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[Senate Hearing 109-903]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 109-903

                  POST-PALESTINIAN ELECTION CHALLENGES
                           IN THE MIDDLE EAST

=======================================================================

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 15, 2006

                               __________

       Printed for the use of the Committee on Foreign Relations

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
NORM COLEMAN, Minnesota              JOHN F. KERRY, Massachusetts
GEORGE V. VOINOVICH, Ohio            RUSSELL D. FEINGOLD, Wisconsin
LAMAR ALEXANDER, Tennessee           BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
LISA MURKOWSKI, Alaska               BARACK OBAMA, Illinois
MEL MARTINEZ, Florida
                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                   ii

                            C O N T E N T S

                              ----------                              
                                                                   Page
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening 
  statement......................................................     1

Biden, Hon. Joseph R., Jr., U.S. Senator from Delaware, opening 
  statement......................................................    11

    Prepared statement...........................................    11

Dayton, Lieutenant General Keith W., U.S. Security Coordinator, 
  Department of State, Washington, DC............................    23

    Prepared statement...........................................    25

Malley, Robert, Middle East and North Africa Program Director, 
  International Crisis Group, Washington, DC.....................    43

    Prepared statement...........................................    46

Ross, Hon. Dennis, Counselor and Ziegler Distinguished Fellow, 
  the Washington Institute for Near East Policy, Washington, DC..    35

    Prepared statement...........................................    39

Wolfensohn, James, Quartet Special Envoy for Gaza Disengagement, 
  Washington, DC.................................................     3

    Prepared statement...........................................     7

                                  iii

 
        POST-PALESTINIAN ELECTION CHALLENGES IN THE MIDDLE EAST

                              ----------                              

                       WEDNESDAY, MARCH 15, 2006

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:02 a.m. in Room 
SD-419, Dirksen Senate Office Building, Hon. Richard G. Lugar 
(chairman) presiding.
    Present: Senators Lugar, Hagel, Chafee, Voinovich, Sununu, 
Martinez, Biden, Dodd, Feingold, Boxer, and Obama.

          OPENING STATEMENT OF HON. RICHARD G. LUGAR,
                   U.S. SENATOR FROM INDIANA

    Chairman Lugar. This hearing of the Senate Foreign 
Relations Committee is called to order. I appreciate very much 
the work of the staff and especially our first witness in 
coming at this early hour. We are anticipating an unusual day 
of voting on the Budget Act on the Senate floor. So as to 
preserve ample time for our witnesses to be heard with very 
important testimony and for members to take part fully, we have 
accelerated our hearing to this hour, and I thank all for 
attending.
    Let me just say to begin. The Committee on Foreign 
Relations has held several hearings during the past year to 
assess new dynamics in the Middle East. The election of 
Palestinian Authority President Mahmoud Abbas in January 2005 
held promise for more productive negotiations with a new 
Palestinian partner. The courageous and largely peaceful 
Israeli disengagement from 25 Gaza and West Bank settlements 
last summer raised hopes that a precedent was being set for 
further cooperation to resolve the long-standing Israeli-
Palestinian conflict.
    Today, the committee meets to again evaluate prospects for 
Middle East peace amidst a rapidly changing landscape. Hamas, a 
designated terrorist organization, was victorious in the 
Palestinian Legislative Council elections at the end of 
January. The United States, Israel, and the international 
community have been forced to reassess the short-term goals and 
strategies of the peace process. Hamas's existing charter and 
ideology of violence contradict the principles of the free and 
fair democratic elections that brought it to power.
    The United States, the Quartet, and others have indicated 
they will not deal with Hamas unless it recognizes Israel's 
right to exist, rejects violence and adheres to previous 
Palestinian agreements with Israel, but new dilemmas for United 
States policy arise from this principled stand.
    The Palestinian Authority is virtually bankrupt. 
Reportedly, without external aid, the Palestinian Authority 
cannot pay salaries for its more than 145,000 employees, almost 
60,000 of whom are in the security forces. The United States 
and European efforts over the past year have made only modest 
progress in reforming and reorganizing Palestinian security 
forces, which are dominated by Fatah. Armed and unemployed, 
these forces could become a major source of internal 
instability, as well as a threat to Israel.
    With Palestinian unemployment estimated between 30 and 60 
percent, cutting off all aid could also precipitate a 
humanitarian crisis. Palestinians are dependent on outside 
sources, including Israel, for food, fuel and other basic 
needs. A diminishment of aid from the West could further 
radicalize the Palestinian people or expand the influence of 
Iran and Syria. Iran has already offered assistance to Hamas 
and has, in the past, armed and supported Hamas and other 
terrorist organizations such as Hezbollah and the Palestinian 
Islamic Jihad. With its oil revenues bolstered by $60-a-barrel 
prices, Iran might be willing to expend substantial resources 
to solidify ties with Hamas and portray itself as a patron of 
the Palestinian people.
    Among Arab states, Jordan, Egypt, the Gulf States and Saudi 
Arabia are concerned that Hamas will stir extremists within 
their borders. Recent reports that Saudi Arabia will continue 
to provide aid to the Palestinians reflect such concerns, and 
may ameliorate some fears that Palestinians will turn to Iran.
    In Congress, several bills have been introduced to cut all 
or some portion of U.S. aid to the Palestinians. There is a 
consensus that no U.S. aid should benefit terrorists, and thus, 
no direct aid should be provided that supports a Hamas-led 
Palestinian Authority unless it definitively changes its 
positions. An issue that requires more examination is whether 
mechanisms can be developed that would provide targeted aid to 
the Palestinian people without benefiting the Hamas government.
    Until the new Palestinian government is formed and its 
roles and policies are clarified, U.S. policy should maintain 
sufficient flexibility to take advantage of opportunities to 
exert influence on the Palestinian Authority or elements of it.
    Today, we will ask our witnesses how we should deal with a 
Hamas-led Palestinian Authority. Should our policy be to 
isolate, engage, or contain Hamas? Should we find a way to 
continue humanitarian aid to the Palestinian people? Is there 
any possibility that Hamas can be co-opted after they have 
experienced the burdens of governing? How will the March 28th 
Israeli elections be affected by the Palestinian situation? Is 
there a way to put the peace process back on track so that 
Israelis and Palestinians can reach the necessary compromises 
to give their children a chance for a peaceful future?
    To assess these challenges, we welcome three distinguished 
panels. First, we will hear from Mr. James Wolfensohn, the 
Quartet Special Envoy for Gaza Disengagement. He has worked 
tirelessly during the past year to advance the cause of peace 
in very difficult circumstances. Next, we will hear from 
Lieutenant General Keith Dayton, U.S. Security Coordinator, who 
took on the missions of Palestinian security reform and 
reorganization from Lieutenant General William Ward this past 
November. On our final panel, we will hear from Ambassador 
Dennis Ross, Director and Ziegler Distinguished Fellow at the 
Washington Institute for Near East Policy, and Mr. Robert 
Malley, Middle East and North Africa Program Director of the 
International Crisis Group.
    We very much look forward to this testimony and the 
recommendations of our witnesses. Let me now recognize the 
presence of Senator Sununu, who has taken great interest in 
this area. Do you have an opening thought or comment, Senator?
    Senator Sununu. No, thank you very much, Mr. Chairman. I'll 
wait till Mr. Wolfensohn has had a chance to offer his 
testimony and then engage in a little bit of questioning. Thank 
you.
    Chairman Lugar. Thank you very much. When the distinguished 
Ranking Member comes to the meeting, we will ask him for his 
opening statement. But for the moment, we are delighted to 
greet you once again, Mr. Wolfensohn, and we appreciate your 
being here, and would you please proceed with your testimony.

  STATEMENT OF JAMES D. WOLFENSOHN, QUARTET SPECIAL ENVOY FOR 
               GAZA DISENGAGEMENT, WASHINGTON, DC

    Mr. Wolfensohn. Thank you very much indeed, Mr. Chairman, 
Senator Sununu. It's a pleasure to be here again and to be here 
in the company of General Dayton, my new colleague, and I want 
to acknowledge very much the great contribution that General 
Ward and General Dayton have made and what a pleasure it's been 
to work with them. It's been over 6 months since I was here, 
Mr. Chairman, and it seems as though a lifetime has passed by 
in that period of time.
    When I was here last, we were outlining a very hopeful 
position to the committee. And indeed, there was a sense of 
optimism between the parties built on the so-called ``Six Plus 
Three Agenda''. We were dealing with the issues of how one 
could normalize relationships between Israel and the 
Palestinian territories. And if you'll recall, Mr. Chairman, we 
were discussing, at that time, how one could bring about, in 
the near future, the issues of border crossings and trade 
cargoes, the connection between Gaza and the West Bank and 
movement in the West Bank. We were talking about the air and 
seaports, about the removal of rubble and the settlements; and 
finally, establishing greenhouses as an economic engine for the 
Palestinians. We were also addressing, at that stage, how we 
could then move to a medium term program that would be 
constructive, both for Palestinians and Israelis. There was a 
lot of optimism at that time, and the optimism was restated 
somewhat later in meetings of The Quartet and meetings between 
myself and members of each side, and we were working towards an 
implementation of the so-called Six Plus Three Agenda, which 
culminated in the signing of an agreement by the Secretary of 
State in November with the parties after a 24-hour lengthy and 
detailed and exhausting set of negotiations in which it was 
agreed that the implementation of this program would be taken 
on by the United States and Israel with somewhat less 
involvement of The Quartet and of myself.
    Also prior to those November meetings, you will recall that 
there was a unilateral disengagement in Gaza which changed very 
much the dynamics of the situation. And shortly thereafter, the 
very sad event of the sickness of Prime Minister Sharon, which 
changed also the dynamics and the leadership, indeed, of the 
Israel electorate. And then two other events presented 
themselves, the first being the Palestinian election in which 
there was an unexpected victory of Hamas. And now, on the 28th 
of this month, an election in Israel, the results of which we 
will know on the 28th of this month. So, it has been a 
turbulent period and sadly, one in which a lot of the dreams of 
the so-called Six Plus Three agreements have not been 
fulfilled. There have been significant interruptions in trade 
at the crossings. One positive element has been the 
establishment at Rafah of an opening with Egypt, which has been 
managed by our European colleagues and which has been largely 
quite successful, but the Karni Crossing for goods both ways 
has been closed half the time since the beginning of the year. 
And the Erez crossing for people has been diminished to a level 
of something of the order of 2,000 people a day. So, the hopes 
that we had at that time, I'm afraid, have been diminished, and 
there is an atmosphere of tension, which prevailed even before 
yesterday. And then, with yesterday's events, there is now a 
heightened sense of urgency, I believe, to try and restore some 
mutual confidence and some hope for what we hoped for all the 
way through these negotiations, which was a two-state solution 
with honor to both sides and with hopes for both sides.
    With the Hamas victory, all of us are faced with the issue 
of what is it that Hamas stands for. And I think, as you know, 
it is a genocidal charter that Hamas has, which has been well 
reviewed and well advertised and uniformly resisted by The 
Quartet and, of course, by the government of the United States 
as a member of that Quartet and on its own behalf. It's really 
inconceivable to have one potential state next to another which 
is committed to the destruction of that state and their 
throwing it out. I said to my colleagues last night it would 
be--drawing on my origins, it would be strange if New Zealand 
did it to Australia, and I'm not sure that we would have had 
great relations with New Zealanders as Australians if their 
charter was to get rid of us, not that we have great relations 
with New Zealanders anyway, Mr. Chairman, but that's a separate 
subject.
    But that would have, I think, been the last straw. And so, 
in the case of the Israelis and the Palestinians an 
articulation of a program that saw its origins as perceived, I 
think, not correctly in Jihad and in the Islamic Resistance 
Movement based on the prophet or the interpretation of the 
prophet is something that clearly all of us need to resist and 
which is not acceptable. And that leads to the current 
situation where we have, possibly this week, the installation 
of a--or at least the recommendation to President Abbas of a--
leadership group in the cabinet that will be significantly 
Hamas or is thought to be significantly Hamas and, I think, a 
uniform view taken by the international community that 
providing funds to Hamas-led activities is something that we 
should not do given the background of the Hamas beliefs.
    So, we are now at a situation where we are caught in a 
dilemma with the victory of Hamas in the past elections. May I 
say, Mr. Chairman, in fact, on the popular vote, it was very 
close between Hamas and Fatah, and one of the reasons was that 
Fatah had several candidates for many seats which split their 
vote, and Hamas was able to come in--a fairly obvious political 
calculation, but one, nonetheless, that was made at the time. 
And so, Hamas, I think, rather surprisingly for themselves came 
in and certainly surprisingly for all of us. The fiscal 
situation, then, is one that persisted before Hamas came in, 
but is made more difficult by the arrival of Hamas. We can 
submit to you, Mr. Chairman, the details, but I look at it in 
the following way, that there is roughly a $2 billion-dollar 
budget out of a four and a half billion-dollar GDP in the 
territories, $4.4. That means that each month, $165 million 
dollars is required by the Palestinians. Of that $165 million, 
roughly $35 million is generated from internally-collected 
funds of one form or another. That leaves you a net $130 
million. Of that $130 million, the Israelis collect customs and 
other revenues of the order of $60 million. So, that $130 then 
becomes a gap of $70 million. And what we talk about virtually 
every month is how is that $70 million filled. That, in very 
simple terms, Mr. Chairman, is the calculation each month. Last 
year, that $70 million--in fact, it was slightly less than 
that, but if you take it for the total of the year, 12 times 70 
would be $840 million gap. In fact, it was last year $770 
million, but it's running at the rate now that I just 
described. So, the issue for all of us is how do you fill that 
$840 million. And in recent times, we have been gathering 
money, $20 million last month from the Saudis, $10 million from 
the Kataris, $10 million from the Norwegians, so we have a list 
of all this that we can provide to you. But typically, and at 
the moment, there is a gap that runs $30-$40-$50 million a 
month which is required to be filled in ways other than by 
these direct donations. That is the problem that monthly the 
Palestinians face, but there is another problem at the moment 
which is that the Israelis are not paying them the $60 million 
that they get and collect for them. So, the challenge of the 
$60-$70 million, which I referred to, which is the normal gap, 
is doubled because the Israelis are not paying them. So, you 
have something in excess of $100 million which has to be found 
each month.
    That is the core of the financial problem, Mr. Chairman. 
It's $100 million-plus gap accentuated and put there because 
the Israelis are not paying the $60 million. So, the $60 or $70 
becomes $120 which has to be filled each month. And from a 
financial point of view, that is what we are running around 
trying to fill each month. If Hamas comes in, the ability to 
fill that becomes further diminished because people will not 
give money to an authority which is run by the Hamas 
representatives.
    And therefore, all the debate now is how can you get money 
to the Palestinians without going through Hamas in order to 
avert a humanitarian crisis. And that is where we are in the 
debate, how do you get money to the Palestinians for health, 
education and essential services to ensure that they can 
survive parallel in terms of delivery with the Hamas delivery 
system, and we don't yet have the answer to that. Certainly, we 
don't want two sets of schools. Certainly, there's no way to 
have two sets of hospitals, two sets of essential service 
delivery. And so, what everybody is looking at at the moment 
from the United Nations and UNRWA, which as you know, 
separately provides $150 million dollars-plus of services, how 
is it that in this next period, if it's indeed possible, one 
can meet the needs of nearly a million schoolchildren out of a 
population of 4\1/2\ million, and how is it that you can bring 
payment to the employees that you have mentioned in your 
opening statement, the government employees, who support close 
to a million of the population--900,000 is the estimate, 6 to 1 
of the 150,000 people that are employed and all this, Mr. 
Chairman, at a time when we are trying to put this together in 
a rather difficult political environment added to yesterday--by 
yesterday's events in terms of a heightened sense of danger and 
of concern and with the Israeli election coming up on the 28th 
of this month.
    I wish you had asked me to come in a few weeks' time, Mr. 
Chairman, because I might have some answers for you, but what I 
am describing to you is the current situation. It is a 
situation of a monthly deficit accentuated by the Israel 
decision not to pass on $60 million or so of revenues which 
they collect, uncertainty on the part of the international 
community of how they can pass money through given the Hamas 
accentuation of coming to power and the prospective appointment 
of a cabinet. And if the gap is there, and you're not paying to 
Hamas, the third issue--how is it that we can organize an 
alternative delivery mechanism. And, Mr. Chairman, we don't yet 
have an answer to that. You can do it through NGOs. You may be 
able to do some of it through the United Nations. We are 
looking at all the alternatives at this moment, but the thing 
which is certain is that we cannot have a peaceful environment 
if we cannot deal with the basic needs of the people, nor would 
it be equitable to bring problems to people who are non-Hamas 
people to the average person in the society, many of whom voted 
for Hamas not because of any political objective, but because 
they felt that the previous government was corrupt and not 
doing its job correctly.
    So, this is not a divided community with people that want 
to go kill Israel or every Israeli, this is an election, which 
showed significant dissatisfaction with the prior government, I 
think, for reasons which they believe to be good in terms of 
corruption and mismanagement. And we, then, are now faced as 
the international community with dealing with this. And the 
final thing, Mr. Chairman, is that the reactions that the 
international community is making or are making are being 
watched very carefully. It seems to me at this moment, as a 
non-politician, that we need a little time to try and assess 
what are the possible ways in which we can contrive an answer 
which meets all our needs. And if we have a sequence of 
legislations around the world which limit our hands beyond the 
main principles of not dealing with Hamas, it will make it 
quite difficult for us to come testify and tell you what we 
want to do because the experts in the field don't yet know how 
to do it. So, I think we should try and get a bit of time here, 
not to find a way around our principles, but within our 
principles, to find ways in which we can deal with the 
essential issue, which is the issue of livelihood to the 
Palestinians during this next period. I think that's the 
explanation, Mr. Chairman.

    [The prepared statement of Mr. Wolfensohn follows:]

           Prepared Statement of James D. Wolfensohn, Quartet
                  Special Envoy for Gaza Disengagement

