularly large in the mid 1920s and mid 1930s. They consisted of ideological Zionists and refugees, economic and political, from Central and Eastern Europe. Capital inflows included public funds, collected by Zionist institutions, but were for the most part private funds. National product grew rapidly during periods of large immigration, but both waves of mass immigration were followed by recessions, periods of adjustment and consolidation.
In the period from 1922 to 1947 real net domestic product (NDP) of the Jewish sector grew at an average rate of 13.2 percent, and in 1947 accounted for 54 percent of the NDP of the Jewish and Arab economies together. NDP per capita in the Jewish sector grew at a rate of 4.8 percent; by the end of the period it was 8.5 times larger in than in 1922, and 2.5 times larger than in the Arab sector (Metzer, 1998). Though agricultural development – an ideological objective – was substantial, this sector never accounted for more than 15 percent of total net domestic product of the Jewish economy. Manufacturing grew slowly for most of the period, but very rapidly during World War II, when Palestine was cut off from foreign competition and was a major provider to the British armed forces in the Middle East. By the end of the period, manufacturing accounted for a quarter of NDP. Housing construction, though a smaller component of NDP, was the most volatile sector, and contributed to sharp business cycle movements. A salient feature of the Jewish economy during the Mandatory period, which carried over into later periods, was the dominant size of the services sector – more than half of total NDP. This included a relatively modern educational and health sector, efficient financial and business sectors, and semi-governmental Jewish institutions, which later were ready to take on governmental duties.
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The Formative Years: 1948-1965
The state of Israel came into being, in mid May 1948, in the midst of a war with its Arab neighbors. The immediate economic problems were formidable: to finance and wage a war, to take in as many immigrants as possible (first the refugees kept in camps in Europe and on Cyprus), to provide basic commodities to the old and new population, and to create a government bureaucracy to cope with all these challenges. The creation of a government went relatively smoothly, as semi-governmental Jewish institutions which had developed during the Mandatory period now became government departments.
Cease-fire agreements were signed during 1949. By the end of that year a total of 340,000 immigrants had arrived, and by the end of 1951 an additional 345,000 (the latter including immigrants from Arab countries), thus doubling the Jewish population. Immediate needs were met by a strict austerity program and inflationary government finance, repressed by price controls and rationing of basic commodities. However, the problems of providing housing and employment for the new population were solved only gradually. A New Economic Policy was introduced in early 1952. It consisted of exchange rate devaluation, the gradual relaxation of price controls and rationing, and curbing of monetary expansion, primarily by budgetary restraint. Active immigration encouragement was curtailed, to await the absorption of the earlier mass immigration.
From 1950 until 1965, Israel achieved a high rate of growth: Real GNP (gross national product) grew by an average annual rate of over 11 percent, and per capita GNP by greater than 6 percent. What made this possible? Israel was fortunate in receiving large sums of capital inflows: U.S. aid in the forms of unilateral transfers and loans, German reparations and restitutions to individuals, sale of State of Israel Bonds abroad, and unilateral transfers to public institutions, mainly the Jewish Agency, which retained responsibility for immigration absorption and agricultural settlement. Thus, Israel had resources available for domestic use – for public and private consumption and investment – about 25 percent more than its own GNP. This made possible a massive investment program, mainly financed through a special government budget. Both the enormity of needs and the socialist philosophy of the main political party in the government coalitions led to extreme government intervention in the economy.
Governmental budgets and strong protectionist measures to foster import-substitution enabled the development of new industries, chief among them textiles, and subsidies were given to help the development of exports, additional to the traditional exports of citrus products and cut diamonds.
During the four decades from the mid 1960s until the present, Israel’s economy developed and changed, as did economic policy. A major factor affecting these developments has been the Arab-Israeli conflict. Its influence is discussed first, and is followed by brief descriptions of economic growth and fluctuations, and evolution of economic policy.
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The Arab-Israel Conflict
The most dramatic event of the 1960s was the Six Day War of 1967, at the end of which Israel controlled the West Bank (of the Jordan River) – the area of Palestine absorbed by the Jordan since 1949 – and the Gaza Strip, controlled until then by Egypt.
As a consequence of the occupation of these territories Israel was responsible for the economic as well as the political life in the areas taken over. The Arab sections of Jerusalem were united with the Jewish section. Jewish settlements were established in parts of the occupied territories. As hostilities intensified, special investments in infrastructure were made to protect Jewish settlers. The allocation of resources to Jewish settlements in the occupied territories has been a political and economic issue ever since.
