The Washington Post’s David Ignatius points out that while U.S. policy prohibits aid money going to Israeli settlements in the West Bank, U.S. organizations that raise money for those settlements get a tax exemption:
For many years, the United States has had a policy against spending aid money to fund Israeli settlements in the West Bank, which successive administrations have regarded as an obstacle to peace. Yet private organizations in the United States continue to raise tax-exempt contributions for the very activities that the government opposes.
There’s nothing illegal about the charitable contributions to pro-settlement organizations, which are documented in filings with the Internal Revenue Service. They’re similar to tax-exempt donations made to thousands of foreign organizations around the world through groups that are often described as "American friends of" the recipient.
But critics of Israeli settlements question why American taxpayers are supporting indirectly, through the exempt contributions, a process that the government condemns. A search of IRS records identified 28 U.S. charitable groups that made a total of $33.4 million in tax-exempt contributions to settlements and related organizations between 2004 and 2007.
"This is an issue that has not gotten the attention it deserves," said Ori Nir, a spokesman for Americans for Peace Now, a lobbying group that opposes settlements. "I don’t know how many people, including in the U.S. government, realize the extent of private American funding to settlements. . . . Every dollar that goes to settlements makes Middle East peace that much harder to reach."
The Obama administration had an early confrontation over settlements when Secretary of State Hillary Clinton visited Israel this month. She criticized Israeli demolitions of Palestinian homes in a largely Arab area of Jerusalem known as Silwan, just below the walls of the Old City. "Clearly this kind of activity is unhelpful," she said. Jerusalem Mayor Nir Barkat responded that Clinton was mistaken and that the Palestinian houses had been built illegally.
One of the Israeli organizations that has led the way in developing this area of East Jerusalem is called Ir David, or City of David. Like other pro-settlement groups, it has an active fundraising effort in the United States. According to Form 990s filed with the IRS, Friends of Ir David raised $8.7 million in 2004, $1.2 million in 2005 and $2.7 million in 2006.
The group’s primary tax-exempt purpose, according to the IRS filings, is: "To create a charitable fund to provide financial aid & other reasonable assistance to benefit the Jewish people of the Old City of Jerusalem. To teach about the history and archeology of the biblical city of Jerusalem. To offer aid & assistance for education, housing & the rehabilitation of distressed properties."