    Mr. Chairman and members of the committee, thank you for inviting 
me today to share with you my assessment of the current economic 
situation in the Palestinian Territories, and my thoughts about how the 
international community might usefully proceed from here. The 
Palestinian Legislative Council elections on January 25 were free and 
fair, with a high turnout, good security and results that have been 
respected by all political factions. The Palestinian people sent a 
clear message that they want a clean government that meets their needs 
and is accountable.
    At the same time, the election of a group that is designated a 
Foreign Terrorist Organization by the United States and the European 
Union, and that advocates the destruction of Israel in its charter 
presents serious challenges that we all must now address. The Quartet 
has made clear that Hamas must commit to nonviolence, recognize Israel, 
and accept previous agreements and obligations of the Palestinian 
Authority (PA), including the Roadmap. I agree with this position 
unequivocally. These are fundamental commitments, and set the basic 
parameters under which the PA can be a partner in the peace process. 
Israel cannot be expected to negotiate with a PA government that does 
not accept its existence and openly calls for its destruction.
    In the event that a new PA government refuses to accept the three 
conditions set by the international community, then it is right for all 
those engaged in attempting to bring peace to the region to review 
their assistance efforts to the PA. While the future should be left to 
the citizens and leadership of the Palestinian community, international 
assistance remains a powerful tool that can be used to affect the 
policy debate in the right direction--we do this in developing 
countries around the world to ensure that aid money is used effectively 
and to promote strong economic growth. We have been targeting our 
assistance to the PA to elicit the kinds of reforms and policies 
consistent with Oslo. Hamas faces a clear choice to either fulfill the 
mandate given it by the Palestinian people to eliminate corruption and 
pursue their desire for peace, or maintain its support of terror and 
untenable stand against Israel at the cost of international censure.
    The mechanisms we use to encourage Hamas to commit to the Quartet's 
three principles should be very carefully selected and targeted, with 
the goal of retaining open political space. It is essential, therefore, 
to ensure the continued humanitarian and economic welfare of the 
Palestinian people in a way that is predictable and clear to the 
population. We must appropriately target our message to Hamas at those 
responsible for terrorism and those responsible for making decisions 
about the future direction of the PA. To cast too wide a net and punish 
ordinary Palestinian citizens for Hamas' failures--those working for 
the health and well-being of the Palestinian people, those pursuing 
moderate political causes, or elected officials who are not associated 
with Hamas--sets the stage for our intentions to be misread. We risk 
blame being cast at the international community and increased 
radicalization of Palestinian society should Palestinian suffering 
increase.
    In the nearly 8 months since my last appearance before the 
committee, I have continued to work on behalf of the Quartet to pursue 
its original mission to coordinate the international community's 
efforts in support of Israel's disengagement from the Gaza Strip and 
parts of the northern West Bank. This has meant working with both sides 
to establish the prerequisites for a successful Palestinian economy, 
and working with the PA to develop a program of reforms and steps to 
promote economic recovery, good governance, transparency, job creation 
and improved living standards. Above all, my goal was to facilitate 
economic hope for the Palestinians in an environment of security for 
both sides.
    Planned changes in assistance will affect the efforts we, and the 
rest of the international community, have made thus far to build the 
economy, institutions and efficacy of the PA. I have noted to the 
Quartet that such changes require careful examination against the long-
term development goals we have pursued. Key measures in this area have 
included: the establishment of a single treasury account at the 
Ministry of Finance; increased transparency of financial accounting 
including external auditing and submission of financial statements to 
parliament; stronger anti-corruption measures including passage of a 
law on illicit earnings and passage of a judicial authority law, and 
the successful formation and functioning of the Central Elections 
Commission. There remains a great distance yet to go in PA reform, and 
abandoning the project now across the board risks setting back our 
goals and interests in the region. I have been greatly impressed by 
many Palestinians working for these same goals, and we should not let 
them down.
    Coordinated leadership during this time will avoid hasty decisions 
that could jeopardize many years of democratization and institution 
building processes. We could inadvertently foster a situation where 
there truly can be no partner for peace. The international community is 
working now to address many of these difficult questions. I recognize 
the complexity of the task and am hopeful there will soon be a 
convincing strategy addressing the PA's financial and short- and long-
term development needs.
                           the fiscal crisis
    The current fiscal situation in the Palestinian territories is dire 
and unsustainable and may have wide-ranging consequences for the 
Palestinian economy, and for security and stability for the 
Palestinians and the Israelis. And it comes at a time when Israel 
prepares for elections. The PA needs $115 million to pay salaries and 
essential benefits for the month of February. The size of the wage bill 
has ballooned over the last 8 months, largely due to substantial wage 
increases granted to both civilian and security personnel mid-year, and 
more recently due to significant increases in the number of PA security 
services personnel (to return to a path of fiscal sustainability, the 
PA must shed at least 30,000 security sector employees). Additional 
costs, including payment to Palestinian and Israeli vendors, social 
transfers, and utility payments to Israel result in a monthly deficit 
of roughly $70 million. Israel's decision to withhold tax and customs 
revenue transfers of roughly $60 million per month expands this deficit 
to $130 million per month and severely increases the PA's reliance on 
external financing.
    With generous contributions of budget support from donors such as 
the EU, Saudi Arabia, Norway, and the United Kingdom, the financing gap 
for February has narrowed significantly. However, the PA continues to 
face shortfall of some $30-40 million and therefore has not yet paid 
February salaries. Hamas has asked President Abbas for a two week 
extension to form a cabinet, meaning that we will have a caretaker 
government through most of March. There are no plans in place for how 
to finance the March deficit.
    The majority of donor assistance directly to the PA budget is from 
Arab states. According to the PA Ministry of Finance, in 2005 $210 
million of the PA's over $360 million in budget support was provided 
from the Middle East. Saudi Arabia, Algeria, Kuwait and Qatar were the 
lead Arab donors. It is possible but by no means certain that Arab 
donors would increase assistance to the PA if Western donors reduce 
funding through other channels. While I have no personal knowledge of 
the subject, we have already seen rumors that Iran is considering 
assistance, though Hamas itself has disputed some such stories. It is 
also not clear the degree to which Iran is capable of funding the PA. 
What is clear is that the PA has a consistent and chronic budget 
deficit the new government will be responsible for addressing.
    Non-payment of salaries to some 150,000 PA civilian and security 
employees would have a major impact on the economy and increase levels 
of poverty, but again, I cannot endorse external budgetary assistance 
once a new government is formed absent the new government's accepting 
the three Quartet principles. PA employees make up 37 percent of those 
in employed in Gaza and 14 percent in the West Bank, with more than 
940,000 Palestinians (about one quarter of the population) directly 
dependent on a PA wage earner in the family. This dependence is 
particularly high among the poorest segments of the population. The 
private sector, already experiencing a severe slump, has only a limited 
capacity to absorb new unemployed, leaving the population even more 
vulnerable.
    Non-payment of salaries to some 73,000 security staff risks rising 
criminality, kidnapping and protection rackets. This has led already to 
U.N. international staff being reduced from 76 to 6 currently, and kept 
U.N. operations in Gaza at a heightened level of alert. As we saw 
yesterday from the terrible events in Jericho that spread rapidly 
throughout the West Bank and to Gaza, the already highly charged 
environment needs no additional fuel for a spark to ignite.
             development and humanitarian assistance issues
    Donors have long been engaged in the broad process of building 
Palestinian institutions, infrastructure and capacity to govern. In 
2005, donors spent over $700 million in projects and programs to help 
the Palestinian people build water lines and housing, create jobs, 
develop small businesses and strengthen their elections system. The EU 
COPPS program helped build the Palestinian security sector, while 
donors worked together through the World Bank Financial Reform Trust 
Fund to strengthen PA financial management.
    Donors were planning further increases in assistance to the PA in 
the wake of disengagement and in the run-up to January PLC elections. 
The EC proposed doubling aid to = 500 million if meaningful progress in 
security and access policy were achieved; Japan was moving forward with 
provision of $100 million in disengagement-related assistance; the U.S. 
provided $200 million in supplemental assistance in 2005, in addition 
to $75 million annual budget, and doubled 2006 budget to $150 million; 
UAE pledged $100 million to build 3,000 new housing units in Gaza, and 
Canada doubled their 2005-06 commitment to $58 million. This assistance 
was to have largely been implemented during the first half of 2006.
    The suspension of all such activity would have important 
consequences for Palestinians. Sewage running in the streets will 
continue to do so. Jobs that would have been created through road 
building and other infrastructure projects will not exist; the U.N. 
notes that 100,000 jobs need to be created in 2006 just to maintain the 
current rate of unemployment. Removing assistance for political reform 
programs is especially counterintuitive when we recall that 55 percent 
of the Palestinian population voted for parties other than Hamas. This 
again speaks to the need for a careful, thoughtful approach to the 
current situation that reinforces our long term goals while preserving 
our interests.
    When Israel announced its planned disengagement from Gaza and parts 
of the northern West Bank, the international community, including me, 
spoke of a return to the Roadmap and of building hope for the 
Palestinians. We recognized then that the best way to bring calm and 
security was to improve the Palestinian economy. At the same time, we 
recognized that if we failed to seize this moment to increase 
prosperity, the likelihood of rising discontent and violence would 
increase. The same issues face us now, and we must very carefully 
consider how we design the next phase of donor activity.
    Part of building PA institutions has been building their capacity 
to provide for the basic needs of the Palestinian population. More than 
50,000 Palestinians work in the health and education sectors. To halt 
financing of the PA would mean that basic and essential services, such 
as education, health care, water supply, and sewage treatment would be 
significantly reduced or cease to be provided altogether. For example, 
the PA Ministry of Health currently operates about 60 percent of basic 
health care clinics and hospital beds in the West Bank and Gaza and 
administers 85 percent of vaccinations in the West Bank (and 25 percent 
in Gaza). NGOs account for 30 percent of the remaining facilities and 
UNRWA for 8.5 percent. Donors currently fund 87 percent of the non-
salary operating budget of the PA Ministry of Health. A collapse of 
health services and the education system, which addresses the needs of 
one million children, would be a total failure for the new government, 
and would have tragic consequences for the Palestinian people. This 
should not be permitted under any circumstances.
    In order to avoid a total failure of the healthcare system in the 
Palestinian Territories, we are looking at the prospects for provision 
of services through NGOs, UNRWA, and other agencies outside the PA. 
According to the U.N., while a number of organizations--including 
UNRWA--are active in the provision of basic health care and education, 
international humanitarian agencies may not have the capacity to take 
over the running all of the PA services. A World Bank survey shows that 
47 percent of respondents utilized government health services for 
regular health care services; 25 percent used UNRWA; 16 percent 
utilized private sector providers and 11.5 percent used NGOs. It is 
unclear how much NGOs can fill the gap that would left by the PA.
    In education, the IMF reports that about 75 percent of the schools 
are public, with the remaining 25 percent equally divided between UNRWA 
and private institutions. UNRWA schools are already overcrowded and 
operating on shifts. UNRWA has indicated it could expand its primary 
health and education services to a portion of the non-refugee 
population if its mandate were expanded. If, however, the PA Ministry 
of Education were to fail, and in the worst case scenario thousands of 
school children were sent home, there could be the potential for 
increasing instability and violence.
    Seeking to engage international and non-governmental organizations 
in the provision of basic services to the Palestinian people may be 
useful in helping some donors address legal issues that impede 
providing assistance to or through a new Hamas-led PA government, while 
enabling their continued support of the Palestinian people. There are 
questions, however, about the time needed to establish acceptable new 
mechanisms for delivering assistance, the willingness of these groups 
to participate, and their capacity to do so. Any new such mechanisms 
should be designed with the clear intent to dissolve them once their 
function is no longer needed.
                    agreement on movement and access
    As Quartet Special Envoy, I worked to create the preconditions for 
a viable Palestinian economy. A major result of this effort was the 
Agreement on Movement and Access (AMA) that I helped Secretary Rice 
secure with both sides on November 15, 2005. If fully implemented, this 
agreement would have addressed major impediments to a successful 
Palestinian economy: the ability to efficiently move people and goods 
into and out of Gaza--to Egypt, Israel and the West Bank; reduced 
trade--restrictive barriers to movement within the West Bank; and 
facilitated work on a sea and airport for Gaza.
    While some success was achieved at Rafah, and for a time at the 
Karni crossing, the overall implementation of the AMA has been poor. 
Each side is culpable for this situation, which has ultimately meant 
that the benefits we had hoped would accrue to the Palestinian economy 
have not materialized. There could have no reasonable expectation of 
progress on these issues after the Palestinian elections, but it is 
regrettable that the parties did not work harder to reach a conclusion 
to the issues in the intervening period between signing of the AMA and 
the elections.
    One of the most alarming issues in this context is the prolonged 
and repetitive closure of the Karni crossing point between Gaza and 
Israel; the only operating cargo terminal in and out of Gaza. The 
latest prolonged closure from February 22 to March 8 followed a 
previous closure from January 15 to February 4. Karni was closed again 
on March 14 until further notice. The periods of closure represent 51 
percent of the total amount of time the crossing should have been open 
since the beginning of the year.
    The closures at Karni have been devastating and severely harmed the 
Palestinian agricultural sector which was at the height of its season. 
The AMA set the benchmark of 150 export truck loads a day by December 
31, which has not yet been attained. In the last normal operating 
period in February, daily exports averaged 62 truck loads. There has 
been a significant decrease in the agricultural crops productivity due 
to delayed harvesting resulting from the inability to export the 
produce out of Gaza.
    Severe shortages in dairy products, wheat, fruit and chemical items 
had been reported from Gaza in the week of March 6. Accordingly, prices 
for many goods, if available at all, rose significantly (sugar by 150 
percent, fruit by 40 percent). UNRWA reported yesterday that despite 
the opening of Karni for imports March 9-13, flour supplies remained 
insufficient. UNRWA furthermore estimates running out of fuel by March 
17.
    Progress on establishing convoys for people and goods between Gaza 
and the West Bank has also been stalled. The AMA stipulates the former 
were to have been started December 15, 2005 and the latter January 15, 
2006. Movement within the West Bank also remains problematic. The 
number of obstacles identified by the U.N. Office for the Coordination 
of Humanitarian Affairs climbed from 376 in August 2005 to 487 as of 
March 3.
    There is not yet a detailed assessment of how the above issues will 
affect the Palestinian economy. It is reasonable to assume, however, 
that GDP expansion will fall well short of the previously predicted 8.7 
percent for 2005. The IMF estimates real growth will instead be 6 
percent--not nearly what is needed after the devastating years of 
recession during the intifada. Unemployment, which the World Bank 
estimated at over 22 percent in 2005 (and disproportionately affects 
young Palestinians), will also increase dramatically, especially if the 
PA undertakes badly needed reforms to reduce public sector payrolls.
    The pressure on the new Palestinian government is therefore 
intense. Even had Fatah won the majority of PLC seats, the 
international community would have had to engage intensively with the 
PA on a set of economic and political reforms. Hamas now faces a huge 
challenge simply in managing the existing issues in front of the PA, 
and has made big promises to deliver quickly. Fatah failed to do so and 
was voted out of power in free and fair elections. It will be incumbent 
on Hamas to provide a peaceful and prosperous future for Palestinians--
this can begin with its acceptance of the Quartet's conditions.
    There is a great deal of good will motivating the realignment of 
international assistance to the Palestinians, as all major 
international donors have stated their commitment to supporting the 
humanitarian needs of the Palestinian people. The burden, however, 
rests squarely with Hamas. The current scenario demands a thoughtful, 
prudent and measured response based on the steadfast goal of returning 
both sides as quickly as possible to the Roadmap, and finally bringing 
about a two-state solution. I believe the best way to achieve this is 
through a clear set of requirements for Hamas, matched with strong, 
multilateral support for the Palestinian people over a predictable 
timeframe. The period after the installation of the PA cabinet, as the 
international community hopes for Hamas to determine whether or not it 
will make the required policy changes, will be dangerous and difficult. 
All of us--the Quartet, the Israelis, the Palestinians and the rest of 
the international community, but first and foremost the Palestinian 
leadership--need to consider carefully how this is handled.

    Chairman Lugar. Thank you very much. I appreciate that very 
lucid commentary on the dilemma. Of course, this is the reason 
we have asked you to come now. The situation is urgent. As you 
have pointed out, there are a number of legislative vehicles in 
front of the Congress. Your advice is to take some time to be 
thoughtful about that, and this we're attempting to do. Let me 
suggest that the committee will now have a brief question and 
answer. I note, however, the presence of Distinguished Ranking 
Member Senator Biden. Would you like to make an opening comment 
at this point?

            STATEMENT OF HON. JOSEPH R. BIDEN, JR.,
                   U.S. SENATOR FROM DELAWARE

    Senator Biden. Very briefly. First of all, I'd like to 
welcome all of our distinguished witnesses. I appreciate you 
holding this hearing, Mr. Chairman. We have, I think, one of 
the most thoughtful people I've ever dealt with before us 
today, and I'm anxious to hear what he has to say. I apologize, 
I say, to Mr. Wolfensohn for being late. There was a group with 
Secretary Baker, Lee Hamilton, and others who are putting 
together a study group on another matter, and I agreed to be 
there. My apologies. I would ask that my opening statement be 
placed in the record----
    Chairman Lugar. It will be placed in the record in full.
    Senator Biden [continuing]. If I may, and I would--well, in 
the interest of time, I won't even attempt to summarize it. 
During the question and answer period, I'll get a chance to 
explore some of the things I have here. Thank you for being 
here too.

    [The prepared statement of Senator Biden follows:]

            Prepared Statement of Hon. Joseph R. Biden, Jr.,
                       U.S. Senator from Delaware

    Welcome to all our witnesses. I'd like to offer a special word of 
thanks to Jim Wolfensohn, who has volunteered his time and considerable 
talents for one of the world's toughest jobs.
    In January, I was in the West Bank as an official observer during 
the Palestinian legislative elections. The election results were 
sobering for all of us. The prospect of Hamas assuming power seems 
surreal. How did Hamas win? In a nutshell, because Fatah and the 
Palestinian Authority didn't deliver. The outcome mostly reflects anger 
and frustration over corruption, mismanagement, and a breakdown of law 
and order.
    But I think that we and the international community must accept 
some responsibility as well. After Yasir Arafat's death, I repeatedly 
urged that we act with a sense of urgency to help President Abbas clean 
up the mess he inherited. The Chairman and I wrote two letters to 
President Bush in May and July 2005 urging rapid assistance to the 
Palestinians. Here's what we said in one of those letters: ``. . . if 
the Palestinians do not see immediate, tangible improvements in their 
daily lives, then Hamas could gain credibility and support at the 
expense of President Abbas.''
    Instead of moving urgently, we dithered. It wasn't until November 
that Secretary Rice got directly involved by brokering a breakthrough 
agreement on Gaza. That was welcome, but it was too little, too late.
    I don't want to dwell on the past, but it's important that we try 
to learn from it. The question today is how do we respond to the Hamas 
victory? Obviously, Israel cannot be expected to negotiate with a party 
that seeks its destruction and engages in terrorism. It seems to me the 
so-called Quartet--the U.S., the E.U., Russia and the U.N.--has it just 
right:
    The next Palestinian government must recognize Israel, renounce 
violence, and accept past agreements. That's why I joined Senator 
McConnell in introducing legislation prohibiting aid to a Hamas 
government until it meets those conditions. At the same time, we've 
made important exceptions for the basic needs of the Palestinian people 
and the office of President Abbas. I believe we should urge other 
countries to adhere to the Quartet position. In particular, we need to 
press the Arab Gulf States not to rush in and financially support 
Hamas. That would take the pressure off.
    Does Hamas want to continue as a radical terrorist organization? Or 
will it respond to the Palestinian public which wants reform, but 
doesn't want isolation, poverty, and extremism. Simply put, Hamas must 
choose between bullets and ballots, between destructive terror and 
constructive governance. It cannot have it both ways. At the same time, 
we must not punish ordinary Palestinians for the sins of Hamas. I 
believe we should redouble our commitment to their welfare. We may need 
to look at new ways of delivering aid. That may require new coalitions 
from the private sector, NGOs, and international organizations.
    I look forward to exploring these and other ideas with our 
witnesses today.

