A Digest of debkafile Round-the-Clock Exclusives in Week Ending April 21, 2005:

Did Bush and Sharon Figure out How to Preempt a Hamas Election Victory?

11 April: At the Bush-Sharon summit of April 11, neither admitted the Palestinian Abu Mazen regime was a broken reed. They agreed Israel’s pullout from the Gaza Strip and northern West Bank was the key to progress towards the road map but differed on Israel’s settlement activity. The US president continued to insist on a freeze, while the Israeli prime minister said settlement blocs would remain in Israeli hands in any future agreement.

Before advancing on the road map, Sharon reiterated the Palestinians must wage real war against terror. But the big dilemma that most exercised the two leaders, according to debkafile‘s Washington sources,was: What to do about the Palestinian July 17 general election that may topple Abbas and bring to power the Hamas Islamic terrorist group which is dedicated to violently eradicating the state of Israel.

But both leaders were shocked to learn of a Palestinian decision to resume the terror war against Israel in the second half of June – from the West Bank and the Gaza Strip simultaneously – and above all that its instigators were not Hamas or Jihad Islami but Abu Mazen’s own Fatah. The heavy mortar and missile assault inside and outside the Gaza Strip from Saturday, April 10, again Sunday and erupting again Monday night was but a foretaste.

The Fatah is acting because of Abu Mazen’s weakness and indulgence of Hamas demands. Fatah is determined to prevent the general election and a Hamas victory by unleashing a war of terror the month before voting day. They are calling Sharon’s Gaza evacuation scheme a dangerous trap as their pretext for breaking out of the partial ceasefire and re-igniting the conflict. For Bush it is a new experience to find the very Palestinian entities on whom he counted to prop up his regional and Israel-Palestinian peace strategies announcing that they were reverting to terrorism in preference to a peaceful march forward to Palestinian statehood.

For Sharon it is a grave setback after treating Abu Mazen’s Fatah adherents as “moderates.”

Hizballah gave a graphic demonstration of its power in Lebanon and among Palestinian terrorist groups Monday. April 11, by flying an Iranian-made Mirsad spy drone over northern Israel at the same moment as Bush and Sharon began their talks in Texas. In the West Bank and Gaza Strip, the Lebanese terror group stands foursquare not only behind the Islamic radicals but Fatah groups as well.

These new developments must have given the US president and Israeli prime minister plenty of food for thought

Jordan Sees a Not-So Far-fetched Scenario for West Bank

16 April: King Abdullah II is deeply preoccupied in restructuring governance in his realm according to a self-designed pattern of democracy. This month, he appointed a new government shorn of policy-making authority in the fields of foreign affairs, defense and home security, prerogatives that will pass to the royal court. The only post with real authority was awarded the Palestinian-Jordanian economist Basem Abdallah, whose job it is to reform the economy. The Jordanian king’s peripheral sight is also fixed on his western neighbor. According to our Amman sources, Abdullah thinks the Palestinian Authority under Abu Mazen is sinking rapidly and may be beyond saving. Of one thing Abdullah is certain: he cannot afford the Hamas, a branch of the worldwide Muslim brotherhood, taking over Palestinian government on July 17 as it would point a knife at the Hashemite throne in Amman.

Last week, the Jordanian ruler set up a new body called the Commission for Determining Jordan’s National Agenda. Its eight sub-committees were entrusted with drafting new laws for the redistribution of legislative authority among provincial parliaments still to be created for three wilayas – Irbid in the north, Salt in the center and Kerak in the south.

A royal decree will cut down the central parliament in Amman from 110 to 80 seats.

As for the West Bank, the Jordanian king would not be surprised if a breakdown of the Abbas government in Ramallah produced an invitation from Washington, pro-Jordanian elements among the Palestinians – and even possibly Israel, for him to step in and sort out the mayhem in the West Bank.

Such an invitation might lead to consideration of a plan to make the territory the Jordanian kingdom’s fourth wilaya.

Whatever becomes of this as yet unformed notion, a Jordanian-Palestinian province on the West Bank might open up some fresh thinking on ways of keeping some Jewish settlement blocs in situ – if not under full Israeli sovereignty then at least under Israeli administration – under give-and-take accords.

Abbas Ducks out of Ramallah, Reaches for Egyptian, Jordanian Help

17 April: Mahmoud Abbas’ Fatah still commands a majority in the Palestinian legislative council – but only if there is no general election on July 17, which Hamas is almost certain to win. That is why the ruling party is acting for a 70-day postponement of the vote until September 25.

Fatah fears were further fueled by student elections last week at Bir Zeit and Bethlehem universities, which are attended by the sons and daughters of the Palestinian elite, some of them Christian. Fatah did command a majority of votes in both places. However, notwithstanding the huge sums Abbas’ party laid out on campaigning, the radical terrorist Hamas group gained ground.

The Islamist terror group regards any delay in the election date a clear violation of Abu Mazen’s pledge and therefore legitimate cause for violent retaliation against Israel – not only as enemy, but also as Abbas’ guarantor and protector.

