5768: Worries on Iran, New Peace Overtures, Olmert’s Fall

In Israel, 5768 was the year of multiple peace overtures, a growing sense of urgency regarding Iran’s nuclear program and an embattled prime minister’s losing fight to stay in office.

Israel and the de facto leadership of the Palestinian Authority launched renewed negotiations after a U.S.-hosted peace conference last November in Annapolis, Md. Israel and Syria announced in May they were holding indirect peace negotiations under Turkish mediation. And in June, Israel and the Hamas leadership in the Gaza Strip agreed to a truce brokered by Egypt.

But with Prime Minister Ehud Olmert under investigation on a number of corruption allegations and struggling to hold onto power, there were lingering suspicions that his peace efforts were aimed more at helping him survive politically than at achieving genuine diplomatic breakthroughs.

In the end he failed on both counts, ending his term with an early resignation and with no major diplomatic breakthroughs to show for his efforts. Olmert’s lead negotiator on the Israeli-Palestinian peace track, Foreign Minister Tzipi Livni, would win the election to succeed him.

Olmert’s political weaknesses cast a shadow over his strategic and diplomatic efforts throughout the year.

Even before Olmert and P.A. President Mahmoud Abbas met at Annapolis, peace advocates worried that the two leaders were too weak to reach a peace deal. At the summit, which drew an impressive array of Arab leaders from across the Middle East, the two sides pledged to conclude a final Israeli-Palestinian peace deal by the end of 2008 — a “shelf” agreement that would be implemented as soon as conditions permitted.

The United States devoted a great deal of energy to the process. President Bush visited Israel twice, in January and in May. Secretary of State Condoleezza Rice made several trips to monitor progress. Former British Prime Minister Tony Blair, the special envoy of the international Quartet comprised of the United States, the European Union, the United Nations and Russia, helped raise more than $7 billion to jump-start the depressed Palestinian economy. U.S. Gen. Keith Dayton trained Palestinian forces to take over security in parts of the West Bank.

But as long as Hamas controlled Gaza, full peace between Israel and the Palestinians seemed a distant prospect. Shelling and rocket attacks on Israel from Gaza continued ceaselessly, while Israel’s two-pronged retaliatory strategy — targeting the militiamen and imposing a land and sea blockade on Gaza — failed to bring quiet to the beleaguered residents of southern Israel.

Instead, Israel endured international criticism for declaring Gaza “a hostile territory” and severely cutting electricity and fuel supplies to the strip.

In late January, Hamas scuttled Israel’s blockade by blowing up the border fence between Gaza and Egypt, allowing hundreds of thousands of Palestinians to stream into Egypt. After Egypt resealed the border, fighting between Israel and the militants escalated, with Hamas firing longer-range Grad rockets at the city of Ashkelon and Israel conducting an incursion into Gaza in early March.

Quiet came only when Hamas and Israel agreed to a truce deal in late June. But Hamas clung to its refusal to recognize Israel or contemplate any peace settlement with the Jewish state.

Meanwhile, Israel launched indirect peace talks with another sponsor of terrorism and longtime enemy, the regime in Damascus.

Though the year had begun in the aftermath of an Israeli airstrike on a suspected Syrian nuclear installation, and though February saw Hezbollah operations chief Imad Mughniyeh assassinated on Syrian soil, Israel and Syria held secret contacts under Turkish auspices. On May 21, in a joint statement issued simultaneously in Jerusalem, Damascus and Ankara, the parties announced the renewal of peace talks.

The big question was whether, in return for the Golan Heights, Syria would detach itself from the Iranian orbit.

Indeed, Israel’s main strategic concern in 5768 was not peacemaking, but Iran’s assumed drive for nuclear weapons.

Israel’s intense lobbying effort to have the international community take tougher measures against Iran suffered a major setback last December when a U.S. National Intelligence Estimate found that Iran had suspended a covert nuclear weapons program in 2003.

Israeli intelligence officials argued that the program had since resumed and intensified, but as the year went on it became increasingly apparent to Israeli officials that the United States — and the West — was moving further away from confrontation with Iran.

With sanctions having failed to halt Iran’s suspected nuclear weapons program, Israeli officials’ pronouncements about Iran grew harsher.

Transportation Minister Shaul Mofaz declared that an Israeli attack against Iran was becoming inevitable.

“Other options are disappearing,” he said.

In June, the Israel Air Force carried out large-scale maneuvers simulating an aerial attack on Iranian nuclear installations, stoking fears that if the international community failed to act, Israel might launch a pre-emptive strike.

All the while, many members of the Knesset and the Israeli intelligentsia worried that Olmert was too distracted by the corruption investigations to focus sufficiently on the Iranian threat. Calls for Olmert’s ouster grew along with the investigations against him.

Olmert was questioned for allegedly receiving a substantial discount on a house in Jerusalem in return for helping contractors get building permits for other projects. He was investigated as well for allegedly trying to tilt the terms of a tender for the privatization of Bank Leumi to help his friend Frank Lowy, the Australia-based tycoon. The prime minister also was probed for making political appointments to the small business administration he controlled as minister of trade, industry and labor between 2003 and 2005.

The scandal that eventually would force Olmert to resign his position as party leader, and as prime minister, came in late May. Morris Talansky, an American Jewish fund-raiser and businessman, testified that Olmert had accepted about $150,000 in cash payments under dubious circumstances over a 15-year period before he became prime minister. Police also said they were investigating Olmert for double-billing trips abroad whose expenses were paid by Jewish charities.

Olmert’s public standing also suffered from the aftermath of the 2006 war between Hezbollah and Israel. The publication in late January of the Winograd Commision’s final report on the war was scathingly critical of his performance, but it stopped short of recommending that he resign.

The prime minister claimed the report had lifted a “moral stigma” by vindicating his decision to launch a major ground operation in the last 60 hours of the war, even though the operation cost dozens of lives and its utility proved to be inconclusive. But the two soldiers kidnapped in the attack that sparked the war remained missing.

That changed only in July, and the change came through diplomacy, not war.

In late June, nearly two years after the outbreak of the war, Israel and Hezbollah agreed to a prisoner exchange. In July, the remains of Israeli reservists Eldad Regev and Ehud Goldwasser were returned to Israel in exchange for the remains of some 200 Lebanese and Palestinian fighters and the release of five Lebanese terrorists, including Samir Kuntar, from Israeli jails.

The deal was alternately praised and criticized in the Israeli media, and it was widely seen as a victory for Hezbollah.

With the prime minister reeling from low popularity ratings and allegations of bribery, breach of trust and violations of election campaign laws, Olmert finally announced in July that he would not run for re-election when his party, Kadima, held new primaries in September.

Livni beat out her primary rival, Mofaz, by a mere 431 votes in the Sept. 17 primary and immediately set out to form a new coalition government as Olmert tendered his resignation.

Despite the political turmoil of 5768, Israel’s economy remained relatively strong. In the first quarter of 2008, unemployment hit a 13-year low of 6.3 percent, and in 2007 Israel’s per capita gross domestic product rose to $31,767 — on par with European countries such as France and Italy.

However, the strong shekel, which rose by about 20 percent against the dollar during 5768, hurt Israeli exports and for the first time in years sparked some signs in Israel of incipient inflation. In addition, the financial turmoil that struck global markets in September also sent the Tel Aviv Stock Exchange reeling, stoking some fears about the long-term health of the Israeli economy.