    Chairman Lugar. All right, I wanted to suggest, because we 
have several senators present and others will be arriving, a 5-
minute question period today, and I'll start with the 
questions. Secretary Rice has said it's important that we take 
into consideration the humanitarian aspects that you have 
talked about, but let me just ask, is the infrastructure and 
capacity of the Palestinian authorities so weak at this point 
that even with humanitarian aid there may be chaos? In other 
words, if other aid is cut, is humanitarian aid enough to 
prevent a crisis?
    Mr. Wolfensohn. Mr. Chairman, I wish I could say that if 
you just paid a check, it would be enough, but I don't believe 
that is the case. I think we are in the process with our 
Palestinian colleagues in helping them to build up the 
infrastructure of governance, but it is not yet complete. As 
you know, I'm sure the provision of services is already split 
between the Palestinian Authority and UNRWA and some other 
independent agencies. And while I think the movement was very 
constructive, both in education and in health, in terms of 
building up the governance structure, we're not yet there in 
terms of a final, complete package. So, I would say that the 
funding is essential, and it runs for those two at around 
approximately $40 million dollars a month, close to $500 
million dollars a year for education and health alone. But I 
believe, sir, that we necessarily need to keep helping them in 
building the permanent structure that they are seeking 
themselves to build.
    Chairman Lugar. Let me ask, what is the status of the 
Greenhouse and other Gaza disengagement projects that you 
worked on last summer and told us about?
    Mr. Wolfensohn. I would have to say that for me, the 
Greenhouse Project has been the most tragic personal 
involvement, although relative to everything else, it's quite 
small. But you will recall, Mr. Chairman, that we were able to 
raise some $14 or $15 million dollars here from Americans to 
try and save the greenhouses and to get a constructive program 
going to which the Palestinians themselves have put in an extra 
$15 or $20 million dollars. And I have photographs, and 
certainly can provide them, of just wonderful production of 
agricultural projects, inspiring production engaging 3- or 
4,000 people. But very sadly, Mr. Chairman, the crossing and in 
particular, the Karni Crossing, has been closed for 50 percent 
of the time, and I can equally give you photographs of these 
wonderful products being destroyed. The net cost has been 
between--direct cost to the Palestinians--6 million, and the 
overall cost, they estimated 8 thus far in terms of this 
activity. I personally think it's a tragedy. I met 2 days ago 
with the Palestinian head of the agency, and they are running 
out of money.
    And my great worry, Mr. Chairman, is almost less the money 
than the symbolism of this project, which was supported by 
individuals from this country, and I think excited everybody 
is, for reasons of defense by Israel, cut short, and my report 
is a very negative one on where it stands at the moment.
    Chairman Lugar. What have the results been in the Rafah 
border crossing agreement that you and Secretary Rice----
    Mr. Wolfensohn. The Rafah Crossing, Mr. Chairman, has 
worked actually quite well despite a lot of press. It is being 
run, as you know, by our European colleagues and is basically 
working pretty well. I don't think that Rafah is our problem. 
And in fact, I should tell you that in the last days, three or 
four truckloads of goods have gone outwards for an event that 
is to take place in Egypt, and we are all hoping that Rafah 
might be a way for the export of goods through Egypt. That is 
just the beginnings of it in this last 24 hours.
    Chairman Lugar. I thank you for those responses. Senator 
Biden.
    Senator Biden. Thank you very much, Mr. Chairman. I realize 
some of the questions I'm about to ask you, there may be no 
answer at this point. As I read your statement in a previous 
report that you issued, you seemed to be suggesting, which I 
find to be not unreasonable at all, that things have to move a 
little more before things begin to gel. The Quartet has come 
forward and has set out its three criteria for dealing with a 
Hamas government--the end of violence, the recognition of 
Israel and the acceptance of prior accords. But as I listened 
to what you said and read your statement, how fluid are things 
at the moment in terms of what options may be available to The 
Quartet and others to deal with what is obviously a potential 
humanitarian serious problem--a million kids in school, a 
million people on the PA payroll. I mean, how do you see this 
unfolding, Mr. President, and how, if you're willing to discuss 
it with us, is this impacting on, or how will the Israeli 
elections impact on options?
    Mr. Wolfensohn. The first thing, Senator Biden, is that I 
think we have to have a few fixed points that we operate 
within. And I think the first point, as you articulated 
yourself, is that the issue of not compromising on a removal of 
a claim for the destruction of the state of Israel and no end 
of violence is something that is, I believe, a given which is 
accepted by the international community. I think in terms of 
movement or fluidity about which you spoke, that should be 
something that is not fluid. That is something which is fixed 
and which is understandable.
    As I think I said before you came, it's as though New 
Zealand would have those claims about Australia, and 
Australians would resent it as Israelis resent it. And so, this 
is something which I think is not moveable. Then the question 
is, how do you bring about humanitarian relief and not punish 
the Palestinian people if Hamas as it has been elected and 
takes office, and that is where the fluidity needs to come. How 
is it that you could have alternative delivery mechanisms if, 
indeed, they're possible? And how can you keep things going in 
a way that our very actions do not create violence? If you have 
a million kids on the street from schools with no schools to go 
to, if there are no health facilities and if the basic 
framework of the Palestinian territories breaks down, it's hard 
to imagine that you are going to have peace. And the second 
thing, Senator, is if you don't pay the civil servants, who 
themselves support 900,000 people, I'm afraid the frustration 
would reach a level where you couldn't contain it. So, what 
everybody is now rushing around trying to do is to try and see 
what are the possible sources of delivery mechanisms, be it 
through UNRWA, be it through existing frameworks which may be 
renamed or re-reported to or some framework that we would 
regard as acceptable. And the sort of instinct that I have, 
although probably it makes no political sense, but the problem, 
as I see it, is to try and do that in 2 days is very very 
difficult, if not impossible. My instinctive reaction, which 
probably has no political support, is that you'd need a period 
of a month or two to try and organize this. It may be 
impossible politically, but the notion of trying to reestablish 
a framework that deals with 4 million-plus people overnight 
when you are given these constraints is just something that I 
think may be beyond human capacity.
    Senator Biden. How do you respond to the assertion we often 
hear that if, in fact, there is a hardship that results from 
Hamas's election, that Hamas will be held accountable for it by 
the Palestinian people and that that would, in the most rosy 
scenario, hasten the possibility of either a change in their 
attitude and/or eventually a change in the government?
    Mr. Wolfensohn. I'm not a political theorist, but I've been 
there now for 12 months, and if you ask for my personal 
opinion, which is----
    Senator Biden. That is what I meant.
    Mr. Wolfensohn [continuing]. Distinct from my Quartet or 
other opinion, I don't think that it's going to work. I think, 
personally, that the pressure needs to be kept on, and we have 
to try and persuade Hamas to change, but I would very much 
doubt that the public will throw them out if they seemed to be 
unable to provide services because of foreign pressure. I think 
that they are more likely to have Palestinians come behind them 
than throw them out. I know that friends in Fatah think, and 
they may be more informed than I am, that if you keep the 
pressure on them, they'll throw Hamas out and return moderate 
Fatah representatives. The political logic of that escapes me, 
but it is a view which is current amongst Hamas leadership, 
although I would personally not bet on it.
    Senator Biden. Thank you. Thank you, Mr. Chairman.
    Chairman Lugar. Thank you, Senator Biden. Senator Hagel.
    Senator Hagel. Mr. Chairman, thank you. Mr. Wolfensohn, 
welcome. Thanks for what you continue to do and your many 
contributions. Let me follow along the line of the questions 
that Senator Biden has begun. In your testimony, you noted we 
need some time. I think that was your statement. In light of 
questions that Senator Biden has asked, the other questions 
that will be asked--where do we go from here, what can The 
Quartet do, what should the United States' position be, you 
are, I'm sure, familiar with our colleague's amendment with 
Senator McConnell, which I'm going to ask you about and get 
your sense of that as well, my question is this, when you say 
we need some time, are you referring to need some time to see 
where Hamas goes, how it will govern, what positions it will 
take, if it will soften its position on any of its previously-
held points, getting to what you say is a fixed point or two, 
what do you mean by we need some time?
    Mr. Wolfensohn. I'm giving you a pragmatic, not a political 
reaction, Senator Hagel. I have said, and continue to believe, 
that there is no way that we can accept the current Hamas 
charter. So, I believe that if you have that, you can't deal 
through Hamas, but what we're looking at is an alternative 
delivery mechanism which needs to be set up not utilizing Hamas 
leadership and which meets the humanitarian needs of the 
Palestinians. We've had a lot of people working on this, and 
are still working on it as we speak, to try and see how we can 
put together some form of alternative delivery framework. As of 
this morning, that has not yet been invented.
    There are a number of potentialities, but it has not yet 
been invented, nor has it been subjected to the scrutiny of our 
shareholder bodies in foreign governments as to whether those 
alternatives are adequate. I've not fully studied the 
legislation in this country, but reading it cursorily, some of 
the provisions in some of the recommendations would make it 
difficult for some of the alternatives that we are looking at 
because they would not meet rigidly the requirements of that 
legislation. We have a tough enough job trying to work it out 
within something that is practical or we think is practical. 
And at the same time, as we're trying to work something out 
there that can work, there is legislation throughout the world, 
not just in this country, about how we are constrained in 
trying to arrive at an alternative solution. My own judgment as 
an individual, not as a representative, as an individual is 
that if Hamas comes up with its slate in the course of the next 
2 days, we will not be ready with an alternative delivery 
mechanism. We'll be able to do something, but if you were to 
say in this country that you wanted to replace the existing 
education and health services by Wednesday with an alternative 
which had nothing to do with the Senate or nothing to do with 
the Republicans or the Democrats, I think it would throw you 
into some confusion notwithstanding that there are 
ecclesiastical schools and a few other things that could work. 
I just ask you to imagine how this could work in this country. 
And although it's much smaller in Palestine, the resources are 
smaller. So, we have this problem; without departing from the 
principle, my sense had been maybe there is a way in which we 
could, and I don't know how to do it--we buy ourselves a few 
weeks at least in terms of time.
    Senator Hagel. Thank you. Have you had any contact with any 
of the Hamas government officials?
    Mr. Wolfensohn. I can say with honesty no, and I'm happy in 
this body that that is the answer given the law.
    Senator Hagel. How about your analysis of where this could 
lead in regard to a relationship with Iran?
    Mr. Wolfensohn. I have no inside knowledge other than in 
talking to people over there. It has been suggested that Iran 
might come up and provide the gap of which I spoke before you 
came, Senator. There is roughly $100 million dollars a month 
plus while Israel is not paying the $60 million that it 
collects, and one of the possibilities is that Iran should 
provide it. I've seen no evidence yet that Iran is ready to 
provide it. It's ready to organize it, but not to provide it. 
But that is certainly--that would complicate the situation 
politically substantially.
    Senator Hagel. Thank you. Mr. Chairman, thank you.
    Chairman Lugar. Thank you very much, Senator Hagel. Senator 
Feingold.
    Senator Feingold. Thank you, Mr. Chairman. Mr. Wolfensohn, 
thank you for being here today. I'd like to follow up on 
Senator Hagel's questions relating to Iran. Can you outline for 
us how the Quartet intends to manage or counter the interest of 
Iran and other countries that intend to apparently support the 
Hamas-led Palestinian Authority? Iran's strategy appears to be 
in direct contradiction to the strategy of The Quartet, and I'd 
like to know your thoughts, not only on how you're going to 
counter this, but--and whether or not The Quartet actually has 
sufficient diplomatic muscle to successfully develop and hold 
together a diverse coalition around these principles.
    Mr. Wolfensohn. First of all, Senator, I can tell you that 
we have not considered at all the possibility of intervention 
by Iran for the reasons I just said. I don't think there's any 
current evidence, although there is quite a lot of talk about 
the possibility of Iran coming in. Secondly, I'm not at all 
sure that The Quartet is the way to do this. My experience in 
The Quartet is The Quartet is a useful body, but it really is 
not--and certainly, The Quartet representative is not empowered 
to do things at this level. You will recall that in November, 
the United States and Israel took over really the 
implementation of the Six Plus Three agreement, and my guess is 
that that would be dealt with at a level beyond me and probably 
by the principles in The Quartet themselves were they to 
conclude that this was the challenge. So, my job, I think, is 
unlikely to have anything to do with this, and I can tell you 
as a fact that up to now, we have not considered the issue of 
Iran as being part of our responsibility.
    Senator Feingold. Can you say a little bit about what The 
Quartet's diplomatic strategy is just to hold The Quartet 
together on this issue?
    Mr. Wolfensohn. We--you have to understand, Senator, what 
is the role of The Quartet at the moment, and I'm searching for 
that role. The Quartet worked very effectively--when I talk 
about The Quartet office, that's distinct from The Quartet 
itself. The Quartet is working effectively now in quadrilateral 
discussions by the principles in The Quartet, but they are not 
using The Quartet representative as an instrument for many of 
these policy issues. So, I think The Quartet could well be at 
the level of the Secretary of State, at the level of Secretary 
General Annan and others discussing these matters, but they are 
not discussing them with me in terms of a political outlook.
    Senator Feingold. There are a number of legislative 
proposals currently being developed and considered. I'd like to 
hear your thoughts on how the U.S. Congress can support the 
efforts of The Quartet. Equally as important would be your 
thinking on what wouldn't be helpful. Could you say a little 
bit about that?
    Mr. Wolfensohn. I can give you a personal view, Senator, 
which I am happy to do, and that is that I think we are in a 
situation of a problem with very many moving parts and things 
that we don't expect like yesterday's events. And it's going to 
be very difficult, which is why I am suggesting that you and 
others might think of the need for a little time to come up 
with a solution that replaces an existing mechanism with 
something that we don't yet have. And so, for me, legislation 
should state your principles that are critical for this country 
and for the free world in relation to Hamas, but try and leave 
flexibility for the participants to come out with a solution to 
this problem and not constrain them too tightly.
    So, what I would be arguing for, although I am not in any 
of these elected bodies, would be clear statements of 
principle. But if it were me, try and give the workers a chance 
to come up with something which they can bring back to you 
which you can then say you like it or you don't like it. But if 
you over constrain your negotiators before they try and get 
something within the framework of the agreed principles, I 
think that would create a lot of problems.
    And I think some of the legislation, which I said I only 
read cursorily, does seem to me to be rather particularly 
descriptive of what might or might not be done. And if you put 
too many constraints on, and then the French and the Germans 
and the Dutch and everybody else does the same, the poor people 
that are trying to work out something have an even more 
difficult task than I think they face already, which I think is 
already, as I said, a very difficult task.
    Senator Feingold. Thank you very much, Mr. Wolfensohn.
    Chairman Lugar. Thank you, Senator Feingold. For the 
moment, Senator Chafee will yield to Senator Sununu. Senator 
Sununu.
    Senator Sununu. Thank you, Mr. Chairman, and thank you, 
Senator Chafee. You mentioned principles that--or the 
declaration of principles, and I think those principles exist 
to a great degree today. I mean, they are that Hamas is a 
terrorist organization, the Hamas government cannot receive 
funding from the United States. Certainly, members of the 
Congress and you are not allowed to deal with Hamas or their 
representatives as you so aptly pointed out in your testimony, 
but I am concerned about the kind of prescriptive legislation 
you described that would--I think the phrase you used is make 
it very difficult for the use of alternatives to emerge. And 
let me mention the specific proposal that has been made that 
would place additional hurdles and restrictions on Palestinian 
representatives who are unaffiliated with Hamas, restrictions 
on their ability to travel, to travel to the United States. And 
in particular, Palestinian legislative council members like 
Salam Fayad, who has worked in the finance ministry, did an 
outstanding job in improving transparency there like 
independent members Hanan Ashrawi, Mustafa Barghouti who have 
accepted the foundations of the peace agreements, recognized 
Israel's right to exist and met all of the requirements that we 
would expect of them as the Senate and as the United States 
Government. Do you see any security benefit to placing 
additional hurdles on their ability to continue their work? And 
conversely, do you think that it could restrict the 
alternatives, certainly the political alternatives, that you 
emphasized if--and send a bad message to them if we were to 
restrict their ability to travel?
    Mr. Wolfensohn. All the people you have mentioned are 
friends of mine and people that I have the highest regard for, 
and I think we run a serious risk in general of demonizing 
every Palestinian. I don't think every Palestinian is a demon. 
I don't think every Israeli is an angel. And I think what we 
need to do here is to keep some balance. And if you want to 
have a negotiated solution, you must be able to have 
negotiations. If you can't have negotiations because you can't 
talk to people, that seems to me not to be very constructive. I 
don't know the particular clause in the legislation to which 
you are referring, Senator Sununu, but if it stops the people 
that are working with us to reach a solution from talking to 
us, that seems to me on its face not to be constructive.
    Senator Sununu. I appreciate your penchant for diplomacy, 
and it's appropriate in this setting, but the language is quite 
simply that these representatives should be denied a visa. The 
proponents of the legislation will say well, let's--we're just 
saying that they should be denied a visa, they don't have to be 
denied a visa. But when you're talking about--again, someone 
like Salam Fayad, who has, I think, won great accolades, not 
just in the United States or in The Quartet for his work on 
financial transparency, but among the Palestinians themselves 
for his commitment to fighting corruption, to integrity of 
government, I think it sends a very dangerous message indeed. A 
second area of concern would be on restrictions to humanitarian 
projects, and you've talked about this, I think, in fairly 
specific terms, although I want to be a little bit more 
specific because in the different legislative proposals, they 
try to define humanitarian assistance. And what I'm concerned 
about is if we define it too narrowly, we could potentially 
prohibit assistance for any kind of infrastructure, physical 
infrastructure, even to include water treatment, sanitation, 
hospitals. And I'd like you even to speak narrowly about those 
particular options. Is there a security benefit or a political 
benefit to restricting support for those very specific kinds of 
infrastructure?
    Mr. Wolfensohn. Senator, first of all, the international 
community provides about a billion dollars a year in addition 
to UNRWA, of which $360 million is what I was talking about 
before, which is budget support. So, you have got $700 million 
dollars in the category to which you refer. And I asked my 
colleagues to pull out for me what that is, and it's 
humanitarian aid, infrastructure, employment generation, 
institution building, water sanitation, and I can go on a dozen 
other things, all of which are very important. Each one of 
these items is going to come under attention as to whether it 
is infected by Hamas or not. And the reason that I was pleading 
for a bit of time is that that analysis in itself is going to 
be controversial, difficult and time consuming. My sort of 
concept of how we should move is to establish the big 
principles--try and make some big decisions as we move forward. 
If a bit gets through in the first month, we'll try and cut it 
out in the next month, we'll cut it out in the next month, 
we'll cut it out in the next month, but not start with a 
Draconian set of rules, which ensures that the kids won't be in 
schools. Then, you'll have chaos in the streets. It seems to me 
that there is--this is a time for wisdom in terms of holding to 
the principles, making a series of steps which are not 
negotiable in terms of direction, but allow you to keep the 
patient alive because the thing that I fear is chaos. We ran 
close to it yesterday. The tension is palpable. The antagonism 
to western sources is palpable. And if you want to support the 
moderates and the Palestinians, which I think is the thing that 
most of us need to do, then we have to give them something to 
work with. If we are perceived to be cutting things off 
instantly, then I think we are in some trouble.
    But I repeat again, Senator, I am a thousand percent 
committed to the nonacceptance of the Hamas mandate as it has 
been given, and I am a thousand percent committed to ensuring 
that we do not cross that line, but I do not know a way of 
getting an instant solution in 2 days to one delivery 
mechanism, which it's taken us a decade to build up, and expect 
that in 2 days, we will come up with an alternative mechanism. 
I just don't know how to do it even if I had the rights and the 
power.
    Senator Sununu. Thank you very much.
    Chairman Lugar. Thank you very much, Senator Sununu. 
Senator Boxer.
    Senator Boxer. Thanks, Mr. Chairman. There are so many 
things, I don't know quite where to start. I read the charter 
of Hamas, and I think every single senator, every single member 
of Congress, should read it. And I think the American people 
ought to know what it says because it is a shocking document 
which quotes, you know, religion, and it's disturbing. And just 
some of the things in the charter are these--they call the 
struggle against the Jews wide ranging and grave, Israel will 
rise and will remain a wreck until Islam eliminates it as it 
has eliminated its predecessors. It doesn't stop at attacking 
Israel, although it goes on and on about it. The hypocrites 
will die in anxiety and sorrow. I think the American people 
ought to know this. It refers to Zionist organizations, which 
take on all sorts of names and shapes, and this is a continuing 
commentary in here--the Freemasons, Rotary Clubs, as gangs of 
spies and the like, and it goes on and then again mentions the 
Freemasons, the Rotary Club, and this time, it adds the Lions 
and B'nai B'rith. These people are out of touch with the world 
as it exists to say that the Freemasons, the Rotary Club, the 
Lions Club are part of the Zionist movement. And they attack 
them in this by name, you know, continually throughout this. 
Here it is again. This is the third mention--clandestine 
organizations that are part of Zionism, such as the Freemasons, 
the Rotary Club, the Lions, and this is, you know, just 
shocking. They talk about Egypt and the treacherous Camp David 
Accords--the treacherous Camp David Accords.
    Senator Boxer. Thank you, because I think it's important. 
Mr. Wolfensohn, thank you for your work. This is very very 
difficult. How blind sided were you--I don't mean just you 
personally, you and the diplomats who have followed this, by 
this election result?
    Mr. Wolfensohn. I think almost universally, Senator, 
although in retrospect, we shouldn't have been when we saw 
multiple candidates from Fatah--four seats confronting a single 
candidate from Hamas, which was clearly an important element in 
the result. It was just bad political advice because the votes 
probably had a shade victory on the popular vote for Fatah. But 
I think we were all blind sided, and I would say Hamas itself 
was surprised, from what I understand.
    So, the answer is we were all surprised. If I could just 
refer, however, to your introduction, let me say that I, too, 
read the charter to make sure that I understood it, and that is 
the reason that I was saying that we should not tamper with our 
belief that the essential elements of that Hamas statement have 
to be rejected by us in all cases. I could give you other 
quotes----
    Senator Boxer. I know.
    Mr. Wolfensohn [continuing]. Which are equally----
    Senator Boxer. I know.
    Mr. Wolfensohn [continuing]. Disturbing. So, I just want 
you to know that no one in The Quartet that I know of is on the 
side of accepting the Hamas charter in the way in which you 
read it.
    Senator Boxer. Mr. Wolfensohn, there is an article on March 
12th in the New York Times, says that you will step down at the 
end of April because of The Quartet's lack of a mandate, and 
one of your staff members is quoted in the article saying every 
country has its own ideas, but there is little leadership, and 
nothing will work without an agreed decision that gives a clear 
political envelope within which to work. Is this a true--I hope 
it is not so. Is this true?
    Mr. Wolfensohn. I have been in the job now, Senator, for 12 
months, and in November, part of the mandate of The Quartet was 
removed in terms of implementation of the agreement that was 
signed or that was agreed by the Secretary of State. And this 
thing, I think, is in the current description of our job as The 
Quartet, or should I say more personally, in my personal job 
and The Quartet, I think The Quartet itself must continue, but 
the role of a disenfranchised leader of that Quartet doesn't 
seem to me to be a particularly attractive thing to spend your 
life doing.
    I am considering, but not yet decided, not to leave, trying 
to contribute to this process, but whether the best place for 
me to do it is leading The Quartet or in other ways. And I am 
not responsible for the comments of the people in my office, 
who I think--I didn't comment at all, by the way, but I think 
if you were in a job where it was unclear what the purpose of 
that job was and what the backing that you had was and who had 
the responsibility and you were as old as I am, you would 
probably wonder whether, for the few remaining years you have 
got, that's the thing you want to do, and that's what I am 
suggesting.
    Chairman Lugar. Thank you very much, Senator Boxer. Senator 
Chafee.
    Senator Chafee. Thank you, Mr. Chairman. And Senator Boxer, 
yes, I've read the charter also and unfortunate hateful 
rhetoric to have in one's charter, but those are the realities 
we face, and I think all of us share kind of a depression about 
our options. But looking back, having been there 12 months, I 
certainly have seen missed opportunities to empower the 
moderate Palestinians. Do you share that also, the missed 
opportunities and wonder why that we missed those 
opportunities, Mr. Wolfensohn?
    Mr. Wolfensohn. I think, Senator Chafee, that one day, I 
wake up and think it's a missed opportunity. The next day, I 
wake up and think that it was a stimulated response. This is a 
very uncertain part of the world. I think there have been 
missed opportunities. I wish that people were more clear 
headed, in my view, but I haven't lived there for 30 years. I 
haven't lost a brother or a cousin who has been blown up on 
either side. I have not been stopped for 5 hours at a crossing 
point. I have not done all the things that happens to each 
side. And when you are there, you become very conscious of 
this. This is not something that I could have learned in 12 
months. This is something that is there from history, and it's 
something which, if I may say so, many of us in the west have 
also allowed to happen. It's been going on with a certain 
rhythm for a very long time. If it were up to me, I would be 
thinking about putting a definitive time frame on this thing, 
whether it would be 2 years or 3 years, to try and push it 
through as we had in the road map, which we didn't meet, where, 
if you'll remember in the road map, we had that definitive time 
frame, and we were miles off. But I think it's time to start to 
try again, not imposing it from us, but trying to sit down 
secretly or other ways with the parties and try and get a 
resolution. We have a roadblock at the moment, which is clearly 
the current statement of Hamas policy. I don't see any way of 
getting around that unless it's changed or withdrawn. But if it 
were changed and withdrawn, then I think what we need to be 
thinking about is a relatively fast time frame for a solution 
because my own judgment is that this is a 10 or 11 million 
people problem, a highly important symbolic problem, but in a 
region of 310 million people with issues of Iraq, with issues 
of oil, with issues of dramatic size, and I rather feel and say 
to my friends there that they're assuring the world will 
continue to be interested in their problem because it's 
Jerusalem and because it's been around a long while. It has 
political overtures. But in terms of global politics and in 
terms of the scale of the issues, this is a small issue in 
terms of size and in terms of--I'm not saying it's not 
important. I think it's important, but I would hope that we 
could return to what we did at the time of the road map and try 
and give a road map for a resolution. But this I am able to say 
with not being a senator and maybe not having a job for very 
much longer, Senator, but it is a personal view.
    Senator Chafee. I agree with you, exactly what you said, 
that the root of this issue has reverberations through the 
region, and all these missed opportunities, likewise, have 
reverberations throughout the region. But as we look ahead, who 
might be a helpful interlocutor--I mean, the Russians have met 
with Hamas. Is there anyone that might be helpful to, as you 
said, to start some kind of accelerated revisiting of the peace 
process?
    Mr. Wolfensohn. Being a dutiful American citizen, I would 
think probably the President's not a bad place to start. And 
I'd be reluctant, even though I know him well, to see President 
Putin take the lead for The Quartet, although I think, having 
spoken to him, he has some interesting and constructive ideas. 
But I think what you need here is--maybe all this crisis will 
bring us to a moment of reality and a moment of truth. Maybe 
there is some hope that could emerge from this. I do not 
believe that you can have a million starving Palestinians and 
have peace. I do not believe that we can just walk away from 
this thing. Maybe this will give us a chance to come back 
together with all points of view and try and--with leadership 
of somebody, try and carve out a way forward. Certainly, I 
believe that is necessary.
    As I said earlier, you need an interim thing that'll allow 
stability without giving in on principle, and you need then, in 
my judgment, a plan that is proximate 2-3 years to bring about 
a resolution of this issue with The Quartet insisting on it. 
That is what I believe, but I may not be around to insist. And 
it may be a whimsical dream, but it's what I believe.
    Senator Chafee. Thank you for your service and your 
testimony.
    Mr. Wolfensohn. Thank you.
    Chairman Lugar. Thank you, Senator Chafee. Senator 
Martinez.
    Senator Martinez. Thank you, Mr. Chairman. I believe you 
have covered everything, but given the last opportunity, I'll 
just try to mop up. Certainly, one of the humanitarian 
concerns--well, obviously, sticking to principle is first and 
foremost what we have to do, but thinking about the 
humanitarian concern and about the issues that could arise with 
simply children in schools and healthcare, basic as that, how 
do you anticipate that we can, in the short term, do something 
other than support Hamas as we should not do, but yet also 
provide for the very immediate needs? And if this was covered 
in the earlier part before I came, I apologize.
    Mr. Wolfensohn. I think, Senator, what we need to do is, 
first of all, I think as a realistic matter, it's impossible 
for us to rebuild alternative schools or alternative----
    Senator Martinez. Right.
    Mr. Wolfensohn [continuing]. Health facilities. What we 
need to do is to find a methodology for financing the services 
without it being tainted by Hamas politics, and that's what 
we're looking to try and do. As I said to your colleagues 
earlier, we don't yet have that answer. We have ways in which 
one could interpose UNRWA for some of the world. We have ways 
in which one could use some NGOs, one of the ways you could use 
ecclesiastical bodies. I had with me recently a cardinal, an 
American cardinal, who is responsible for this, and he was 
asked, because they put $10 million a year from Catholic relief 
services into schools, not to build schools for the 
Palestinians through the educational authority, but to build 
parochial schools, which he found rather strange as a 
recommendation. So, we've got to work our way through a number 
of these things to come up with solutions. I think they are 
possibly there, but I don't think they are there in 2 days. I 
think we have to move towards it in a sequential manner.
    Senator Martinez. In that interim, though, how do we handle 
the school situation?
    Mr. Wolfensohn. I think we may have to accept that, for a 
period of weeks, that the system carries forward as it is with 
a sequence of steps that are then taken to bring it back to a 
structure that we want. But to try and do it from today to 
tomorrow is, in my judgment, superhuman. It's not possible 
anymore than you could do it in the United States. So, you have 
to deal with reality, and you have to move towards it in a 
sequential way, in my opinion.
    Senator Martinez. Do you think in the long term that the 
Hamas leadership has the capacity to alter their view of their 
charter and behave in a more conventional form that would allow 
a more normal discourse with them?
    Mr. Wolfensohn. They have come up with some recommendations 
which go some way towards it, but probably not far enough. So, 
certainly it's possible for them to do it, but I think if we 
ask them to do it in the glare of publicity as though they are 
giving over to international pressure and don't allow them a 
methodology of getting out that seems more rational, it may be 
more difficult. It would be more difficult in this country if 
you were to ask the Republicans to become Democrats or the 
Democrats to become Republicans. It can't be done in 2 days. 
And if you are moving towards each other in terms of policies, 
you have to find ways in which you can make advances with a 
little bit of time so as not to give up on your basic 
principles, and that's what we are talking about here. We 
cannot expect that a not yet formed government, that will be 
full of problems anyway, can address instantly these issues 
without a little bit of time. We've got to have some sort of 
way of dealing with them. And speaking as an individual, I 
don't know how you do that unless you have a little bit of 
time. And I am not giving up on principles, as I've said 20 
times in the course of these hearings. I'm trying to be 
pragmatic.
    Senator Martinez. Thank you.
    Chairman Lugar. Thank you very very much, Senator Martinez. 
I understand Senator Voinovich is prepared to raise questions 
with our next witness as opposed to this one, and I appreciate 
that. We thank you very, very much for coming again to the 
committee, for your very thoughtful responses, for your 
reasoning with us. I join Senator Boxer in hoping that you will 
continue to serve, and I know you will in whatever capacity 
towards solution of these awesome problems. Thank you very 
much, sir.
    Mr. Wolfensohn. Thank you. Thank you very much, senators.
    Chairman Lugar. I'd like to call now on Lieutenant General 
Keith W. Dayton, U.S. Security Coordinator, Department of 
State, Washington, DC. General Dayton, we welcome you into the 
committee. We appreciate your willingness to testify this 
morning. Your full statement will be made a part of the record, 
and that was true of the statement of Mr. Wolfensohn before 
you. And please proceed, if you will, to summarize your 
testimony, and then we will have questions by members of our 
panel.