The economies of Israel and the occupied territories were partially integrated. Trade in goods and services developed, with restrictions placed on exports to Israel of products deemed too competitive, and Palestinian workers were employed in Israel particularly in construction and agriculture. At its peak, in 1996, Palestinian employment in Israel reached 115,000 to 120,000, about 40 percent of the Palestinian labor force, but never more than 6.5 percent of total Israeli employment. Thus, while employment in Israel was a major contributor to the economy of the Palestinians, its effects on the Israeli economy, except for the sectors of construction and agriculture, were not large.
The Palestinian economy developed rapidly – real per capita national income grew at an annual rate of close to 20 percent in 1969-1972 and 5 percent in 1973-1980 – but fluctuated widely thereafter, and actually decreased in times of hostilities. Palestinian per capita income equaled 10.2 percent of Israeli per capita income in 1968, 22.8 percent in 1986, and declined to 9.7 percent in 1998 (Kleiman, 2003).
As part of the peace process between Israel and the Palestinians initiated in the 1990s, an economic agreement was signed between the parties in 1994, which in effect transformed what had been essentially a one-sided customs agreement (which gave Israel full freedom to export to the Territories but put restrictions on Palestinian exports to Israel) into a more equal customs union: the uniform external trade policy was actually Israel’s, but the Palestinians were given limited sovereignty regarding imports of certain commodities.
Arab uprisings (intifadas), in the 1980s, and especially the more violent one beginning in 2000 and continuing into 2005, led to severe Israeli restrictions on interaction between the two economies, particularly employment of Palestinians in Israel, and even to military reoccupation of some areas given over earlier to Palestinian control. These measures set the Palestinian economy back many years, wiping out much of the gains in income which had been achieved since 1967 – per capita GNP in 2004 was $932, compared to about $1500 in 1999. Palestinian workers in Israel were replaced by foreign workers.
An important economic implication of the Arab-Israel conflict is that Israel must allocate a major part of its budget to defense. The size of the defense budget has varied, rising during wars and armed hostilities. The total defense burden (including expenses not in the budget) reached its maximum relative size during and after the Yom Kippur War of 1973, close to 30 percent of GNP in 1974-1978. In the 2000-2004 period, the defense budget alone reached about 22 to 25 percent of GDP. Israel has been fortunate in receiving generous amounts of U.S. aid. Until 1972 most of this came in the form of grants and loans, primarily for purchases of U.S. agricultural surpluses. But since 1973 U.S. aid has been closely connected to Israel's defense needs. During 1973-1982 annual loans and grants averaged $1.9 billion, and covered some 60 percent of total defense imports. But even in more tranquil periods, the defense burden, exclusive of U.S. aid, has been much larger than usual in industrial countries during peace time.
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Growth and Economic Fluctuations
The high rates of growth of income and income per capita which characterized Israel until 1973 were not achieved thereafter. GDP growth fluctuated, generally between 2 and 5 percent, reaching as high as 7.5 percent in 2000, but falling below zero in the recession years from 2001 to mid 2003. By the end of the twentieth century income per capita reached about $20,000, similar to many of the more developed industrialized countries.
Economic fluctuations in Israel have usually been associated with waves of immigration: a large flow of immigrants which abruptly increases the population requires an adjustment period until it is absorbed productively, with the investments for its absorption in employment and housing stimulating economic activity. Immigration never again reached the relative size of the first years after statehood, but again gained importance with the loosening of restrictions on emigration from the Soviet Union. The total number of immigrants in 1972-1982 was 325,000, and after the collapse of the Soviet Union immigration totaled 1,050,000 in 1990-1999, mostly from the former Soviet Union. Unlike the earlier period, these immigrants were gradually absorbed in productive employment (though often not in the same activity as abroad) without resort to make-work projects. By the end of the century the population of Israel passed 6,300,000, with the Jewish population being 78 percent of the total. The immigrants from the former Soviet Union were equal to about one-fifth of the Jewish population, and were a significant and important addition of human capital to the labor force.
As the economy developed, the structure of output changed. Though the service sectors are still relatively large – trade and services contributing 46 percent of the business sector’s product – agriculture has declined in importance, and industry makes up over a quarter of the total. The structure of manufacturing has also changed: both in total production and in exports the share of traditional, low-tech industries has declined, with sophisticated, high-tech products, particularly electronics, achieving primary importance.
