Israel Defence and Security Report Q3 2009

Since it was established Israel has consistently faced a number of direct inter-state security risks from within the region. The disputes concern deep-seated ideological issues, many of which centre on Israel’s very existence. However, at present the majority of these threats are rhetorical and the inter-state security risk to Israel is relatively low, at least with regards to Israel being the victim of inter-state conflict. This is largely due to the capability of the Israeli military and the support that Israel enjoys from the US. Non-state groups resident in other countries such as Lebanon also target Israeli forces with regular violence. Hamas remains a threat to the stability of the region (including neighbouring Egypt), and we would expect US President Barack Obama to support any Israeli efforts to forcibly remove the group. He supported the Israeli campaign against Hizbullah in 2006. The President’s website states of that conflict: ‘Obama is an original co-sponsor of the Senate resolution expressing support for Israel, condemning the [Hizbullah] attacks.’ Tension over Israel's occupation of the Palestinian Territories is now shifting from the conflict itself to disagreements between the new coalition government of Israeli Prime Minister Benjamin Netanyahu and the Obama administration over settlements. Netanyahu travelled to Washington for his first meeting with Obama on May 18, 2009, when the president made repeated calls for a two-state solution and demanded a freeze on settlement expansion on the Occupied West Bank. Netanyahu did not refer to two states and said that settlements should be allowed to expand to accommodate ‘natural growth’. The US position was reiterated by Secretary of State Hillary Clinton who said on May 28, 2009, that President Obama wanted ‘to see a stop to settlements – not some settlements, not outposts, not "natural growth" exceptions’. A final peace settlement between Israel and the Palestinian Authority (PA) still seems highly unlikely. Israel’s defence industry benefits from large amounts of support from the government in the form of contracts, and it has become the leading sector in the country’s economy. There are an estimated 150 defence firms in Israel, with approximately 20,000 employees working in the industry. There is, however, an ongoing debate amongst the state’s leaders as to whether defence spending should be curbed, maintained or increased. Growth in the economy will slow dramatically in 2009 due to falling demand for Israeli exports, sluggish consumer spending and negative investor sentiment. Increased government spending should spare the economy from recession, however, with annual growth expected to come in at 1.3%. Our forcast for Israel's economic growth in 2009 has been greatly reduced. We are now forecasting real GDP growth of just 1.3% for the coming year, rising to 1.9% in 2010 and 2.1% in 2011. Even when external conditions improve, we believe that the days of 5+% annual growth, enjoyed since 2004, are over and Israel's growth patterns will in future resemble those of developed states such as the US or Western Europe. In the short to medium term, the risks to our forecasts are weighted to the downside. Globally, the bad news just keeps on coming and a deeper or longer than expected downturn in the US would have a knock-on effect on the Israeli export sector and on foreign direct investment. This quarter, we have introduced a significant new aspect to BMI's Defence Reports, which is the City Terrorism Rating (CTR). This assesses the risk of a terrorist attack. The CTR takes into account the overall BMI Terrorism Rating for the country in question. It also incorporates the 'prevalence' of terrorism, which recognises the frequency of attacks, and whether the city is a target for terrorists. The CTR also recognises the 'threat' of terrorism in terms of the likely numbers of victims and the ability of groups to launch sustained campaigns. In Israel, we assess the CTR for Tel Aviv at 17.5 while Jerusalem rates 32.5. These are among the lowest (worst) rated cities in the region, better than Bagdad (0) but comparable with Beirut (22.5). The state and prelevance components for both cities are 10 and 40, respectively, indicating a low (bad) overall terrorism rating, yet lower prevalance due to effective security. The difference between the ratings stems from Tel Aviv's lower (worse) risk rating of 10 against Jerusalem's 20.