STATEMENT OF LIEUTENANT GENERAL KEITH W. DAYTON, U.S. SECURITY 
        COORDINATOR, DEPARTMENT OF STATE, WASHINGTON, DC

    General Dayton. Thank you, Mr. Chairman. I will be fairly 
brief because I suspect what you want to do is more listen to 
answers to questions than hear a prepared text. But I did want 
to point out a few things, and what I'd really like to start 
with is just a bit of background for the members who may not 
know what the USSC is and what it does. I lead a small 
international team. On my team, I have Americans, I have 
Canadians, I have Australian, and I have a British officer. So, 
we're an international team, and that brings a certain quality 
of its own. The team is less than 30 people. What do I do? Our 
job is--according to the road map, we are responsible for 
monitoring, coordinating and assisting security cooperation 
between the Israelis and the Palestinian Authority. We do that, 
and we do that quite extensively. We've developed a fairly 
widespread network of contacts throughout both the Palestinian 
and Israeli side and among the international donor community to 
include the EU monitors who work down at the Rafah Crossing on 
the border between Gaza and Egypt. That leads me to a second 
major role that we do, which is we have a pretty significant 
responsibility on the Rafah Crossing, according to the 
agreement on movement and access, and we also deal with the 
other crossings that are being run in Gaza. I have a--what I 
would call semi-supervisory role over the European Union 
monitors at Rafah. I can chair a security working group, which 
includes the Egyptians, the Israelis, the Palestinians and the 
Europeans, and I am sort of the guy that's at the other end of 
the phone for both the Israeli defense forces and the 
Palestinian Authority and issues that do deal with the 
crossings, and that's a very important issue to all who are 
concerned.
    More of a historical note, General Ward had the mission to 
advise assistant monitor when I came at the beginning of 
December into this job. We did have that role, however, with 
the Palestinian election crisis and more importantly, a feeling 
among the European Union governments and the British government 
and our government that, left to their own devices, the 
Palestinians might never reform themselves was given a bit of a 
modified mission to be much more directive in planning for how 
Palestinian security sector reform should go. But I would note 
that we also have been responsible for the disengagement 
monitoring out of Gaza. The USSC was given about $2 million 
dollars of nonlethal aid for that disengagement, which was 
provided to the Palestinians and which, as recently as the end 
of January, my team went into Gaza and inventoried this 
equipment. And I would like to report to you that it's being 
well managed, it's under control, and we know where it is and 
what it is. I also do a long-term security structure reform 
project, which is a combined European Union, American and 
Quartet effort, which is basically a 3-year plan on how the 
Palestinians can get to where they need to be with appropriate 
security forces to an entity their size, not what they look 
like now, but that is on the shelf at the present time as we 
await further developments.
    I guess what I wanted to do, gentlemen, is just simply--and 
senators, lady, is to just let me kind of finish up what I'm 
trying to say here at the beginning with my main message today. 
Let's remember why the United States, through the agent of the 
U.S. Security Coordinator, is so visibly involved in this area. 
It's not altruism, and it's not because we don't have anything 
better to do. We're here because it remains profoundly in U.S. 
national security interests for us to be involved in the search 
for peace and progress towards a two-state vision. The Hamas 
victory has not changed that. What happens in Israel, the West 
Bank and Gaza has a direct impact on the immediate neighbors of 
Jordan and Egypt, and it has an impact on our strategic 
interest there. Likewise, what happens in the Israeli-
Palestinian situation has profound implications for the rest of 
this difficult neighborhood. The Israelis, Palestinians and our 
Quartet partners all look to the United States for leadership 
in this area. The election of Hamas makes my task exceedingly 
difficult, but there is a stabilizing element of maintaining 
our presence in the region while the situation remains fluid, 
and there may be opportunities once the situation becomes more 
clear. We have to have a capable, committed partner for peace. 
Hamas's failure to date to accept any principles established by 
The Quartet halts any ability to make progress, and the 
decisions taken by a Hamas-run Palestinian Authority government 
may derail our efforts. But while we must now clearly wait to 
see how the situation unfolds, I encourage us all to be very 
cautious before we conclude that the effort is not worth it. 
The U.S. Security Coordinator and team, by its presence and 
engagement, demonstrates a U.S. commitment to a two-state 
solution that is real and tangible.
    In conclusion, Mr. Chairman, Palestinian security sector 
reform remains fundamental to achieving a Palestinian state at 
peace with its neighbors and responsive to the needs of its 
people at home, and that, I believe very firmly, is in 
America's interest. Thank you, Mr. Chairman. I'm ready for any 
questions.

    [The prepared statement of General Dayton follows:]

       Prepared Statement of Lieutenant General Keith W. Dayton,
             U.S. SecurityCoordinator, Department of State

    Thank you, Mr. Chairman. I appreciate this opportunity to address 
the committee today.
    It is quite clear that the ``Post-election Challenges in the Middle 
East'' include quite a few related to security. January's PLC elections 
will have significant consequences for the security sector, although at 
this point we have only a limited sense of how they will play out.
    It is common knowledge that the Palestinian Authority security 
forces, as currently constituted, are Fatah dominated. Before 
elections, the level of activity and performance of the Palestinian 
leadership and security forces in confronting terrorists, collecting 
weapons, dismantling terrorist organizations, and consolidating and 
right-sizing the security sector was disappointing. There had been 
sporadic, localized, internal PA security cooperation. However, such 
cooperation was not the norm and tended to evaporate quickly due to the 
PA's internal political crisis.
    There were some bright spots. Israel's courageous Gaza 
disengagement initiative went forward in a secure environment and with 
a great deal of on-the-ground coordination between the Israeli Defense 
Forces and the Palestinian Authority security forces (PASF). The 
international crossing at Rafah opened in late November under carefully 
negotiated security arrangements and with the essential support of the 
EU's Border Assistance Mission. And, despite an uptick in lawlessness 
and numerous warnings of violence prior to election day, the 
Palestinian legislative elections went forward in a safe and secure 
environment.
    In addition, fears of post-election Palestinian violence have not, 
so far, been borne out. Under the caretaker government, the security 
services remain more or less in place while the victors and the 
opposition sort out the political arrangements. On the ground, we see 
continuing examples of local cooperation between the Israeli Defense 
Forces and Palestinian Security Forces as they deal with the 
necessities of daily life. In other words, caution and deliberation 
seem to be prevailing, at least for the moment. My team and I continue 
to work with the parties and key regional actors to support that 
stability so that the political and diplomatic levels have time and 
opportunity to do their work.
    At this point in time, with Palestinian politics in a very fluid 
state, I can offer no certainty about the future course of events 
regarding Palestinian security forces. An internal debate is raging 
within Fatah as to their future, and the jury is still out. Likewise, 
the role Hamas may play in the future Palestinian security sector is 
far from settled. In short, the Palestinian leadership--Fatah, Hamas, 
and others--are themselves, on a daily basis, seeking to sort out their 
relationships to one another and their short-term and long-term goals, 
as well as the options that they have to advance those objectives. They 
are doing all this with an eye to the regional and international 
context and how it impacts their relationships with outside actors--
especially Israel. And, as I mentioned above, caution has prevailed so 
far.
    With this in mind, we are of course following suit with the other 
arms of the U.S. Government in carefully reviewing our program and 
approach. Before the elections, USSC support for the PASF focused on 
advice and guidance to support their own efforts at reform, while 
playing a coordinating role with the other prospective security donors. 
We also had an active role in following up on the November 2005 
Agreement on Movement and Access, including the EU's work to resolve 
concerns and complaints about the operations at Rafah. Since the 
elections our focus has been on frequent and direct coordination 
between the IDF and Palestinian security forces, including on such 
issues as the Gaza border crossings, and continuous liaison with the 
Palestinian and Israeli security leadership.
    The future is obviously an open question. But a few things are not. 
First and foremost is the USSC's strict adherence to the U.S. policy of 
no contact with and no support of any kind for Hamas. Second is the 
recognition that Palestinian security sector reform and performance is 
an important element for progress in accordance with the Roadmap, and 
is essential for a viable two-state solution. And third, it remains in 
America's national interests to stay engaged in the Palestinian-Israeli 
situation, a fact that has been made even more critical by the Hamas 
victory. The question, I think, is how.
    For reasons of both law and policy, we cannot and will not work 
with a Hamas--whether in or out of government--that refuses to accept 
the Quartet conditions of disavowing violence and terror, recognizing 
Israel, and accepting previous obligations and agreements between the 
parties. And, while the Palestinian Authority Presidency might continue 
to maintain its authority over some, or perhaps even all, of the PASF, 
it is a very complicated legal and policy question of whether we could 
continue to work with those elements. My team is studying the options 
and working in close consultation with our diplomatic missions in 
Jerusalem and Tel Aviv, with Israel and key regional and international 
actors, and of course with the policy level in Washington as to where 
we go next.
    Even should we be unable to work with official Palestinian 
institutions, we do have some ideas as to how potentially to work with 
non-governmental actors to shape the environment for a better future. 
The majority of Palestinians, Israelis, and the international community 
continue to aspire to the two-state solution, and that a future state 
of Palestine would need effective security forces. Working with 
Palestinian civil society--on ideas related to national security 
strategy, demobilization of militias, and the inculcation of 
democratic, civilian governance of security forces--could be one 
direction. Similarly, it is worth considering, if not with the PA 
itself than in conjunction with Palestinian civil society, what the 
security architecture of a future Palestinian state should look like. 
That state will need a new plan for the Palestinian security sector, 
one that sweeps away the Arafat-era structure and replaces it with an 
architecture of forces appropriate for a political entity its size; an 
entity that would be committed to non-confrontation with Israel and 
towards a proper role of protecting Palestinian civilians and 
preventing terror. And we need to be ready to implement these plans if 
circumstances create an opportunity.
    Regardless of what we can do now or in the near future on the 
subject of PA security sector reform, importantly, the USSC team will 
continue to monitor and advise on Israeli-Palestinian security 
coordination, an important component of the Roadmap and crucial to 
maintaining any hope of avoiding a major humanitarian disaster. The 
issue of operations at the Karni crossing between Israel and Gaza, for 
example, or the ongoing efforts to improve the operations at Rafah, 
will continue to require the engagement of a trusted interlocutor with 
security expertise.
    We are clearly at a crossroads, but the path forward is unclear. 
More than 6 weeks after the Palestinian parliamentary elections, we are 
in a period of unprecedented uncertainty both in the Palestinian 
Authority and in Israel, and this directly impacts on the future of 
security reform. I have noted the internal debate in Fatah over the 
future of the existing security forces, and there is of course the 
closely watched process of Palestinian government formation. We should 
also keep in mind that Israel is approaching its own parliamentary 
elections, and, while there is unity on the approach to Hamas itself, 
it may not be until May that Israeli policy is solidified on how it 
deals with the non-Hamas parts of Palestinian society. And we will 
continue to consult closely with our Quartet and regional partners, and 
the Israeli Government, as we proceed together.
    In closing, I want to emphasize one final point. Let's remember why 
the United States, through the agent of the USSC, is so visibly 
involved in the region. It is not altruism, and it is not because we 
have nothing else to do. We are here because it remains profoundly in 
the U.S. national security interest for us to be involved in the search 
for peace and progress towards the two-state vision. The Hamas victory 
has not changed that. What happens in Israel, the West Bank and Gaza 
has a direct impact on the immediate neighbors of Jordan and Egypt and 
U.S. strategic interests there. Likewise, what happens in the Israel-
Palestinian situation has profound implications for the rest of this 
difficult neighborhood.
    The Israelis, Palestinians, and our Quartet partners all look to 
the United States for leadership in the area of Palestinian security. 
The election of Hamas to the PLC makes the task enormously difficult. 
But there is a stabilizing element of maintaining our presence in the 
region while the situation remains fluid, and there may be other 
opportunities once the situation becomes more clear. But we must have a 
capable partner, committed to peace. Hamas' failure to date to accept 
the principles established by the Quartet halts our ability to make any 
progress, and the decisions taken by a Hamas-run PA government may 
derail our efforts. But while we must now clearly wait to see how the 
situation unfolds, I encourage us all to be cautious before we rush to 
the conclusion that the effort is not worth it. Security sector reform 
remains fundamental to achieving a Palestinian state at peace with its 
neighbors and responsive to the needs of its people at home, and that 
is in America's interests. I encourage us all to be cautious before we 
conclude that the effort is not worth it.
    Thank you, and I will be happy to take your questions.