Caught between opposite choices – surrendering to Hamas and bringing Fatah wrath down on his head, or satisfying Hamas and losing the last remnants of support in his own party, debkafile‘s Palestinian sources report Abu Mazen decided to make himself scarce and travel. He meets Egyptian president Hosni Mubarak at Sharm al-Sheik Sunday, April 17, for what is described by his close aides as “emergency talks,” after which he will seek succor in Amman from King Abdullah.

Sharon Now Wants to Delay Gaza Pullout

18 April: Prime minister Ariel Sharon could no longer ignore the fact that nothing is ready for the July 20 evacuation of 9,000 Israelis from the Gaza Strip and N. West Bank. That is what decided him to consider a month’s delay.

In the last week, the partial lull in terrorist operations has been crumbling fast. Monday, April 18, 4 Israeli soldiers were injured in two separate Palestinian attacks: a gunman opened fire at A-Ram checkpoint north of Jerusalem injuring two soldiers seriously, one a girl. Two more soldiers were wounded, one seriously, by sniper fire on Philadelphi border with Egypt. Gaza Strip Palestinians fired eight mortar rounds at Israeli targets, injured three Israeli troops in nine sniper attacks and planted 7 explosive devices that were dismantled. The Palestinian force that Abbas “deployed” in the Gaza Strip when he took over melted away when the first mortar and missile firings were heard.

Furthermore, Egypt is backing away from the post-disengagement arrangements charted to secure the Philadelphi border strip and control the massive arms smuggling traffic from Sinai. Then, too, coordination with the Palestinians is a fading prospect.

debkafile has consistently reported that there was no way to execute a project on the scale of the evacuation in the few months allotted and in the face of insuperable obstacles.

But for the past weeks, semi-official announcements strove to drum up the impression that preparations for the withdrawal were racing forward. The same false colors were presented by the Palestinians – especially to the American media – on purported reforms underway in the Palestinian Authority under chairman Mahmoud Abbas.

The Israeli and Palestinian processes were supposed to mesh smoothly in the execution of the Israeli pullout. But this has not happened.

1. Three weeks before the pullback date, no IDF or police command is ready for its task. 2. A meeting last week between Disengagement Chief Yonatan Bassi and representatives of communities to be removed degenerated into a row when he had no answers to concrete questions:

3. The sheer logistics of the project are awesome.

4. The budget allocated for the project may fall short. Some economists predict it will generate a fresh economic slowdown that will extinguish the first signs of recovery from the deep reversals incurred in the four and-a-half year Palestinian terror war.

Hopes of US assistance were dashed a week ago during the prime minister’s talks with the US president and other officials.

Some officers of the Israeli high command and intelligence community told debkafile that, because of events on the ground, there is no one responsible to take over. The door will stand wide open for the Hamas and Hizballah with its Iranian backers to move into the Gaza Strip – and then the West Bank – to fill the space Israel is leaving empty and unsecured.

Creeping Specter of World Economic Slowdown

21 April: Sharp falls in equity markets around the globe, the $10 oil price drop from an all time high and the falling-off of US bond yields from 4.60 to 4.25% – all add up to a tremor rippling across world markets that is generated by fear of a slowdown in the making..

Finance ministers and central bankers from Europe, America and Japan, are deeply disturbed by high oil prices – a real threat to economic growth rates in America, Europe and Japan. They are most disturbed by the hint of stagflation in the United States posed by rising inflation (caused by spiraling prices of commodities and oil), unemployment and a weak labor market.

Equity markets around the globe dipped sharply during last week hitting 5-month lows. The Japanese stock market sold off Monday, April 18 by 4% against the background of three weeks of violent anti-Japanese protests across China. American equity markets declined sharply four days in a row – then perked up slightly. As the season of quarterly reports approaches, investors worry that companies’ profits may be disappointing and not justify current share prices.

The bond market has tip-tilted in the last two weeks. American 10-year bond yields plummeted from a high of 4.65% to 4.20% during Tuesday April 19 trading. This reflects the altered expectations of continuing aggressive rises in interest rates – some even estimating the next hike on May 3 to hit 0.5% instead of 0.25% as heretofore.

The world’s finance ministers and central bankers are seriously troubled by the American economy’s structural problems, high oil prices and signs of global economic slowdown. But speeches aside, public iterations of concern have not translated so far into action to address urgent problems. Any further crises, like for instance a real estate recession, would make it even harder to take such action.

We therefore predict a hard time for equity markets. Bond and foreign exchange markets may remain volatile: 10-year bond yield should move between 4.00-4.40%. The dollar is still groping for a support level between $1.27-$1.28 per euro and resistance levels of $1.31-1.32 per euro.

Contrary to most world markets, Israel’s economic figures continue to be good with the state budget in surplus and low inflation. This is one reason why the Tel Aviv stock exchange has consolidated lately between 630-660 points (on the Tel Aviv 25 index), and has emerged almost unhurt by the last sell-off in world equity markets. The crucial resistance level stands at 664 points (an all-time high). But any resurgence of Palestinian terrorist attacks or clashes with Israeli troops before or during pullbacks could turn Israeli capital markets right round and point them in a negative direction.