Fluctuations in output were marked by periods of inflation and periods of unemployment. After a change in exchange rate policy in the late 1970s (discussed below), an inflationary spiral was unleashed. Hyperinflation rates were reached in the early 1980s, about 400 percent per year by the time a drastic stabilization policy was imposed in 1985. Also worthy of mention is the 1983 Bank stock crisis, which caused the major banks in Israel to be nationalizaed by the state. Exchange rate stabilization, budgetary and monetary restraint, and wage and price freezes sharply reduced the rate of inflation to less than 20 percent, and then to about 16 percent in the late 1980s. Very drastic monetary policy, from the late 1990s, finally reduced the inflation to zero by 2005. However, this policy, combined with external factors such as the bursting of the high-tech bubble, recession abroad, and domestic insecurity resulting from the intifada, led to unemployment levels above 10 percent at the beginning of the new century. The economic improvements since the latter half of 2003 have, as yet (February 2005), not significantly reduced the level of unemployment.
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Policy Changes
The Israeli economy was initially subject to extensive government controls. Only gradually was the economy converted into a fairly free (though still not completely so) market economy. This process began in the 1960s. In response to a realization by policy makers that government intervention in the economy was excessive, and to the challenge posed by the creation in Europe of a customs union (which gradually progressed into the present European Union), Israel embarked upon a very gradual process of economic liberalization. This appeared first in foreign trade: quantitative restrictions on imports were replaced by tariff protection, which was slowly reduced, and both import-substitution and exports were encouraged by more realistic exchange rates rather than by protection and subsidies. Several partial trade agreements with the European Economic Community (EEC), starting in 1964, culminated in a free trade area agreement (FTA) in industrial goods in 1975, and an FTA agreement with the U.S. came into force in 1985.
By late 1977 a considerable degree of trade liberalization had taken place. In October of that year, Israel moved from a fixed exchange rate system to a floating rate system, and restrictions on capital movements were considerably liberalized. However, there followed a disastrous inflationary spiral which curbed the capital liberalization process. Capital flows were not completely liberalized until the beginning of the new century.
Throughout the 1980s and the 1990s there were additional liberalization measures: in monetary policy, in domestic capital markets, and in various instruments of governmental interference in economic activity. The role of government in the economy was considerably decreased. On the other hand, some governmental economic functions were increased: a national health insurance system was introduced, though private health providers continued to provide health services within the national system. Social welfare payments, such as unemployment benefits, child allowances, old age pensions and minimum income support, were expanded continuously, until they formed a major budgetary expenditure. These transfer payments compensated, to a large extent, for the continuous growth of income inequality, which had moved Israel from among the developed countries with the least income inequality to those with the most. By 2003, 15 percent of the government’s budget went to health services, 15 percent to education, and an additional 20 percent were transfer payments through the National Insurance Agency.
Beginning in 2003, the Ministry of Finance embarked upon a major effort to decrease welfare payments, induce greater participation in the labor force, privatize enterprises still owned by government, and reduce both the relative size of the government deficit and the government sector itself. These activities are the result of an ideological acceptance by the present policy makers of the concept that a truly free market economy is needed to fit into and compete in the modern world of globalization.
An important economic institution is the Histadrut, a federation of labor unions. What had made this institution unique is that, in addition to normal labor union functions, it encompassed agricultural and other cooperatives, major construction and industrial enterprises, and social welfare institutions, including the main health care provider. During the Mandatory period, and for many years thereafter, the Histadrut was an important factor in economic development and in influencing economic policy. During the 1990s, the Histadrut was divested of many of its non-union activities, and its influence in the economy has greatly declined. The major unions associated with it still have much say in wage and employment issues.
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The Challenges Ahead
As it moves into the new century, the Israeli economy has proven to be prosperous, as it continuously introduces and applies economic innovation, and to be capable of dealing with economic fluctuations. However, it faces some serious challenges. Some of these are the same as those faced by most industrial economies: how to reconcile innovation, the switch from traditional activities which are no longer competitive, to more sophisticated, skill-intensive products, with the dislocation of labor it involves, and the income inequality it intensifies. Like other small economies, Israel has to see how it fits into the new global economy, marked by the two major markets of the EU and the U.S., and the emergence of China as a major economic factor.
Special issues relate to the relations of Israel with its Arab neighbors. First are the financial implications of continuous hostilities and military threats. Clearly, if peace can come to the region, resources can be transferred to more productive uses. Furthermore, foreign investment, so important for Israel’s future growth, is very responsive to political security. Other issues depend on the type of relations established: will there be the free movement of goods and workers between Israel and a Palestinian state? Will relatively free economic relations with other Arab countries lead to a greater integration of Israel in the immediate region, or, as is more likely, will Israel's trade orientation continue to be directed mainly to the present major industrial countries? If the latter proves true, Israel will have to carefully maneuver between the two giants: the U.S. and the EU