    Chairman Lugar. Thank you very much, General Dayton. Once 
again, we'll have a 5-minute round of questioning, and I'll 
commence the questioning. You've mentioned that we are clearly 
in an interim period, but could you describe, at least prior to 
this election, the degree to which the Palestinian police 
forces and military forces worked together. Either individually 
or collectively, were they able to maintain civil order in Gaza 
and the West Bank?
    General Dayton. Thank you for your question, Mr. Chairman. 
There's no doubt that the Palestinian security sector has been 
a disappointment over the last several years. They were able to 
rise to the occasion from time to time. They did well in 
disengagement in Gaza and in direct coordination with the 
Israeli defense forces. They did well in the elections despite 
all of the predictions that there were going to be great 
crises. They did well yesterday in response to an event that 
put tremendous stress on them. But overall, I would have to say 
that it's been a disappointment, and that's why I'm involved.
    Chairman Lugar. To what extent, as a practical measure, is 
it going to be possible to disarm Hamas, or will Hamas choose 
not to be disarmed? And if so, how does that affect the 
security forces?
    General Dayton. Sir, I don't--I can't answer that right 
now. A lot of that depends on the new government's policies. 
Hamas has a relatively small, armed branch, but it's very 
lethal, and it's very dangerous. But I would have to reserve 
judgment on how that can happen until I see what the 
Palestinians work out for themselves. It is an incredibly fluid 
situation.
    Chairman Lugar. Are there certain parallels, and I don't 
want to stretch this analogy to the predicaments that we hear 
described before our committee, in the training of police or 
security persons in Iraq and the presence still of militia of 
various sects that are left over and, therefore, the 
ambiguities that seem to arise from time to time as to who is 
responsible for various events?
    General Dayton. I think that is a problem, Mr. Chairman, 
and it's a problem that we will take into account as we develop 
our game plan on how we're going to reform these people. The 
Egyptians, curiously enough, have been very effective in Gaza 
over the last 6 months-9 months in emphasizing to the militias 
down there, that are part of the security forces, that they 
should be loyal to a Palestinian Authority and not loyal to a 
militia. And I think that is, indeed, a very good sign, and 
it's worked, actually, in Gaza, at least while the Egyptians 
were there.
    Chairman Lugar. To what extent, during this period prior to 
the election, was there cooperation between Israeli police 
authorities or officers and the Palestinian group you were 
working with?
    General Dayton. There are several mechanisms in place in 
the West Bank and in Gaza--well, Gaza no longer, but at least 
in the West Bank, where the Israeli defense forces meet with 
Palestinian security forces on a daily basis and work out 
security issues between them. I think there is pretty good 
cooperation, frankly, and I'm very well connected to the 
Israeli defense forces. And although they all know that the 
Palestinian security forces are very weak, sometimes pretty 
disorganized, they value this cooperation as do the 
Palestinians.
    Chairman Lugar. How do you anticipate attacks from the 
Palestinian Islamic Jihad would be met? Would this be met by 
the Hamas force, by the police force or some collection of the 
two?
    General Dayton. Sir, I really can't speculate. Again, I'll 
go back to the comment we don't know quite how this is going to 
play out politically within the Palestinian Authority, but 
you've highlighted an area that is very important, and that is 
there are certain small terrorist elements under nobody's 
control, and it's incumbent upon the Palestinian security 
sector to get this under control.
    Chairman Lugar. I thank you for your responses. Senator 
Boxer.
    Senator Boxer. Thank you, sir, for your work. You say the 
Israelis, Palestinians and our Quartet partners all look to the 
United States for leadership in the area of Palestinian 
security. Does Hamas feel that way? Do they look to the U.S. 
for leadership in the area of Palestinian security?
    General Dayton. Senator, I guess what I was attempting to 
say was that all of them feel that we are more of an impartial 
player than others. I have no idea what Hamas thinks. I would 
suspect, simply speculating, that they probably don't think we 
have much of a role. But as you know, I have nothing to do with 
Hamas. I don't talk to them.
    Senator Boxer. Right.
    General Dayton. I don't deal with them at all.
    Senator Boxer. OK. So, you're there, and you don't deal 
with them, and then they run the government, and we still don't 
talk to them. If they don't believe that we should be involved, 
what steps would they take?
    General Dayton. I'm not dodging your question, but I guess 
my theme today is that even the Palestinians themselves don't 
know, and even Hamas doesn't know yet what they're going to do. 
And a lot of this depends on how they work out their own 
internal political arrangement and what part of the security 
sector Hamas lays claim to, what part it doesn't, what part the 
Palestinian President lays claim to and what part he doesn't. 
And that's truly on the table. There's a raging debate going on 
in Palestine--in the Palestinian areas about this right now.
    Senator Boxer. So, you're basically just proceeding the way 
you proceeded pre-election in your mind set until otherwise you 
have a reason to change because you're very optimistic. I 
appreciate it. I mean, I admire it, but you're just going to 
proceed with this thought that the Israelis, the Palestinians 
and The Quartet all look to the United States for leadership in 
the area of Palestinian security unless something happens that 
you think has changed that.
    General Dayton. Again, I'm where I am in time. I was at The 
Quartet meeting in London on the 30th of January where The 
Quartet gave me pretty clear advice, and that was continue to 
support the caretaker government, President Abbas, until a 
Hamas government is seated. And at that point, we will 
reassess----
    Senator Boxer. OK, thank you.
    General Dayton [continuing]. And that's where we are.
    Senator Boxer. Thank you.
    Chairman Lugar. Thank you, Senator Boxer. Senator Hagel.
    Senator Hagel. Mr. Chairman, thank you. General, welcome. 
What would you define as your role today? You have noted that 
at one point, the role of Security Coordinator was to advise, 
assist, monitor. You have noted the situation's fluid. You have 
noted that we are putting certain things on the shelf, waiting 
for future developments. What is your role now? What do you do?
    General Dayton. You know, the road map made it pretty what 
I ought to be doing, and that was to be a liaison and attempt 
to coordinate and assist cooperation between the Israelis and 
the Palestinian security forces. I spent a lot of time doing 
that. My team is out every day in the West Bank meeting with 
Israeli and Palestinian security leaders. In the last few days, 
before I came here, I met with the commander of Israeli Central 
Command. When I go back, I'll meet with the commander of 
Southern Command. Trying to sort through some of these very 
very thorny issues for all sides is they look towards a Hamas 
government.
    Senator Hagel. Whose security forces are you dealing with?
    General Dayton. I am dealing with the security forces of, 
obviously, Israel, but in the Palestinian area, we're still 
dealing with the security forces that are on the ground, which 
belong to the President Abbas and his caretaker government.
    Senator Hagel. Can you tell this committee how that 
structure works? You have two security forces, one controlled 
by Hamas, the other by President Abbas?
    General Dayton. Senator Hagel, I wish it was that simple. 
There is President Abbas currently, through his Minister of the 
Interior, a man named General Nasser Yusuf, currently controls 
five different areas of Palestinian security. He controls the 
civil police. He controls what's called the Civil Defense, 
which we would call basically our first responders. They 
control something called the Preventive Security Organization, 
which is kind of an internal intelligence gathering bunch. He 
controls also the Mokhaberat, or the general intelligence 
directorate, which deals more externally to Palestine. And the 
final thing he controls is the Presidential guard forces, which 
are really responsible for the protection of the President. 
There are other armed entities out there in Palestine. That's 
part of our problem. You already heard the question from 
Senator Boxer or from Senator Lugar about the Palestinian 
Islamic Jihad. You have the al-Aqsa Martyrs' Brigades. These 
are all really nasty actors who are out there, essentially 
uncontrolled by anybody.
    Senator Hagel. But my question is security forces. Would 
you consider them part of Palestinian security----
    General Dayton. No.
    Senator Hagel [continuing]. Forces?
    General Dayton. No, sir. No, Senator, I would not.
    Senator Hagel. That's my question.
    General Dayton. No----
    Senator Hagel. And do you----
    General Dayton [continuing]. And I do not consider the 
Hamas armed militia part of the Palestinian security forces 
either.
    Senator Hagel. So, the Palestinian security forces, your 
definition of Palestinian security forces, are under the 
command of the Palestinian President?
    General Dayton. Sir, they're under the command of what is 
still the legally-constituted government of the Palestinian 
Authority.
    Senator Hagel. And what role does Hamas play in that then?
    General Dayton. Sir, currently, it plays no role in that.
    Senator Hagel. OK. So, they have no role in the security 
forces?
    General Dayton. As of today, they do not.
    Senator Hagel. OK. What do you think is the possibility of 
hostilities breaking out between Hamas-related forces, and you 
have just noted some, and the more defined, or as you have 
defined it, the actual Palestinian security forces or Fatah? 
What possibility is there of that occurring?
    General Dayton. Senator, there's a possibility. It would be 
speculative on my part at this point because one of the 
surprises to all of us who watch this everyday is that they 
haven't come in conflict to date. We've gone 6 weeks now since 
the election. There were all of these dire predictions right 
after the election that Hamas and Fatah would clash and there 
would be great bloodletting. Hasn't happened. So, I wish I 
could give you a better answer, but I can't. All I can tell you 
is we're monitoring this situation very carefully. But as of 
now, they're not mixing it up.
    Senator Hagel. What do you believe, not only is your 
mission as we have just discussed, as I have asked the question 
what's your role now, but what are you trying to achieve?
    General Dayton. Sir, I'm trying to achieve a Palestinian 
security sector that has people of the right type and the right 
size for a political entity its size. I'm trying to get rid of 
the Arafat legacy that they currently have, which is a bloated 
security sector, which is fairly ineffective, and I'm looking 
for something that can give the Israelis confidence that they 
have a partner on the other side that can control its internal 
affairs. That's really what I'm trying to do.
    Senator Hagel. What role does Iran play in this or would it 
play or could it play?
    General Dayton. Sir, I would only be speculating. Right 
now, I don't see any role that Iran is playing. There's a lot 
of talk about it, but it's not something that I've seen.
    Senator Hagel. You see no evidence of Iran's hand being 
involved----
    General Dayton. Sir, the Israeli----
    Senator Hagel [continuing]. Palestinian effort?
    General Dayton. Yeah, the Israeli defense forces are very 
sensitive to this. They're much more sensitive to it in the 
north, but now they're starting to become sensitive to it in 
the Palestinian areas, and it's something that we're watching 
very carefully. But so far, we, the United States and The 
Quartet effort, have not found anything that I could bring to 
you as evidence that says Iran is directly involved.
    Senator Hagel. Thank you very much. Mr. Chairman.
    Chairman Lugar. Thanks, Senator Hagel. Senator Chafee.
    Senator Chafee. Thank you, Mr. Chairman, and welcome, 
General Dayton. You're the second witness to say what happens 
in these Israeli-Palestinian situation has profound 
implications for the rest of the difficult neighborhood. So, 
you're the second witness to say what occurs here has 
ramifications throughout the region, which I agree with. And 
you also say and encourage us all to be cautious before we 
conclude that the effort is not worth it, and I agree with that 
also. The effort is very very much worth it as we search to 
where we go from here. My question is, what kind of weapons do 
you run across that the Palestinians have access to? Is it 
small arms? Is it these so-called Kassam rockets? What do they 
have?
    General Dayton. The security forces, Senator, that belong 
to the government of the Palestinian Authority are basically 
small arms. They're rifles, pistols, things like that. The 
Kassam rockets, which are such a problem, are illegally 
produced, mainly within Gaza, and they are fired by security 
forces that are not part of the government of--I mean, when I 
say security forces, that's a misnomer. They're fired by 
terrorist groups that are outside the government of the 
Palestinian Authority.
    Senator Chafee. Forgive my ignorance. Can you describe a 
Kassam rocket? What exactly is it?
    General Dayton. It's a home-made--bas--it's tough to do, 
Senator, because it's a long pipe with essentially a hand 
grenade put on the--something that looks like a hand grenade or 
a rocket-propelled grenade, at the tip as its warhead. It has 
fins that are put on for guidance and direction that are 
literally applied with a welding torch. And when it's fired, 
you basically point it in a direction. You don't know where 
it's going to land, but you know that it might go north, or it 
might go east. Any more accuracy than that is just purely dumb 
luck. And it's a very inaccurate weapon, but it is a terror 
weapon because it's so inaccurate.
    Senator Chafee. Thank you very much, and thank you for your 
testimony. I don't have any other questions.
    Chairman Lugar. Thank you, Senator Chafee. Senator Biden.
    Senator Biden. I'm not sure where we are right now.
    Chairman Lugar. Do you want to pass for the moment?
    Senator Biden. I think I'll pass. I want to explain. 
General, we're marking up the immigration bill in my other 
committee downstairs, so that's why I'm bouncing back and 
forth. I apologize.
    General Dayton. Thank you, sir.
    Chairman Lugar. Senator Voinovich.
    Senator Voinovich. Thank you, General, for your service. 
I'm interested in knowing--this question about the influence of 
Iran. How much influence has Iran had on the Palestinian 
Authority and on the various terrorist organizations that are 
involved in Palestine? And last, but not least, are the 
Palestinians Sunni or Shiite?
    General Dayton. Sir, most of the Palestinians are Sunni. 
They're not Shiites. I hope I'm right on that, but I'm pretty 
sure I am. On this issue of the influence of Iran, I'm not 
really the most capable witness that you could get that would 
be able to answer that for you. I do not see it in the current 
Palestinian Authority where the Iranians may have influences 
with the terror groups that are outside the Palestinian 
Authority that are on the fringes. Again, my Israeli 
interlocutors are very concerned about Iranian influence in 
south Lebanon and with Hezbollah, and they are becoming 
concerned with what they expect will be growing Iranian 
influence in Gaza. But as I said earlier----
    Senator Voinovich. Regarding the issue of the sectarianism 
that exists today in Iraq between the Shiites and the Sunnis, 
if the Sunnis were going to be getting a lot of support from 
Iran--who are Shiite--and they accepted that support, would the 
Iraqi Sunnis and Iranian Shiites reconcile that difference in 
terms of just getting money and military help?
    General Dayton. Military help, Senator, will be pretty hard 
to achieve. The Israelis control that very well. As far as 
other sources of support--again, I'm not really the most 
competent witness to answer that for you, but yes, you 
certainly have highlighted the fact that there is a sectarian 
difference here that may play into the situation.
    Senator Voinovich. How much influence is being exercised 
today there by the Jordanians, the Egyptians and other Arab 
countries? Do they recognize the threat if that whole situation 
should blow up?
    General Dayton. Senator, I think that's a great question, 
and I've had a lot of dealings with the Egyptians on this 
matter. They are, as you would expect, they're concerned, but 
the Egyptians share The Quartet principles absolutely. They may 
have a slightly different way on how to get there, but they 
certainly share the principles, and they have been very adamant 
that Hamas, if it comes into power on this, change. But what 
I'd really like to highlight is the fact that the Egyptians 
have--over the past several months, they have deployed a lot of 
advisers to the Palestinian security forces in Gaza. They still 
have a couple of general officers who remain in Gaza as 
advisers at the most senior level. They've pulled most of their 
advisers out while they reassess their own situation. But 
nevertheless, I think in very dangerous situations, the 
Egyptians have really stepped up to the plate here in trying to 
assist in what I'm trying to do and what the United States and 
The Quartet would like to do in Gaza specifically. The 
Jordanians have been very helpful. They've been involved in 
some assistance with the Presidential security apparatus, and 
they have made it very clear that they are open to other 
suggestions that we may have. And as a matter of fact, I have a 
visit scheduled to Jordan within the week.
    Senator Voinovich. Would a good sign to the Israelis be 
that once Hamas takes over, the security forces that are now in 
place would continue to be in place as the force that Israelis 
would be using to secure Palestine?
    General Dayton. Sir, I think the Israelis are relatively 
comfortable with the security forces that are in place right 
now. As far as whether they remain in place is truly a 
Palestinian issue.
    Senator Voinovich. OK, you're not making any changes in 
that force, we're going to put in a whole new group to do it?
    General Dayton. I think that, Senator, that would be a very 
serious problem for the Israelis.
    Senator Voinovich. It would really set things off. The last 
thing is that there's a lot of ideas here in this country about 
what we should be doing as a member of Congress in terms of 
this situation. What do you think would be helpful, and what do 
you think would be hurtful?
    General Dayton. Senator, I'll be very careful in what I say 
here, but I think the less restrictive that the legislature can 
be on our activities, the more flexibility it will give me as a 
military man to deal with situations that are inevitably very 
chaotic and unexpected. There are a few very solid points on 
which I base my operations, one of which that Hamas is 
absolutely unacceptable in any dealings. Beyond that, I think 
it's the less that the legislature can restrict me or can tie 
my hands, the more potential creative options we may have to, 
as Jim Wolfensohn said earlier, to deal with the portion of 
Palestinian society which is not Hamas and which is opposed to 
Hamas. But I firmly believe Hamas has got to be defeated.
    Senator Voinovich. Thank you.
    Chairman Lugar. Thank you very much, Senator Voinovich. 
Senator Biden.
    Senator Biden. Thank you very much. General, if you have 
responded to any question I have asked you, please tell me, and 
I'll read the record. I know there was, from my staff, there 
was some discussion by you in your opening statement about the 
fact that there are 70,000-plus members of the Palestinian 
security forces. My observation, when you were kind enough to 
talk to us my last trip there, which was just a couple months 
ago, is that they remain fractured, and they're fairly 
dysfunctional, and loyalties, from my observation, seem to be 
based on geography and faction and tribe rather than on any 
institution or rule of law. One of the things that has been 
floated--and when I say floated, I don't mean put forward by 
any particular entity as a proposal, but discussed--is that at 
the end of the day, Abbas may find himself in a position where 
if things do begin to break apart in terms of Hamas and Fatah 
and some of these groups going at each other--and I'm not 
saying that will happen, but if it does, that there may be a 
need for some sort of a Presidential guard as, for a lack of a 
better phrase, as an active anti-terrorist force. And is such 
an option, after a crisis emerges and Hamas is seen as not 
being able to deal with it, is that something that would make 
any sense? Or how--I'm looking down the road, as I know you 
are, as to what happens if there is significant terrorist 
activity on the West Bank or in Gaza. The Israelis are going to 
be put in a real bind. Abbas has to deal with Hamas. Talk to me 
about that.
    General Dayton. Sir, the idea you put forth is one that 
President Abbas himself has put forth, and I wouldn't be 
surprised if he puts it forth again when he meets with, if he 
does meet, with some Quartet envoys later this week. The 
79,000, or whatever the number is, of Palestinian security 
forces that currently exist, as I indicated, is largely a 
Arafat legacy of competing loyalties, and that's why he wanted 
them that way. You have a lot of bloat, a lot of inefficiency, 
and the forces should be much much smaller. I don't want to 
sound cute, but a significant loss in a relatively fair and 
free election does concentrate the mind, and the Palestinian 
security leaders that I deal with are very interested in, first 
of all, reducing the size of their forces dramatically; 
secondly, putting them on some kind of more professional 
footing. When President Abbas says that, you know, maybe one of 
the things we ought to be looking at is some kind of 
enhancement or improvement of my Presidential guard force, it's 
something I'll take seriously, and it's something that I have 
my planners looking at. However, that has yet to be a policy 
decision on the part of the United States or The Quartet.
    Senator Biden. I understand that.
    General Dayton. Yes, and so, therefore, we're not moving 
out on that. We're looking at it, though, very carefully. I 
think it's an interesting idea.
    Senator Biden. Let me ask you another question. A year ago, 
when--I'm trying to think now. I guess it was a year ago 
January when Abbas was elected. On the day Abbas was elected a 
year ago, I happened to be there with our friend, Senator 
Sununu, and we spent some time with Abbas. And as you know 
better than I do, General, the notion of reducing the size of 
this--I don't want to say ragtag, but these 70-79,000-man 
militia forces, people with guns, loyal to different factions 
is a critical one. He was making the point that it had to be 
consolidated, but he came back with a pretty stark point, and 
that is that you've got to figure out how to give these guys 
pensions. You know, when you tell them, figuratively speaking, 
hand in their badge, that means they're handing in their 
ability to get a paycheck, and there's not a whole lot of 
alternative there. Has The Quartet, through you, been 
discussing the practical side, the nonmilitary side, of dealing 
with what everyone acknowledges is a serious dilemma? Is that 
part of your discussion?
    General Dayton. Senator, it is. However, as you can 
imagine, since the Palestinian elections, the issue of pensions 
and the practical aspects of this has taken a second place to 
the issues of principle and policy and, you know----
    Senator Biden. Right.
    General Dayton [continuing]. What do these things look 
like. So, it is an issue. We've done some work on it in the 
area of the civilian police, as a matter of fact, that the 
European Union has led. But the practical issues are 
essentially, not an abeyance, but they're sort of on the back 
burner as we await policy outcomes here because the Hamas thing 
is a very serious problem for us.
    Senator Biden. That's reasonable, and I appreciate your 
service, General. You're in a really difficult spot. I know my 
time is up, but the fact is that you--your mission is going to 
get more complicated or become irrelevant, not because of you, 
but because of the circumstances. And I--again, I thank you for 
your service.
    Chairman Lugar. Thank you very much, Senator Biden. Thank 
you, Senator, and thank you very much, General, for your 
testimony and for your leadership. And we look forward to 
staying closely in touch with you as developments occur because 
the issues we've discussed today are, as you've pointed out, 
fluid and ongoing. Thank you for coming. The Chair now 
recognizes the next panel. We ask Ambassador Ross and Mr. 
Malley, please, to come forward. As we mentioned previously at 
the outset of the hearing, Ambassador Dennis Ross is Counselor 
and Ziegler Distinguished Fellow at The Washington Institute 
for Near East Policy here in Washington, DC. Mr. Robert Malley 
is the Middle East and North Africa Program Director for the 
International Crisis Group in Washington. Gentlemen, we 
appreciate very much having you before the committee again. 
I'll ask you to proceed in the order I introduced you, and your 
statements will be made a part of the record in full. And 
please proceed, if you can, to summarize. And then, we will 
have questions again by our committee members. Ambassador Ross.

   STATEMENT OF THE HON. DENNIS ROSS, COUNSELOR AND ZIEGLER 
              DISTINGUISHED FELLOW, THE WASHINGTON
         INSTITUTE FOR NEAR EAST POLICY, WASHINGTON, DC

