The State Department announced it would cut aid to the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) on January 16th by $65 million. Foggy Bottom’s spokeswoman insisted that the funds were withheld for the purpose of encouraging other countries to increase their contributions to the agency as well as to push some yet-to-be-defined reforms at UNRWA. There exist reasons to doubt the outlined rationale, even though UNRWA is obviously in need of reform. Despite the supposed rationale for aid cuts, it is difficult to understand how these reforms will be implemented if they are neither clearly expressed nor deployed to persuade other stakeholders in the organization. Nevertheless, this tactic provokes an interesting question: can withholding state aid from the Palestinians produce desirable behavior?

Shrewd observers of the Israeli-Palestinian conflict will note that this question, beyond the immediate costs faced by Palestinians who rely on UNRWA for a variety of basic goods, has broader implications. Today, an administration can cut aid to the Palestinians in the hopes of promoting desirable behavior. Tomorrow, a different administration could conceivably do the same to an Israel it feels is not living up to expectations. The call to do so has been made before. In 2009 for example, The Economist called for as much in response to the lack of progress in peace talks.

Of course, U.S. aid  to Israel was not cut under the Obama administration. To the contrary, President Obama touted his support for Israel during his reelection campaign in 2012, saying“under my administration, we haven’t just preserved the unbreakable bond with Israel, we have strengthened it.”

In addition to political considerations, President Obama repeatedly articulated his view that there was a moral case for supporting Israel and consistently drew a distinction between support in the security realm and support for Israel’s current posture in the diplomatic sphere. Other presidents, however, have been more comfortable linking the two. The most prominent example was George H.W. Bush’s  decision to withhold loan guarantees for Israel until it froze all new settlement activity.

The loan guarantees were not made until Likud prime minister Yitzhak Shamir was replaced by Labor-leader Yitzhak Rabin, who announced that he would cancel contracts for 6,800 housing units. Despite the lack of change in Israeli policy before a change in governing coalition, the interest in this particular policy tool has endured in circles that are less sympathetic to Israel. Given this tactic’s enduring appeal, it is worth examining how aid to both parties functions.

The aid that Israel receives is different in both scale and kind from the type Palestinians receive. For the most part, aid to the Palestinians is humanitarian in nature and delivered through NGOs directly to Palestinians. Per the U.S. Consulate in Jerusalem, from fiscal year 2012-2016 USAID provided $1.7 billion in humanitarian aid to the Palestinians. In 2016 alone, the U.S. provided $355 million to UNRWA, $290 million via USAID, and $54 million to the Palestinian security forces, making the U.S. the largest single donor to the Palestinians. By contrast, the aid that Israel receives is largely in the realm of security. The memorandum of understanding (MOU) signed between the Obama and Netanyahu governments committed $3.3 billion in annual military aid and $500 million annually pledged for missile defense for joint missile defense programs such as Iron Dome. Much of that $3.3 billion is spent on American military hardware, with provisions limiting Israel’s ability to redistribute this technology and restrictions on its use which have been used before. The figures in absolute terms suggest that cuts to Israel may prove to have a bigger impact but examining the aid relative to GDP reveals a different story. Per World Bank figures, Israel’s GDP in 2016 was $318 billion whereas the Palestinian GDP was approximately $13.8 billion. On these figures, the aid the Palestinians received before the announced cut amounts to approximately five percent of GDP, whereas the aid to Israel reflects just over one percent of its GDP. By these metrics, cuts to Palestinian aid would be felt more sharply than comparable cuts in aid to Israel.

Given the outlined differences, there are of course materially different ways cuts to aid for either party could play out. Nevertheless, it may be time to examine the simple formulation of whether financial penalties can produce desired outcomes.  For the Palestinians, for whom cuts are more immediately felt by the populace, the decision to modify their posture — or not — in accordance with U.S. desires is not one that will be made lightly. Whatever the outcome, and there are reasons to doubt it will be positive, there are lessons for the U.S. policymakers to take away from the endeavor.

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