    Ambassador Ross. Thank you, Mr. Chairman. It's good to be 
here again. I'll make a number of observations that I think are 
designed, I think, to try to frame what is the basic issues, as 
well as I think they are the basic choices as well that we 
face. What I'm struck by is that there are a series of ironies 
right now. We have a Hamas victory, but let's look at what some 
of the ironies are as a result of the Hamas election victory.
    First, at the time that Hamas wins, we have a new dynamic 
within Israel. Within Israel, we have a centrist coalition, we 
have a very strong consensus that is emerging that will 
probably be reflected in the election in 2 weeks, and that 
basic consensus vis-a-vis the Palestinians is a consensus that 
the Israelis want to be done with the Palestinians. They want 
to be out of Palestinian lives. They want to separate from the 
Palestinians. They are prepared to withdraw, probably, from 
most of the West Bank. Whereas they want to be done with the 
Palestinians, they want a divorce from the Palestinians, Hamas 
wants Israel to be done. We heard Senator Boxer describe the 
charter, and most of us, I'm sure, have read the charter. They 
want to see Israel disappear. So, at the very moment that you 
have an Israeli consensus to, in a sense, divorce from the 
Palestinians, get out of Palestinian lives, we have Hamas 
elected. And even though they ran under the banner of change, 
the reality is that people knew who Hamas were when they were 
elected. So, irony number one is two profound changes taking 
place among Israelis and Palestinians, but with very different 
kinds of implications.
    Irony number two is that in the case of the Hamas, Hamas 
doesn't want to recognize Israel. They don't want to cooperate 
with Israel but there's a reality that the Palestinians are 
very dependent on Israel. Who is it that provides most of the 
electricity and water to the Palestinians? That's Israel. Who 
is it that controls most of the access into and out of the 
Palestinian territories with the exception of Rafah now? That 
would be Israel. Roughly 80 percent of the Palestinian economy, 
in one way or the other, is dependent upon either work in 
Israel or trade with Israel or trade through Israel. So, even 
if Hamas doesn't want to deal with Israel, even if it doesn't 
want to recognize Israel, even if it doesn't want to cooperate 
with Israel, the reality of dependence on Israel is a reality 
that Hamas is going to have to face up to.
    Another irony, again related to the situation of Hamas, is 
Hamas made a series of promises on the way to being elected, 
and they repeated those promises after having been elected. 
They are going to produce law and order. They are going to end 
chaos. They are going to produce a new economic policy, a new 
industrial policy, a new agricultural policy, a new health 
policy. None of this is achievable if Hamas is at war with 
Israel. That's simply a fact.
    So, Hamas needs calm, but they want calm on their own 
terms. They want a calm where they can continue to extend the 
calm, but Islamic Jihad might be free to still attack the 
Israelis, or the al-Aqsa Martyrs' Brigades might be free to 
attack the Israelis, or the popular resistance committees might 
be still free to attack the Israelis. And in a sense, it's a 
calm where they're not obligated to do anything to preserve it 
necessarily, other than the fact that they won't carry out 
attack against the Israelis. The irony here is, of course, that 
the Israelis won't simply accept a calm of that sort. So, if 
they want calm, they're going to have to go from simply doing 
nothing on their own to being prepared to do something against 
these other groups if they're going to sustain it.
    So, here are a series of ironies. Here are a series of 
choices. And here, I would say, for Hamas are a series of 
dilemmas. I think for us, the most important principle is not 
to allow them to escape their dilemmas. They also want to have 
recognition from the outside world, and they want assistance 
from the outside world, but they don't want to change. And we 
can't put them in a position where basically they can escape 
the dilemmas that they now face, they can escape any of the 
choices. If they want recognition and assistance, and you've 
heard Jim Wolfensohn say, I think, very clearly and quite 
effectively that we have to stick to the principles. We have to 
stick to the principles. We have to stick to the principles, 
and fundamentally, if they want recognition, if they want 
assistance, then they have to change. I would suggest to you 
that we have a strategic objective vis-a-vis Hamas. The 
strategic objective vis-a-vis Hamas is that Hamas has to 
transform itself, or it has to fail. We face an irony. We want 
them to either change themselves, or we want them to fail. The 
problem is, we want to ensure that if they fail, they are the 
ones who are seen as being responsible for their failure, not 
us or anyone else.
    So, how do we strike the balance? How do we ensure that in 
the end, if they don't change themselves, which would be the 
first objective, that they fail? Here again, I think I will try 
to echo what I was hearing Jim Wolfensohn say. We have to 
strike a balance ourselves between creating a reality where we 
maintain a relationship with the Palestinian people, we 
maintain ties to Palestinian society, we try to ensure that 
there is a certain humanitarian reality that is preserved for 
Palestinians, and we show that we care about them even while we 
will not deal with Hamas. I would say that there has to be a 
fundamental principle that guides us here. The principle that 
guides us is we will deal with any Palestinians who are 
prepared to accept a peaceful coexistence with the Israelis and 
who reject the use of violence as a means to pursue their 
aspirations. Any Palestinians who fit that category, we should 
be, in fact, capable of dealing with and also of supporting.
    And what does this mean in practical terms? In practical 
terms, it means you're not going to deal with a Hamas-led 
government. But in practical terms, it means you're going to do 
a number of the following things: First, you have to be able to 
provide humanitarian assistance. And again, I would define it 
fairly broadly. Jim Wolfensohn talked about $700 million 
dollars a year that is provided for issues like health and 
education, even some infrastructure development. I would say 
that when we're providing humanitarian assistance, and he was 
saying we have to find the means right now to do it, especially 
if we're not going to deal with a Hamas-led government. When we 
do this, I think we want to begin to also define the character 
of this to include employment to some extent. I'm not saying I 
have an answer to what you do with providing for paying the 
security forces, but I would say, certainly when it comes to 
health services and to education, you're going to have to find 
a way to provide support for the budget that permits that kind 
of employment to take place. It's not just providing food and 
water and health in a supporting environment because an 
environment, in particular, knows no boundaries. It's also 
trying to ensure that you don't have a collapse of employment, 
because if you're going to see a million people affected, if 
you're not being able to at least provide some means to ensure 
that employment is maintained by the Palestinian Authority, 
then you're going to face a humanitarian disaster.
    So, principle number one, and the practical consequence of 
it, is find ways to continue to provide not only connections to 
Palestinian society, but find ways to support what I would 
describe as humanitarian assistance, which also has some 
employment implications.
    I would say a second practical way to do this would be to 
maintain not just ties with, but support for the President's 
office of the Palestinian Authority. I wouldn't just do it 
without conditions.
    First, the President's office has to be held by someone who 
accepts the principles I described, meaning they have to accept 
peaceful coexistence with the Israelis, and they have to reject 
violence as a means of dealing with the Israelis, number one. 
But I would also say, especially given the performance of Abu 
Mazen, and I think one of the things we would want to do is 
ensure that there is transparency in terms of any moneys that 
would go to that office. We would want to ensure there is an 
implementation mechanism to act on the moneys and, in fact, 
apply them to particular projects. I would--when I was talking 
about the humanitarian assistance, even though Jim's 
description of $700 million dollars implies some developmental 
assistance, I would say some developmental assistance to the 
President's office, assuming the President's office is going to 
provide transparent mechanisms, assuming it's going to provide 
an implementation mechanism, and I would say assuming also that 
perhaps we put in a group from the outside into the President's 
office to ensure that decisions are not only made, but carried 
out.
    And here, I would talk about a group that might include 
people from The World Bank, from the EU, maybe from the 
Palestinian Diaspora to help develop and act on decisions that 
are made to help ensure there's a work plan with certain kinds 
of milestones built in. This, too, might be an effective way. 
If you're going to provide some material assistance to the 
President's office for particular projects, including the 
developmental area, this is a way to ensure that, in fact, it 
is, in fact, expended for the right kinds of purposes. Lastly, 
I would say I think we need to create an umbrella of NGOs. We 
may need to create some new NGOs, but we need to create some 
kind of umbrella of NGOs with a steering committee that would 
have a responsibility for ensuring--again, given the objective 
of maintaining ties to Palestinian society and to the 
Palestinian public, but not dealing with Hamas and not dealing 
with a Hamas-led government, here, I think NGOs would be 
responsible for a variety of different kinds of support. One 
would be for civil society.
    Another would be for democracy promotion. Some would be for 
people-to-people projects because we want to maintain the 
possibility, not only of peaceful coexistence as a principle, 
but peaceful coexistence in practice. Some might also be for 
help specifically to the private sector in terms of job 
creation and investment. And some, I would say, would also be 
useful for education. I know that Jim talked about not wanting 
to have two educational systems, but I think here we also want 
to be somewhat creative.
    One of the leading members of Fatah mentioned to me last 
week that in Gaza alone, Hamas has 30 private schools that it 
runs. I would like to see NGOs create certain standards for 
such secular schools, but then also provide material assistance 
for those schools. One of the things that we have seen, in 
fact, is an educational system that has not exactly been 
designed to socialize peaceful values, peaceful attitudes and 
peaceful coexistence to the extent to which, in fact, NGOs 
could be geared towards dealing with this side of the 
development of education, especially at a time when you are 
thinking about competing with Hamas. I think this would be an 
important objective to have in mind.
    Two last observations. Clearly, doing this only on our own 
is not likely to be effective. It's going to require, I think, 
an intensive diplomatic approach by the Administration to 
ensure that the European Union would also sign on and maintain 
these kinds of standards--the standards and principles for not 
dealing with a Hamas-led government unless they meet the 
conditions that The Quartet has already established for 
relations or assistance to them. I'm not naive. I know that 
when it comes, especially to dealing with the Arab world, it 
will not be so easy to get them to meet the same standards that 
we might want. But at a minimum, we should work pretty hard on 
the Arabs to maintain certain standards for themselves so that 
there wouldn't be normalization by them with Hamas unless Hamas 
meets certain standards of theirs. If they are not prepared to 
meet our standards, why can't they at least meet a standard 
that the Arab League has already adopted? The Arab League we 
adopted in 2002, a resolution that made it clear that they 
would make peace and establish formal diplomatic relations with 
Israel if Israel withdrew the June 467 lines and there was a 
just solution to the refugee problem.
    That is their approach and not necessarily ours, but it's 
an approach that they ought to be able to sustain. It ought to 
be an approach that they wouldn't allow to be eroded. And they 
should insist that Hamas would meet that, and we should press 
them to at least ensure that Hamas meets that. And if Hamas 
doesn't, there isn't going to be normalization with Hamas. 
Again, the objective here has to be keeping a strategic 
perspective in mind that either Hamas changes and transforms 
itself, or it fails, and it fails in a way that makes it very 
clear that they are responsible for their failure.
    In the end, what we are trying to do here is to ensure that 
they either change, or we create a credible alternative to them 
because, in fact, the two-state solution is still the right 
approach and, in fact, the only approach that can work if we're 
dealing with trying to transform the region and hope for peace 
over time. We will have a new Israeli government. It will be 
driven by a dynamic to create their own borders that are very 
different from today, and that could give you something to work 
with over time as long as Hamas's agenda doesn't become 
legitimized over time. For those who say that we should pay 
attention only to what Hamas does and not to what they say, I 
would suggest that one of the consequences of what they say is 
that over time, that becomes legitimate, that becomes part of 
the discourse, and a two-state solution will begin to be 
diminished in terms of its meaning.
    And in addition, I would just note when you look at what 
some of the Hamas leaders internal, not just the external 
leaders, but someone like Mahmoud Zahar has said since the 
election about wanting to Islamicize a society, take over the 
educational system, make sure that children in kindergarten are 
taught to be martyrs and that their mothers are taught to be 
heroes, it matters what they say. It will have a consequence 
what they say. We don't want, in any way, to see principles 
eroded in terms of dealing with them because we want their 
agenda not to be legitimate. We want a credible alternative to 
exist, and we want to create the ties to the Palestinian 
society that make that possible. Thank you.

    [The prepared statement of Ambassador Ross follows:]

     Prepared Statement of Hon. Dennis Ross, Counselor and Ziegler 
  Distinguished Fellow, the Washington Institute for Near East Policy

    Hamas's stunning success in the Palestinian elections promises to 
redefine the Israeli-Palestinian relationship even as it confronts the 
United States with hard questions about its policy toward the broader 
Middle East.
    On the most strategic level, the Hamas victory should compel 
Washington to reconsider its current approach to promoting democracy in 
the Middle East. At present, the administration clearly needs to take 
more account of the potential for antidemocratic groups to use 
democratic forms and mechanisms to seize power, especially in 
environments where existing regimes are corrupt and despised and where 
Islamists are the only organized alternative. This is not an argument 
against continuing to promote democracy as a leading U.S. objective for 
the Middle East. But it is an argument for putting more focus on 
building the conditions for secular, liberal, or moderate alternatives 
to emerge--and trying to enhance their capabilities--than on continuing 
to focus such a heavy share of our effort on holding elections as a 
priority. Such an approach applies throughout the broader Middle East 
and goes well beyond what the administration must now consider as it 
deals with the Israelis and Palestinians.
    On the Israeli-Palestinian front, the administration's policy has, 
since 2003, been defined by the ``Roadmap to Middle East Peace.'' The 
Hamas victory makes this base problematic for shaping policy now. After 
all, the roadmap was designed to move from the existing reality to 
President Bush's vision of two states, Israel and Palestine, coexisting 
side by side in peace and security. Hamas not only rejects a two-state 
solution and Israel's right to exist, but it is also highly unlikely to 
dismantle its own terrorist infrastructure as mandated by the roadmap. 
Although the rhetorical guideposts embodied in the roadmap remain 
valuable, it is probably time to admit what has long been the case: the 
roadmap is, at most, a declaratory posture offering general guidelines 
for behavior; it is not an operational plan.
    Should the Bush administration develop an operational plan? 
Perhaps, but the starting point for such an action-oriented policy 
needs to be an understanding of the realities we now face with both the 
Israelis and Palestinians.
                    competing political earthquakes
    Both Israelis and Palestinians are going through political 
transformations. In Israel, a new political center (the Kadima party) 
has emerged that threatens to displace the parties that have 
traditionally dominated Israel's politics. The Hamas electoral victory 
is creating a parallel reality for the Palestinians by sweeping aside 
Fatah, the predominantly secular national movement that defined 
politics. These twin political earthquakes, though equally momentous, 
appear to be leading the two sides in very different directions.
    For probably the first time since David Ben Gurion served as prime 
minister, Israel has a broad centrist consensus, particularly on how to 
deal with the Palestinians. The public appears ready to disengage from 
the Palestinians, withdraw extensively from the West Bank, and get out 
of Palestinian lives. Ariel Sharon both shaped and reflected this 
consensus and was determined to act on it. And, even though Sharon is 
now incapacitated, his political heirs--led by Ehud Olmert--appear 
determined to follow in his footsteps.
    By contrast, the Palestinians have now voted to remake the 
Palestinian Authority (PA) by electing Hamas, a group that rejects the 
very concept of peace with Israel. Indeed, Hamas may even reject a 
``negotiated divorce'' of Israel from the territories, which is how 
many Israelis view the essence of disengagement. Does the Hamas 
election mean a consensus exists among Palestinians on how to deal with 
Israel--or, more likely, not deal with Israel? No one can answer that 
question with certainty. Many observers will argue with some 
justification that the Palestinian elections were about corruption, 
lawlessness, chaos, joblessness, and the overall fecklessness of 
Fatah--a movement that was not responsive to the Palestinian public's 
needs and paid the price for its disdain of the electorate. But 
although Hamas campaigned under the banner of reform and change, it 
never hid its basic principle of resistance to and rejection of Israel.
    In effect, we now face the paradox of having an Israeli consensus 
for taking far-reaching steps to remove themselves from controlling 
Palestinians, which is certainly what most Palestinians want, while at 
the same time, on the Palestinian side, a dominant political force is 
emerging that seeks not Israel's removal from Palestinian life, but 
Israel's eventual eradication.
    Will the Hamas election alter the Israeli consensus? That is 
unlikely; if anything, the emergence of a Hamas-led government is bound 
to reinforce the perception in Israel that there is no Palestinian 
partner for peace and thus deepen the Israeli belief in unilateral 
separation. The problem, of course, is that separation or disengagement 
is not a simple proposition, especially when it comes to the West Bank. 
Unlike the situation with Gaza, where the distances from major Israeli 
cities were significant, in the West Bank, proximity will breed Israeli 
security concerns. For example, can Israel count on short-range Qassam 
rockets not being fired from the West Bank at Israeli cities and 
communities after Israel disengages? Even if Israel takes the painful 
step of evacuating settlements from a significant part of the West 
Bank, will it feel the need to preserve a military presence to prevent 
the firing of rockets? Will it also feel compelled to control access 
into the West Bank to prevent smuggling of more dangerous weapons into 
the territory? If so, the disengagement in the future may be only from 
Israeli settlements and not necessarily involve the withdrawal of the 
Israeli military.
    Regardless of how separation proceeds, the important point is that 
it is likely to proceed over time. A large majority of Israelis want to 
define their borders and the country's future without letting either be 
held hostage to Palestinian dysfunction or outright rejection.
                            hamas's dilemma
    Although, given its rejection of Israel and desire to avoid any 
cooperation with it, Hamas will find that governing presents dilemmas. 
As much as Hamas may not want to deal with Israel, the reality of the 
situation is that Israel supplies much of the Palestinian electricity 
and water and outside of the Rafah passage to Egypt, Israel controls 
access into and out of Palestinian areas. In fact, 80 percent of the 
Palestinian economy is dependent on work in and trade with and through 
Israel. Quite apart from Israel's withholding of tax and customs 
receipts, which the Palestinian Authority needs to meet some of its 
budgetary requirements, it is clear that Palestinians depend heavily on 
Israel to be able to function.
    Hamas must face one other reality when in power: It ran on a 
platform of reform and change. To the extent that Palestinians voted 
for those twin concepts, their presumption is that their quality of 
life would improve under a Hamas government. But life is unlikely to 
improve unless Hamas has the quiet it needs to reconstruct society. 
From dealing with chronic corruption and lawlessness to providing 
social services, to developing an economy that offers jobs and promise 
for the future, Hamas needs calm, not confrontation with Israel. When 
Hamas leaders, including Mahmoud al-Zahar and Ismael Haniya declare 
that Hamas will create a new social policy, a new health policy, and a 
new economic and industrial policy, they raise expectations. Can they 
deliver on those expectations if they are at war with Israel?
    The irony is that Hamas needs quiet for the near term in order to 
cement its political victory at the polls with popular success in 
government. On the one hand, Hamas's external leaders, like Khaled 
Mishal and Mousa Abu Marzouk in Damascus, will continue to see value in 
maintaining at least some level of violence, especially with their 
backers in Iran urging this action and perhaps tying increased funding 
to it. On the other hand, internal leaders like Haniya, who will be the 
new prime minister and has to deal with the daily realities of life, 
may have different priorities. Haniya and other internal leaders will 
not differ from the external leaders in their rejection of Israel, but 
they may seek at least an indirect dialogue with the Israelis on 
preserving calm. As Zahar has already said, ``If Israel has anything to 
bring the Palestinian people, we will consider this. But we are not 
going to give anything for free.''
    The Israeli position and that of the United States and the 
international community should be a mirror of that posture: Hamas gets 
nothing for free. Hamas should be forced to prove it has changed 
fundamental aspects of its policy at a time when its leaders will go to 
great lengths to avoid any such change. Hamas may want quiet for its 
own needs, but it will try to trade calm for recognition and assistance 
from the outside and a de facto relationship with the Israelis.
    Israel, too, after its election may have an interest in having such 
a de facto relationship. For Israel, such an implicit or indirect 
relationship might preserve relative calm--meaning bombs not going off 
in Israel--and enable it to complete the separation barrier. Hamas, for 
its part, might tolerate such a situation to gain the freedom to focus 
on internal reform and reconstruction. While in the abstract such a 
relationship might appear logical, it will only be possible and 
sustainable if Hamas is, at the same time, prepared to change its 
behavior and actively prevent terror attacks by the Palestinian Islamic 
Jihad or the al-Aqsa Martyrs Brigades; stop the smuggling of 
qualitatively new weapons into Gaza and the West Bank; and not build or 
amass its own Qassam rockets and bombs.
    Israel will not go along with a calm with Hamas that gives the 
latter all the benefits and yet requires nothing of it. Calm punctuated 
by acts of terror (or a buildup of capabilities for even greater acts 
of terror later on) will mean no calm to the Israelis, and they will 
act to preempt both the attacks and the buildup of the terror 
infrastructure. And Hamas, now no longer sitting outside the 
government, will not be able to be passive in response. Whether one is 
talking about a de facto relationship that has functional value for 
both sides or broader policy changes that Hamas is asked to adopt, one 
can assume that Hamas will not only seek to do the minimum and gain the 
maximum, but also that it will offer clever formulations of moderation 
that suggest peaceful intent without actually committing the group to a 
change in its fundamental rejection of Israel's right to exist.
    One of the greatest mistakes would be to set up a diplomacy that 
provides Hamas with a way to escape making choices. At some point, 
Israel may let some non-Hamas Palestinians act as a go-between to 
determine whether a de facto relationship is possible, but Israel's 
terms will be clear, particularly on security.
                    u.s. and international responses
    Given Hamas's near-term priorities, the United States must be no 
less clear on what Hamas must do if a Hamas-run PA is to have a 
relationship with the international community. Hamas will seek to have 
it both ways, wanting relations while avoiding any change in its 
fundamental strategy of rejection of Israel and support for violence. 
On this score, Washington needs to be vigilant: No half-measures or 
vague formulations should be acceptable. Hamas must unconditionally 
recognize Israel's right to exist, renounce violence, and accept the 
agreements that the PLO has made with Israel. If the international 
community permits Hamas to escape accountability, its political 
doctrine acquires legitimacy, and the building blocks for coexistence 
will disappear.
    Already, the United States has worked with the other members of the 
Quartet (the European Union, the Russia, and the U.N.) to insist that 
Hamas meet these conditions. Unfortunately, the Russians have already 
defected from these terms. By holding a high-level meeting with Hamas 
leaders in Moscow, they have already signaled that regardless of Hamas' 
stated positions they will deal with it. If nothing else, the U.S. at 
this point should hold no more meetings of the Quartet with Russian 
participation if the Russians are going to continue to meet with Hamas 
without any modification of the Hamas declaratory positions. The 
tougher question is not whether to meet with Hamas officials in the new 
Palestinian government. That is or should be a given: no meetings if 
they do not alter their positions on rejection of Israel and support 
for violence. They must know that the world is not going to adjust to 
them, but they must adjust to the world.
    The tougher question is what to do about a Palestinian Authority 
that is essentially bankrupt and can only make ends meet with 
substantial financial support from the international community. For the 
interim period before the formation of a Hamas-led government, the 
position of the administration and the European Union has been to help 
with stop-gap financing. Soon enough, however, the new Palestinian 
prime minister, Ismael Haniya will put together a government--probably 
at the time of the Israeli election--and the more basic questions of 
whether to let the Palestinian Authority collapse will have to be 
addressed.
    I would suggest the following principles to guide our actions 
toward the Palestinian people and the Palestinian Authority. First, we 
have no interest in seeing the PA collapse and the Palestinian people 
suffer a humanitarian catastrophe. Second, we should deal with any 
Palestinians who accept the principle of co-existence with Israel and 
reject violence as the means of pursuing Palestinian aspirations, and 
we should not deal with any who do not. Third, we should help to ensure 
that basic humanitarian needs of Palestinians continue to be met on 
food, health, water and environment. Fourth, we should be ready to 
provide additional assistance on developmental and educational needs 
through an umbrella body of NGOs to private sector or civil society 
groups in the Gaza and the West Bank that accept the principles of 
coexistence and rejection of violence.
    What are the practical implications of such principles? There are 
several:

   No dealings with any officials in the Palestinian Authority 
        that are members of Hamas or who accept the Hamas doctrines of 
        rejection and promotion of violence. (Thus, there should be no 
        contact with the new Palestinian prime minister or those 
        cabinet members who clearly identify with Hamas.)

   Budgetary support for the PA should be limited to 
        humanitarian, not developmental, categories. To be sure, 
        wholesale unemployment could lead to a disaster so the 
        humanitarian categories might be expanded to include workers in 
        health and education areas.

   Assistance might also be provided directly to and through 
        the office of the Presidency of the PA so long as the President 
        remains clearly committed to the principles of peaceful 
        coexistence with Israel and rejects the promotion of violence. 
        Such assistance could be for supporting developmental projects 
        or even some extraordinary budgetary needs, but only if there 
        are transparent means for accounting where the monies go and 
        clear implementing mechanisms within the President's office.

   Material support should be provided through a new body of 
        NGOs, with an oversight board to see how and to whom monies are 
        going. Here support could go for projects that provide jobs, 
        build greater civil society participation, and create private, 
        secular schools. (Today, for example, Hamas funds 30 private 
        schools in Gaza; why not fund private alternatives to these?)

    American policy should be shaped according to these principles and 
their implications. We should seek to get the European Union and other 
donors in the international community to embrace this approach. 
Collectively we would not be cutting off the Palestinians, but we would 
be establishing certain basic standards and Hamas and the Palestinian 
public would know that they had to be met or they would not be able to 
produce for Palestinians.
    Is it likely that Arab countries would embrace such an approach? 
Probably not; they are unlikely to isolate or cut off relations with a 
Hamas-led authority given the political and psychological realities of 
the Palestinian cause in the Arab world. While the Arab world provides 
far less financially to the Palestinians than their proclaimed concern 
for Palestinians would otherwise indicate, their political position 
vis-a-vis the Palestinians remains important. From this standpoint, 
getting Arab states to create a politically-meaningful standard they 
will actually stick to in shaping their relations with a Hamas-led 
Palestinian Authority should also be a centerpiece of U.S. policy. And, 
here, there is no reason why the Arab states led by the Egyptians, 
Saudis and Jordanians cannot require Hamas, at a minimum, to accept the 
Arab League resolution that was adopted in 2002 in which peace and 
diplomatic relations with Israel are promised in return for withdrawal 
to the June 4, 1967 lines and a just resolution of the refugee issue. 
This is an agreed Arab standard and if Hamas is not prepared to embrace 
it, Arab countries should make clear they will not have normal 
relations with Hamas.
    Taken together, our standards with leading international donors and 
at least a minimal standard among the Arabs for what Hamas must do 
could affect Hamas's behavior. If nothing else, it will create internal 
pressures on Hamas, making a transformation possible or at least 
building the credibility within Palestinian society of alternatives to 
it.
    Our strategic objective must be to foster an environment in which 
Hamas transforms itself or faces the reality of failure. We need to do 
this in a way that doesn't make it easy for Hamas to blame its failures 
on the outside world, even while we force Hamas to face up to the 
dilemmas and contradictions of its policies. That is why we need to 
maintain broad ties to Palestinian society and continue to provide 
humanitarian assistance to the PA, but furnish developmental support 
only to those who are unmistakably committed to peaceful coexistence. 
In this way, we will demonstrate that the problem is Hamas' rejection 
of internationally-accepted standards, not out rejection of the needs 
of the Palestinian people.
    Ultimately, our policies now must be shaped by a recognition that 
peace-making is not possible at present. If calm can be preserved, if 
those who believe in peaceful coexistence can be supported, if people-
to-people projects through NGOs can be fostered, and if Hamas and the 
Palestinian public can see that rejection and violence will lead to 
increasing isolation and retrenchment, we can build conditions that 
make it possible to get back to peace-making over time.
    But we should have few illusions. Hamas leaders actually believe in 
their doctrine and won't easily transform themselves. The 
Administration must work actively and intensively with outside donors 
and the Egyptians, Jordanians, Saudis and others in the Arab world to 
stick to certain standards and prevent any erosion in living up to 
them. If there is to be hope over time, Palestinians must see that the 
international community is not going to walk away from its commitment 
to a two-state solution.

    Chairman Lugar. Thank you very much, Ambassador Ross. Mr. 
Malley, we welcome your testimony.

   STATEMENT OF ROBERT MALLEY, MIDDLE EAST AND NORTH AFRICA 
  PROGRAM DIRECTOR, INTERNATIONAL CRISIS GROUP, WASHINGTON, DC

    Mr. Malley. Thank you, Mr. Chairman. Thank you, members of 
the committee, for having me here, and it's always a pleasure 
to be here with my good friend Dennis. There's nothing like a 
good Democratic election to shake our faith in democracy. The 
outcome of the elections was not what I think anyone here 
anticipated, certainly not what anyone here wanted. But now we 
have to deal with it, and I think we have to deal with it by 
bearing in mind what U.S. vital national objectives should be--
(1) Maintaining a strong common front against terrorism; (2) 
Promoting a two-state solution; (3) Ensuring that there is no 
resumption of violence between Israelis and Palestinians; (4) 
Promoting democracy among Palestinians, but also more broadly 
in the region; and (5) Promoting a program of government 
reform--again, both in Palestine and in the rest of the region. 
And the question is how do we best meet all those objectives or 
at least as many of them as possible. There is a temptation, 
and I understand it, and it is a legitimate one, understandable 
one, that right now, in order to meet some of those objectives, 
the goal should be to ensure Hamas's quick and painful failure. 
The logic being that if Hamas fails quickly, the Palestinian 
people will learn the lesson that if they vote for 
organizations such as Hamas, they pay the price. They will 
therefore quickly turn to new elections, and in those 
elections, they'll vote for the moderates, Fatah or whatever 
other moderates emerge.
    As I said, I think it's a very appealing logic. I also 
think it may be shortsighted and ultimately self defeating. If 
the U.S., Israel and others are perceived as trying to engineer 
Hamas's downfall and quick disruption of the government, the 
Palestinian people are not going to take from that the lesson 
that Hamas failed them, but that others failed them. And in 
that sense, Hamas's failure may not necessarily be America's 
success. It depends very much on how it fails. If we see more 
despair, more poverty on the Palestinian side, who in this room 
thinks that that's going to help the moderates on the 
Palestinian side? History doesn't suggest that. History in the 
region doesn't suggest that. History among Palestinians doesn't 
suggest that. If the Palestinians are starved of funding, and 
they turn to Iran, is that going to serve our interests? Do we 
think that if the Palestinians take from this experiment the 
lesson that democracy only works if it goes in one direction, 
that we're going to create the foundations of a solid democracy 
and of a transition in the future to other forms of government, 
a more moderate government? And there's a broader regional 
picture. However we may dislike it, the debate today in the 
Muslim world is not between secularists and Islamists. It's 
what we may aspire to see, but right now, the real debate, the 
most active debate, is between those I would call the political 
Islamists, who, however radical their views may be, are 
evolving towards greater acceptance of democracy, of elections, 
of the nation state as a framework within which to wage their 
struggle and the Jihadi Islamists, al-Qaeda being the best 
example, but Zarqawi and others certainly belonging to it as 
well. We need to be very mindful in the way in which we 
approach what's happening in Palestine, that we don't send the 
lesson to those who are tempted by the path of elections that 
elections are a one-way street, and it doesn't include them, 
and that we therefore embolden and reinforce the Jihadi 
Islamists, who, as we know, have condemned Hamas's 
participation in these elections just as they condemn any 
Islamist participation in elections.
    What does this mean? This doesn't mean that we have to give 
Hamas a pass or, as Dennis said, and as he warned against, that 
they should be able to succeed without having to change, but it 
does mean that we have to be judicious, and we have to be 
cautious in our approach, and that we have to make sure that if 
Hamas fails, it fails in a way that is compatible with and, in 
fact advances our interests. In order words, if it fails, that 
it be viewed as their failure, not ours, that it strengthens 
moderates, not radicalizes the Palestinians, that it 
strengthens the prospect for a two-state settlement, not that 
it diminishes it, and that it strengthens the appeal of 
democracy throughout the region, not that it defeats it. I 
suggest that there's a way to do that, to advance those 
interests without in any way compromising the principles that 
Jim Wolfensohn, Dennis Ross and General Dayton put on the 
table.
    In other words, we don't have to, and we shouldn't, change 
our position, which is not to deal with Hamas, not to engage 
with Hamas and not to fund anything related with Hamas until 
Hamas itself changes its position in the ways that we insisted 
the PLO change its position in the eighties and nineties. And 
that's a position I think we could hold onto, and we need to 
hold onto, because we have no reason to rewards Hamas's 
intransigent outlook. That's principle number one. Principle 
number two, again, echoing what I think so many have already 
said this morning, we need to find ways to provide humanitarian 
assistance, democracy-building assistance--perhaps, if we 
broadly define humanitarian assistance, find ways to 
incorporate developmental assistance so that, in fact, we're 
not viewed as punishing the Palestinians and so that, in fact, 
Hamas can't turn around and say we're the cause for the 
Palestinian's hardships, not Hamas's way of government.
    That brings me to number three. If, in fact, we fear that a 
rapid attempt to disrupt Hamas's government is going to 
boomerang and backfire, and if, in fact, we at least want to 
hold onto the hope that Hamas may change, because that would be 
the greatest success of all and if, in fact, it carries with it 
that 25-30 percent of the Palestinian population that holds 
onto the kinds of views that Senator Boxer recited earlier, 
then we need to at least create a testing period--again, 
echoing what Jim Wolfensohn said. This doesn't apply to our 
policy directly. As I said, we don't give any money to the PA 
controlled by Hamas. We can't by law, and we shouldn't change 
that. But other countries, perhaps, could at least be able to 
develop a more nuanced approach, more sophisticated approach, 
and we shouldn't be trying to block them. And I want to give 
some examples. If tomorrow, we see that a Hamas-led government 
maintains a cease fire, which meets a very critical objective, 
for us, and the Palestinians and the Israelis, if the PA 
government says, for example, that it is prepared to accept, as 
Dennis suggested, the Arab League Declaration, which implicitly 
recognizes Israel, because it says that if you find an 
acceptable two-state solution, then the Palestinians--indeed, 
all of the Arab world will recognize Israel. If, for example, 
the government decided--the PA, the PLC, the legislature and 
the government said we mandate President Abbas as chairman of 
the PLO to negotiate with Israel a final status settlement and, 
he reaches one and submits it to referendum, and the 
Palestinian people endorse it, we will follow suit. All of 
those are not direct conversions of Hamas as we all would like 
to see, and so none of them meets the bar that we have set for 
dealing with Hamas and for funding a Hamas-led government. But 
I think they do meet another bar, which is seeing Hamas move in 
the right direction. In fact, they are paying the price--under 
my scenario, maintaining the cease fire, implicitly 
acknowledging Israel's right to exist, dealing with Israel.
    In other words, the goal is to see them reverse positions 
through their practice that they may not be prepared to do in 
words in the limelight and glare of publicity and say tomorrow, 
we recognize Israel's right to exist as a Jewish state, and we 
renounce forever violence. That may not be possible in the 
short term, but let's get them to modify both their practice on 
the ground in terms of maintaining the cease fire and 
indirectly achieving what we want them to do, which is to 
recognize the reality of Israel. And if they do that, and other 
countries--Jordan, Saudi Arabia, European countries--say we, 
therefore, are prepared to deal with this government in some 
way, I don't think we should put the bar so high that we reject 
that, because again, the key for me is the following: We want 
to put conditions on Hamas that are difficult for it to accept 
but equally difficult for them to reject, because if they 
reject them, the Palestinian people will feel that that 
rejection is unreasonable and harmful. Am I optimistic that 
this can work? I can't sit here and say I am. I've read the 
charter as well. We've seen Hamas's statements. We've seen its 
behavior. But I think there is at least some reason to hope 
that it could work, because again, as Dennis said, they are 
constrained and inhibited because of their victory, and if I 
could borrow a phrase from President Bush, it's what I would 
call their catastrophic success, which he used in a different 
context.
    Their success means that they cannot resort to violence if 
they want to achieve their objectives. In fact, even if the al-
Aqsa Martyrs' Brigades or Islamic Jihad resorts to violence, 
it's a direct impediment to their program. They can't alienate 
the international community or even Israel too much, because if 
Israel or the international community turn their backs on the 
PA, they know their program is going to crumble. They can't 
even pursue aggressively their domestic agenda because if they 
do so, they're going to alienate Fatah, which still controls 
the security forces, which still controls the presidency, which 
still controls the PLO. And therefore, because they did so 
well, they can only go so far. Again, I'm not saying that this 
scenario is going to work, but I think it's worth testing it, 
engaging it, because of all the scenarios we face, of all the 
options, the not very agreeable options we face, the one that I 
would say would be most in our interest would be to see Hamas 
change, but change in a way that's realistic. We can't expect 
it tomorrow, however much we'd like it, to become an entity 
that has values consonant with ours. The second best option is 
for it to fail, as I said, in a way that is congruent with our 
interests, so that they are perceived as responsible and where 
we don't have instability in Palestine bleeding into Israel. 
The worst option, in my view, would be the kind of failure that 
is attributed to us and that radicalizes the Palestinian 
population. President Bush's endeavor to democratize the Middle 
East can be criticized in some ways, but I think it does rely 
on a basic intuition, which is a valid one, which is that 
politics is a way to moderate extremes because you're faced 
with the necessities, the exigencies of everyday government. 
We're already seeing that happen with Hamas. We want to see it 
more. No guarantee that this gamble will succeed, but I think 
the least we can do in order to defend our own interests is not 
to condemn it to failure before its even begun. Thank you very 
much.

    [The prepared statement of Mr. Malley follows:]

   Prepared Statement of Robert Malley, Middle East and North Africa 
              Program Director, International Crisis Group

    Thank you, Mr. Chairman, for the opportunity to address the 
committee today and to testify on the implications for U.S. policy of 
Hamas's stunning electoral triumph.
    The first task, as in all cases, must be to clearly identify our 
objectives. As I see them, U.S. goals in both the Israeli-Palestinian 
arena and the broader region are to remain firm in our opposition to 
terrorism; ensure that violence between Israelis and Palestinians does 
not resume; support a two-state solution; advance democracy and promote 
government reform in the Middle East.
    It is widely assumed that ensuring Hamas fails by isolating and 
undermining the forthcoming government is the best way to achieve these 
objectives. The reaction reflects legitimate opposition to bankrolling 
an organization that has neither recognized Israel nor renounced 
violence, and that has been guilty of horrendous acts over the years. 
It is premised on the belief that Hamas, starved of resources, will 
confront an angry population and, somehow, be forced out of power. And 
it hinges on the hope that disappointed Palestinians will then turn 
from Hamas's radicalism to moderation. All of which, given Hamas's 
track record, is understandable. But it also may be short-sighted and, 
ultimately, self-defeating.
    Depending on how it is achieved and how it is perceived, Hamas's 
failure may in fact not be America's success. Should it come about as a 
result of heavy-handed U.S. and Israeli pressure, it will be blamed by 
Palestinians not on the Islamists but on the outside world. Hamas, 
convinced it is being set up for failure, may well abandon its 
political gambit and revert to the familiarity of armed confrontation, 
with the ensuing risk of full-scale violence. Chaos in the West Bank 
and Gaza inevitably will have security implications for Israel. If 
those Palestinians who supported Hamas feel cheated of their victory, 
how solid will the foundations of Palestinian democracy be? As for the 
prospects for future moderation, what grounds do we have for thinking 
that greater poverty and desperation will shore up Palestinian 
pragmatists? Every precedent from Palestine and beyond suggests the 
exact opposite. Indeed, Hamas's fortunes are themselves the byproduct 
of Palestinian despair, and radicalism is more likely than not to 
benefit from economic and political disillusionment. In short, before 
engineering the downfall of the Hamas-led government, the United States 
needs to be fully aware of the implications, and prepared to deal with 
them.
    There are broader regional implications. Many throughout the Moslem 
world are watching the Palestinian experience to test the benefits of 
democracy and the sincerity of the West's endeavor. In fact, one of the 
more critical battles taking shape is not between Islamists and 
secularists, but within the Islamist camp itself: between political 
Islamists who are flirting with democratic activism and Jihadi 
Islamists who cling to the purity of armed confrontation. Jihadists 
condemned Hamas's electoral participation, just as they condemn 
Islamist participation in any election. As a result, we need to be 
mindful of the impact that a concerted effort to prevent Hamas from 
governing will have on that debate and on the ensuing regional balance 
of power between Jihadists and political Islamists.
    None of this is to say, as some fear, that Hamas should be allowed 
to avoid making changes or that it should be spared difficult choices. 
The issue, rather, is whether this is done with the aim of ensuring 
that this unprecedented experiment fail, and fail quickly, or--as the 
International Crisis Group suggests--with the aim of carefully testing 
if it can succeed and, if it nonetheless fails, making sure it does so 
in a manner consonant with U.S. national interests: i.e., that Hamas is 
held responsible, not us; that the cease-fire is maintained, not 
violated; that democracy emerges strengthened, not battered, and that 
Palestinians see the merit of moderation, not of further 
radicalisation.
    Insisting that Hamas immediately recognize Israel's right to exist 
as Jewish state (something neither the PLO, nor Egypt, nor Jordan has 
done to date) and renounce violence as pre-conditions for any 
international assistance has the merit of moral clarity. But it will 
not work and it may well backfire. It runs the risk of ensuring the 
PA's collapse under conditions which most Palestinians will consider 
illegitimate and which will trigger a closing of the ranks around the 
most hard-line of Hamas's leaders, rather than a rift between its more 
pragmatic and more ideological camps. As the elections themselves 
demonstrated, there are real limits to what outside threats and 
pressure can do. Hamas won in part due to dissatisfaction with the PA, 
disgust at corruption, and frustration at Fatah's performance. But more 
than that, the vote expressed anger at years of humiliation, loss of 
self-respect, from settlement expansion, Arafat's imprisonment, Israeli 
incursions, perceived Western lecturing and, most recently and 
tellingly, the threat of an aid cutoff in the event of an Islamist 
success. Hamas, which benefited mightily from this deep-seated 
aspiration for dignity, is not about to betray it by appearing to bow 
to international pressure.
    In other words, conditionality is the right approach, but it needs 
to be done judiciously and realistically. The goal should be to set out 
principles and benchmarks that are difficult for Hamas to meet, but 
equally difficult for it to reject.
    There are several policy implications to this approach:

    1. The U.S. should not modify its current policy, which bars any 
assistance to Hamas or a Hamas-led government as well as any engagement 
with a terrorist organization. There is no reason for us to reward its 
outlook. Any U.S. dialogue with Hamas should be conditioned on the 
organization taking the steps that were imposed on the PLO in the past.

    2. The U.S. should maintain a robust program of humanitarian 
assistance to the Palestinians, broadly defined and inclusive of 
programs that can help bolster democracy, elections, and the 
independence of the judiciary.

    3. The U.S. should take a sophisticated, nuanced posture when it 
comes to third party interaction with a Hamas-dominated PA. The bar for 
the EU or others providing some assistance should not be set too low, 
lest the message be that there is no need to change at all. But nor 
should it be set unrealistically high. Rather, it should aim at 
encouraging movement in the right direction, forcing Hamas either to 
change or to refuse to change in a context that most Palestinians will 
find difficult to understand.
    A graduated approach in this spirit could focus on the following 
immediate demands: maintenance by Hamas of the cease-fire; respect by 
the PA of past international agreements; acceptance of the Arab League 
proposal (which entails recognition of Israel in the context of a two-
state solution); or a statement by the PA that it encourages Mahmoud 
Abbas to negotiate with Israel and that it will abide by any agreement 
that is reached and endorsed in a popular referendum. These 
formulations achieve only indirectly what many insist Hamas do directly 
and leave for later clear-cut ideological shifts; for that reason, they 
raise doubts. But is an outcome in which Hamas bows to reality by being 
forced to maintain the cease-fire, implicitly accept the two-state 
solution and, therefore, Israel's existence, not preferable to one in 
which a sizeable portion of the Palestinian population continues to 
cling to unrealistic, hard-line positions?

    4. The U.S. should avoid overt interference in Palestinian 
politics, seeking in particular to engineer Fatah's swift return. If we 
have learned anything from the past, it is that efforts of this type 
have virtually never succeeded, and virtually always backfired.

    5. The U.S. should work with Israel to ensure that steps are not 
taken during this period that foreclose the possibility of a viable 
two-state settlement, in particular with regard to construction in the 
area around Jerusalem, and work with countries like Egypt that have 
contacts with Hamas to try to minimize the risk of provocative acts by 
either side.

    There is of course no guarantee that such an approach will succeed. 
Hamas's evolution is a work in progress at best, neither a sure thing 
nor the safest of bets; it will depend on the internal balance of power 
within the organization, as well as on how others--Fatah, Israel, the 
U.S., the EU--act. But there are at least some reasons for hope. 
Hamas's victory undoubtedly presents us with a headache, but it is an 
equal opportunity headache, with migraines for all, most prominently 
for the victors themselves. Paradoxically, Hamas's electoral triumph 
may optimize conditions for its political transition, for victory is 
likely to inhibit it far more than would have defeat. The Islamists ran 
on a campaign of effective government and promised to improve 
Palestinian lives; they cannot do that if the international community 
or Israel turns its back. They seek recognition and legitimacy; by 
winning, they now have to do far more to achieve this. They need to 
reassure anxious Palestinian security forces and the defeated Fatah 
movement; they cannot do that if they pursue an aggressive domestic 
agenda. Most of all, they most prove their way works; they cannot do 
that if conflict escalates. Renewed attacks against Israelis would lead 
to a swift and far-reaching response and ravage any hope the Islamists 
have for their turn at the helm.
    Beyond that, Hamas--which captured 44.5 percent for the national 
list and 36.5 percent for district lists--understands it did not win 
the popular vote, that its electoral result surpassed by far its 
political support, and that most Palestinians continue to believe in a 
negotiated two-state solution. Paradoxically, many Palestinians appear 
to have voted for Hamas in order to see it implement Fatah's program, 
there seemingly being more faith in Hamas's ability to achieve a two-
state settlement than there is support for Hamas's aspiration to create 
an Islamic state. Hamas, which has always shown itself sensitive to 
public opinion, will need to take all this into account.
    While a permanent status agreement appears out of sight, these 
constraints also suggest the possibility of a diplomatic accommodation. 
For Hamas's approach is more in tune with current Israeli thinking than 
Abbas's loftier goal of a negotiated permanent peace. In its penchant 
for unilateralism and partiality toward a long-term interim deal, 
Israel may have found its match in Hamas's reluctance to talk to the 
enemy, opposition at this stage to a permanent agreement, and 
preference for an extended truce. Moreover, in the unlikely event that 
the possibility of a comprehensive deal were to resurrect in the near 
future, it is hard to imagine it succeeding over Hamas's opposition. 
Ultimately, a sustainable peace may not be possible with the Islamists. 
But it plainly will be impossible without them.
    Undoubtedly, Hamas's victory was not in the United States' 
interests. But the alternative was not that enticing either: coming in 
a close second, Hamas would not have been disarmed and would have been 
less constrained; Fatah would have remained divided; the reform program 
would have been stalled; the truce would have been more fragile; and 
the prospects for a genuine peace process would have been as elusive as 
ever.
    If dealt with wisely, Hamas's victory could present an opportunity 
for the U.S. to boost its fundamental goals without betraying any of 
its core principles. The key, again, is to be clear about our 
objectives and how to achieve them. In this respect, bringing the more 
militant segment of Palestinian society into the political fray, 
getting it to deal with Israel and acquiesce in a two-state solution, 
boosting our democracy agenda and promoting reform would not be the 
worst hand the U.S. could have been dealt. President Bush's effort to 
promote democracy in the Middle East is premised, in part, on the 
reasonable assumption that electoral politics is a recipe for 
pragmatism and moderation. The gamble may or may not work. But the 
least we can do is not condemn it to failure before it has even begun.

    Chairman Lugar. Thank you very much, Mr. Malley. Once 
again, we'll have a 5-minute question round. I'll begin the 
questioning by asking you, Mr. Malley, how would you respond to 
an American citizen who took a look at this in a commonsense 
way, who doesn't claim to be sophisticated or to have been 
involved in the Middle East, but who simply notes that Israel, 
as I think Ambassador Ross suggested, is prepared to say, ``We 
will finish the wall, we'll finish the separation, we'll 
withdraw certain settlements, but we're prepared to retain our 
sovereignty and our entity. It's not going to be an existential 
event for us. We're going to continue on. Whatever happens on 
the other side of the wall is the business of whoever's over 
there.''
    United States citizens may say, ``Well, we just can't leave 
it at that, these folks really don't know how to get along. 
We've been trying to help them, and we want to ameliorate the 
difficulties and the big problems and so forth''. But skeptics 
might say, ``why not just leave it that way for a while?'' In 
other words, if, in fact, the Palestinian government, however 
it evolves with Hamas, Fatah, whoever, comes to the United 
States and says, ``we would like to have your help,'' we would 
like to have a program.
    Why, then we might respond to this as opposed to our going 
to them and saying, ``now, by and large, we don't like really 
what's happened here, but we want to do a little humanitarian 
aid just because we don't want to see suffering people. We'd 
like to get a little food in there, maybe even a little 
democracy movement sort of behind the scenes, sort of help you 
folks out in your revolution.''
    And then at that point, Hamas or others say, ``There go the 
Americans again, meddling in our situation''. If we fail, it's 
them--even while we're trying to do good, making it more 
backward. How do you respond to that rather common sense-type 
of questioning, which some of us get from our constituents who 
don't attend these hearings, who don't hear experts, who wonder 
why in the world are we expending this amount of effort with 
regard to a group that we don't think is a very good group as 
it stands and that we asked to reform. We understand, as you've 
said, that this takes time, maybe a lot of time, not in only an 
intermediate, but maybe a long term. Maybe this requires only a 
nuanced acceptance of Arab League principles or some other way 
that we explain that's what they really mean, but they can't 
say it. They don't want to do it. How do you respond to this 
common-sense inquiry?
    Mr. Malley. First of all, your imaginary American has a lot 
of common sense, as they usually do. I think there is something 
to that. I think--if I understand your question correctly, for 
one, I would not--even though I'm not a unilateralist at heart, 
I don't think at this point that we could expect much more in 
the best-case scenario than Israel withdrawing from great 
portions of the West Banks as it has suggested it might do if 
Kadima wins the next elections, that the Palestinians could 
govern themselves, and that Israel doesn't face the burden of 
occupation. And a Hamas-led government dealing with internal 
law and order and trying to stabilize the situation and perhaps 
even achieving some kind of paradoxical accommodation. Neither 
Israel nor Hamas want to talk to one another. Neither one of 
them really believes right now in negotiations with the other, 
and neither believes in a permanent status agreement.
    So, to that extent, I think there's a strong grain of truth 
in the intuition in the common-sense answer. But I would say 
this: we do have a vital national interest in not letting the 
situation between Israelis and Palestinians deteriorate. It's 
not a matter of charity, it's not a matter of morality--
although I think that should enter the equation as well. If 
we've learned anything over the last few years, it is that 
anti-American sentiment in the region is boiling to the point 
that it is affecting our vital interests, our security. We know 
it. We see it. And if we are not perceived as trying to address 
the Israeli-Palestinian situation, that will only get worse. It 
will impede what we're trying to do in Iraq. It will impede 
what we're trying to do in Iran and Syria in promoting 
democracy, all of the issues that we're trying to move forward.
    I recall very well two years ago when I appeared here, 
before both Senator Biden and yourself, we had a discussion 
about why the United States would not put forward a proposal 
with Arab League backing, about how you would resolve the 
Israeli-Palestinian conflict in a way that might generate 
support from the Israeli and Palestinian people, public 
support, even if you wouldn't get the solution right away. I 
still think that that would have been the right to do, because 
I think we have a vital interest in being perceived as being on 
the side of trying to reach the kind of settlement that 
President Bush is on record as saying he wants to achieve.
    Chairman Lugar. So, you believe that the foundation will 
see better ratings for America and Middle Eastern countries if 
we're perceived as doing something, even if whatever we're 
doing is resented by persons that we're trying to help?
    Mr. Malley. I don't know that--I don't think we'd be 
resented if we're trying to help by pushing forward a political 
solution, and I don't think that humanitarian aid is going to 
be perceived as negative by Palestinians. I think if we start 
playing internal Palestinian politics, and again, if there's 
one thing I learned in my time in government, working with 
Dennis, was that every time we tried to interfere with internal 
Palestinian politics, we got it wrong, and we got hurt. We 
don't understand it well enough. We are not able to manipulate 
it well enough. And because of the residue, stronger than 
residue, of anti-American feeling, when we try to endorse 
somebody, that person almost automatically plummets in the 
polls. I don't think that's what we want to do, but 
humanitarian assistance, developmental assistance, political 
support for a two-state solution, those, I think, are things 
that would resonate widely with all Palestinians.
    Chairman Lugar. Thank you. Senator Biden.
    Senator Biden. Mr. Chairman, your question reminds me of a 
meeting years and years ago with Hubert Humphrey and Denis 
Healey at the Ditchley Foundation, and Healey told a story, 
allegedly--I don't know whether it was true, about Churchill 
just having been made Prime Minister and a backbencher--I'll 
call him Soames--that stands up and just excoriated Churchill, 
and Churchill looked over at me and said I don't know why 
Soames says that of me, I never did a favor for him. I think 
there's much to what you say about the resentment, and I don't 
think it bears any distinction when it's humanitarian or 
otherwise. But, you know, the second part of that common-sense 
approach is wouldn't the Palestinians be--wouldn't Hamas be 
happy to say fine, we don't want your help, but just don't get 
in the way of our help from Iran and from the Gulf states, let 
us get the help we need, we need $100 million dollars, we can 
do that and move on. That, sir--for me--the question your 
constituents and mine ask us is appealing, but it seems to me 
that if we're not in the game, then we either have to be 
blocking other people from doing it, and then we have all the 
downside, or they can find it other places. I mean, it's not 
such a big number that they need us for a solution, which leads 
me to a couple questions.
    Gentlemen--and if you could do it briefly, I'd appreciate 
it, is there any way for Hamas to fail without it being 
violent? My problem with Hamas failing is I don't see it 
failing in a way that is the way we think in Democratic terms. 
You know, you fail, you lose an election, they throw you out of 
office, and you say good, we're Democrats with a small D, let's 
just go away. I mean, can you picture them failing without 
there being physical consequences, military consequences as a 
consequence of failure on the part of Hamas?
    Ambassador Ross. I think there is a high likelihood if they 
see themselves failing, in fact, violence does go up, but I 
would also say their success is likely to produce violence as 
well.
    Senator Biden. Yeah. No, I agree. I mean, I think you two 
guys are among the two brightest, most informed and logical 
analysts that I've ever dealt with in this area, and I mean 
that sincerely. And Dennis, the way you laid it out in terms of 
the questions, the dilemma we face, I've just posed that as 
another dilemma because I think people think failure means OK, 
well, peacefully, we failed, you know, new election, we're 
going to have a democracy. The second question I have is with 
regard to education. I don't know why it doesn't make sense--
and I have great respect for Jim Wolfensohn, but I don't know 
why it doesn't make sense for us to be funding, through NGOs 
and/or through private entities, private business, Palestinian 
businessman, literally going in and building--providing the 
money to build schools. I don't have any problem with this 
separate system. I mean, there is a separate system now, and 
there seems to be no competition. What would be wrong with--
let's assume that even--let's say the Diaspora, I'm making it 
up, came along with $100 million dollars and said we're going 
to build X number of schools on the West Bank that are not 
Hamas schools teaching Jihadist notions?
    Ambassador Ross. I'm in favor of that. I think it's one of 
the things we have to deal with is that Hamas's agenda is to 
Islamicize the society, take over the educational system, build 
on their own educational system they already have.
    Senator Biden. It seems like we tie our hands behind our 
back. I mean, when we met with Abbas, I said why don't you ask 
us specifically for something now, and it's going to sound 
silly, I said why don't you just ask us, tell us how much 
money, to the best you can determine, Hamas is spending to fund 
the college education of Palestinian children and young adults, 
give us the number. And I said something presumptuous, I 
believe I can get you the money, you announce tomorrow--this 
was a year and a half ago, you announce tomorrow from this day 
forward, every single Palestinian in college will have it paid 
for by the Authority, paid for by Abbas. I mean, it seems to me 
we don't give these guys, now the opposition, enough material 
to create a constituency to fight for. Here's my last question 
and I ask both to respond. We saw how Putin responded to NGOs. 
We say we--well, we got a way in, we're going to not deal with 
Hamas. We know we can't funnel everything through Abbas 
directly, so we're going to go through NGOs. Does anybody think 
that Hamas is going to sit there, or are they going to take a 
Putin route and say, whoa, whoa, whoa, whoa, whoa, these NGOs 
are subversive. And maybe the route is through Palestinian 
businessmen. Maybe the route is through the business Diaspora 
that we are able to go in and--I don't know how to do this, 
but, you know, so you have a legitimate entity they can't 
undermine that is not an NGO per se, but that has legitimacy 
with the Palestinian people and actually begin to build through 
the Diaspora, who are not, you know, Hamas. They're my 
concluding questions.
    Mr. Malley. Actually, if I could answer both the first and 
the last question, because I think they're related. Hamas is an 
organization, it's a terrorist organization. It's also a social 
militant organization which is very sensitive to public 
opinion, which is why I think the way we deal with this period 
now will determine whether its failure will be violent or not. 
If they cannot sustain an argument with their public saying we 
failed because there was a plot by the U.S. to make us fail--4 
years from now, they will not be in a position, I think, to be 
able to undo the great advances of Palestinian democracy. 
Again, not compared to ours, but compared to the region, they 
are far ahead of anything else I've seen, and that holds true 
for the NGOs as well. I don't think Hamas will be in a position 
to do a Putin. If, in fact, they don't have the grounds, the 
arguments, which is why I would say--and I think your comment 
is absolutely right, there should be a Palestinian face to 
these NGOs. It should not be viewed as U.S. driven. 
Unfortunately, we don't have the kind of image we would need to 
make that successful. When we were in Palestine observing the 
elections, I was there with President Carter, there was a story 
in the press two days before the elections about money that the 
U.S. apparently had given to the PA. I think there was a lot of 
misinformation, but that was gold for Hamas, because they could 
say--their slogan was the U.S. and Israel don't want Hamas, how 
about you? We have to be careful. I think there are ways to 
work exactly in the way you said, but we have to be mindful 
that the lessons the Palestinian people draw is that their 
Palestinian businessmen, NGOs are trying to build schools--
Hamas will have a hard time stopping that--and that their 
elections and democracy should proceed, and Hamas will have a 
hard time trying to foil that as well.
    Ambassador Ross. I would just add it's very hard for Hamas 
to look like they're going to block what most Palestinians will 
see as being in their interest, number one. Number two, there 
are Palestinian NGOs, there are Palestinian business people, 
especially on the outside, who want to play this role.
    Senator Biden. I agree.
    Ambassador Ross. We want them to be the ones who are out 
there. When I talk about an umbrella of NGOs and maybe new 
faces and maybe a steering committee, you do it with them to 
ensure that it has inherent authenticity and credibility among 
Palestinians.
    Senator Biden. With 30 more seconds, Mr. Chairman, with the 
indulgence of my colleagues, I'm going to say something very 
presumptuous. I think that's a role the two of you could play 
better than we could play and actually, because of the respect 
you have of actually generating an idea, not just an idea, but 
pillars within that to hold that umbrella up. Maybe I'll get a 
chance to talk to you both later about that. I mean, I don't 
pretend to have the answer. I'm not suggesting--I don't want it 
to sound like I know with any certainty where to go on that, 
but I think you're generically right. You've got to provide 
another umbrella here. Thank you.
    Chairman Lugar. Thank you, Senator Biden. Senator Chafee.
    Senator Chafee. Thank you, Mr. Chairman. I agree with 
Senator Biden and your excellent testimony and experiences you 
have in the region. And following up on Senator Lugar's 
question about--it seems to me as though--if you can predict 
what's going to happen, it seems as though Kadima's going to 
win, and unilateral boundaries are going to be set with the, 
from what I understand, the complicity of the United States, 
that they've met with the United States and our government, and 
we're going to agree that, as Ambassador Ross said, there's 
going to be a divorce, but what does that mean? What are those 
boundaries going to look like, and does that preclude, if that 
occurs, a viable, contiguous Palestinian state as the reality 
that once these boundaries are set, there will be no 
Palestinian state? Ambassador Ross?
    Ambassador Ross. You know, I think nothing is going to 
happen immediately. We'll have to see--the Israeli elections 
have to take place. As I said, I think there is a consensus in 
Israel we're likely to see reflected in the election. There 
certainly is the platform of the leading party that emphasizes 
that they want to fix the borders. They've also said that, in 
fact, if there is no Palestinian partner to talk about, then 
they're going to have to go down this route. So, the reality, I 
think, is nothing's going to happen immediately. There--I don't 
believe there is any understanding presently with the U.S. 
Administration on what those boundaries would be. What is 
important is that you're talking about what could be a 
significant withdrawal, and it ought to be governed by some 
criteria. It ought to be governed by a criteria that says as 
long as there is a Palestinian--as long as the Palestinian 
government is led by those who reject the very existence of 
Israel, whatever is worked out would be a political border, not 
necessarily an international border--meaning if the 
Palestinians were prepared to have a government that was 
capable of living up to its responsibilities and prepared to 
live in peace with the Israelis, then you would be in a 
position where you could have a negotiation later on. What is 
done now shouldn't preclude, or what is agreed to, shouldn't 
preclude an agreement eventually, but you can't ask the 
Israelis to say well, we're going to hold our own future 
hostage to those who reject our very existence. So, they're 
going to go ahead, and they're going to try to shape a reality 
that ensures that Israel will exist as a Jewish-Democratic 
state, both in a demographic sense and a security sense. You 
would like to see that happen in a way that also makes it 
possible for there to be a viable two-state solution, but if 
the Israelis don't have someone on the other side who is 
prepared to deal with them, you can't ask them not to, in a 
sense, try to shape their own future.
    Senator Chafee. I----
    Mr. Malley. If I could add----
    Senator Chafee. Yes, I find it difficult, and I don't know 
if you answered the question, to reconcile a--the demographics 
of a Jewish-Democratic state and these unilateral boundaries. 
I--can they both--can that occur?
    Mr. Malley. It depends, Senator----
    Senator Chafee. At the same time, a viable, contiguous 
Palestinian state? It seems to me these anticipated boundaries 
cut deep into the West Bank and divide the West Bank. Am I 
accurate?
    Mr. Malley. I think it depends very much on what the 
boundaries are, and the greatest concern that Palestinians, but 
also many Israelis, and I think it should be ours, is what's 
happening around Jerusalem--in particular, E1, the link with 
the settlement of Maale Adumim. I understand that the Israelis, 
right now, are in a position where they feel they don't have a 
partner on the other side. But if they ever want to be in a 
position where there will be a partner on the other side, and 
that they can achieve a viable two-state solution, I think they 
have to be mindful, I think we all have to be mindful, of steps 
that are taken that preclude that. And as I said, the greatest 
tinderbox, the greatest danger, right now is around Jerusalem, 
which is always the most sensitive for both sides. And I think 
it would behoove us to speak to our Israeli friends, which we 
do frequently, and to tell them candidly when we think that 
steps they are taking, even in this difficult context, should 
not in any way preclude the possibility of a viable two-state 
solution, because we would not be doing the moderates or the 
pragmatists in Palestine, who we want to see someday come back 
to power, any favor.
    Ambassador Ross. I would say, inevitably--I mean, bear in 
mind that no Israeli government, even if it's going to be 
driven by this dynamic, is going to want to reach this 
conclusion on their own without getting understandings from the 
outside. Even if they feel they don't have a Palestinian 
partner to talk to, they're going to--I think they're going to 
negotiate it, in a sense, with us. And in our conversation with 
them, there should be criteria that guide what it is we're 
prepared to sign up to, and the criteria should make it 
possible that there could still be an eventual two-state 
solution. Any step that's taken unilaterally, by definition, 
creates an outcome, it doesn't create a solution. You still 
want a solution down the road.
    Senator Chafee. Thank you very much, Mr. Chairman.
    Chairman Lugar. Thank you, Senator Chafee. Senator Dodd.
    Senator Dodd. Thank you, Mr. Chairman, and thanks for 
having these hearings. I apologize for arriving a little late 
with the conflicts of other committee meetings and so forth 
that I'm--so I'm sorry I missed hearing Jim Wolfensohn, but 
once again, welcome, both of you, and we've listened to you for 
many years here on this committee on these issues. And clearly, 
the elections of Hamas has thrown a major monkey wrench into 
all of this effort. Let me ask you quickly first, because I'm--
and you may have addressed this. If you've already addressed it 
in earlier questions, then I apologize and--but I'm under the 
impression that it isn't quite as clear that the election of 
Hamas was overwhelmingly caused by a rejection of the peace 
process, that there are those who believe that maybe the major 
reason why Hamas did as well as it did was--Tip O'Neill's old 
admonition, politics is local, and the fact that they were 
pretty good at delivering services, seen as non-corrupt, cared 
about education, did a lot of things that just average voters 
can relate to in places and saw this as the alternative. First 
of all, do you agree with that? Is that--would you just address 
quickly that point? Am I exaggerating the influence of that 
element in the outcome of the elections, or is it--yeah, either 
one of you want to----
    Ambassador Ross. I'll start. Robert can follow on. I think 
there is no question that was the overriding reason that 
Palestinians voted the way they did. I think it was a case of 
all politics being local, but I think it was also a case of 
Hamas being extremely well organized. They use, in a sense, the 
structure they had developed, actually, for carrying out 
terror, small cells extremely well organized in local areas to 
be quite effective politically.
    I also think, though, there was a perception on the part of 
Palestinians that they didn't lose a lot by voting for Hamas. 
Yes, they were angry at Fatah. Yes, they thought that this was 
a leadership and, in a sense, a party that was completely 
divorced from them and their needs. They were corrupt. They 
cared only about dividing the spoils among themselves, not at 
all about the Palestinian public. They didn't provide services. 
They weren't responsive. And in a sense, they needed to be 
taught a lesson. And Hamas knew how to play upon that 
sentiment, but I think they knew who Hamas was. It wasn't as 
if--Palestinians are not uninformed. Palestinians were not 
unaware of who Hamas was. They knew who Hamas was in terms of 
their attitudes towards Israel, and they made a judgment that, 
in the end, that they didn't lose a lot by doing this. So, I 
think both factors are important even though I think what you 
described was the overriding factor.
    Senator Dodd. And in fact, may have gained because if you 
go--if the question is I'm going to get a less corrupt 
government that's going to be able to deliver services better 
to me, then, in fact, that's a win.
    Ambassador Ross. Right, but also Hamas claimed they were 
responsible for the Israeli withdrawal from Gaza. So, they, you 
know, they said our violence has produced--I mean, it's--it 
is--yes, they thought they were going to gain. Yes, they were 
angry. Yes, they were voting their anger probably more than 
anything else. But I think we shouldn't be patronizing in our 
attitudes towards Palestinians to feel that somehow they 
didn't--they were completely unaware of who Hamas was.
    Senator Dodd. No, no, I didn't mean to suggest that at all. 
I don't want to spend a lot of time on this. Do you disagree 
with Ambassador Ross?
    Mr. Malley. One word, because you asked whether it was a 
rejection of the peace process. If anything, it was a rejection 
of the absence of the peace process, a rejection of the failure 
of the peace process. There had been no peace process for the 
last 5 years. So, I think there was both the local politics, 
the fact that there was no peace process to talk about and the 
fact that the Palestinians had felt, in a way, humiliated over 
the years, and a vote for Hamas was their way of avenging all 
their humiliations over the past years.
    Senator Dodd. This gets to the point I want to try and 
make. I listen to you go through and talk about a changed 
Hamas--and I'm certainly not opposed to maintaining the lines 
of humanitarian aid--but we're talking here about a terrorist 
organization responsible for the deaths of literally dozens and 
dozens, thousands of people possibly. You know, the idea that 
somehow Hamas is going to go through some major change, I think 
is terribly naive on this front. Maybe changes will occur 
within the structure in the time to come, but I think it's sort 
of naive. And the idea that we're going to fund money into 
Fatah or to a government that's already pretty corrupt, and 
somehow that's going to win over some people I think is also 
somewhat naive. Again, I'm not opposed to having some structure 
in place, but I'd be reluctant to see us sort of subsidizing an 
operation that, frankly, contributed to Hamas's victory in 
part, as you both testified. And I'm wondering if, in fact, the 
one subject matter that didn't--maybe did not play as big a 
role here is one that we ought to be paying more attention to, 
and that is that, in fact, the election of Hamas has, in fact, 
jeopardized the peace process. I don't disagree with the point 
made by Mr. Malley that, in fact, that the absence of a peace 
process may have contributed to it. But instead of sort of 
hoping and praying that Hamas is going to have a conversion on 
the road to Damascus, to use a religious terminology here, why 
aren't we better suited here to really sort of go after the 
point that as long as Hamas is there, the likelihood of 
bringing peace and stability to the Palestinian people and the 
hope for a future is less likely to occur, and so to appeal the 
Palestinians on the very issue that Hamas seemed, at least in 
part, to want to suppress as a rationale for them being chosen 
to lead the government at this point?
    Mr. Malley. You know, I think that point would have 
resonance if the Palestinians somehow believed that had they 
voted for Fatah, there would have been a peace process. So, I'm 
not sure the lesson--even though I understand the logic, I 
don't think that Palestinians are going to understand it and 
say, my God, there's no peace process anymore because they had 
none.
    Senator Dodd. You got to work at this. I'm not suggesting 
it happens miraculously.
    Mr. Malley. No, no, no, no, I understand, but that was my 
second point, which is if we go down this road, we need to be 
prepared to make it clear what kind of peace process we would 
be pursuing if, in fact, the Palestinians changed their 
leadership, and then we need to act on it. Unfortunately, the 
experience over the last few years doesn't inspire much 
confidence among Palestinians, but if we're prepared to say--if 
we're prepared to go down this road, which I think has other 
risks, but if we're going to say, you know, if you want a peace 
process, then you need to change.
    Senator Dodd. Yeah.
    Mr. Malley. Then we need to make it clear what the peace 
process will be that will be more effective than the one 
they've seen so far.
    Senator Dodd. I don't disagree with that----
    Mr. Malley. OK.
    Senator Dodd [continuing]. But it seems to me there's a 
greater likelihood, in my mind, to success following that road 
than hoping somehow Hamas is going to fundamentally change.
    Mr. Malley. I think I share your pessimism but I don't--I 
wouldn't exclude totally the possibility of Hamas changing. 
We've seen stranger things, not much stranger, but stranger 
things of organizations that, faced with the constraints of 
government and with the need to attend to their constituents, 
have had to change, but I think it's worth testing with all the 
pessimism and skepticism you express.
    Senator Dodd. You are tremendously knowledgeable, both of 
you, and it's very very worthwhile to hear you. I appreciate it 
very much. Thanks, Mr. Chairman.
    Chairman Lugar. Thank you, Senator Dodd.
    Ambassador Ross. Could I just--could I just add on the last 
point? I have very low expectations that Hamas is going to 
change. I agree it would be worthwhile to see if they would. I 
do think there is some potential they could split, and that too 
could be of some benefit. But I think it's highly unlikely. The 
core of Hamas believes fundamentally with enormous fervor in 
their doctrine. And to think that that's going to--that they're 
going to change, I think it's highly unlikely.
    Senator Dodd. That's--and again, just the point, I just 
don't--you know, I happen to believe, and I think the point was 
made by someone earlier, and I don't disagree that I think the 
notion somehow the democracy could never take root in this part 
of the world is patronizing at best, and I also believe we 
haven't more aggressively addressed the issue of peace and 
security and opportunity, and that there are those elements who 
are working in just the opposite direction. And we're not 
banging that issue home hard enough within the Arab world, and 
I think we ought to take that issue head on, because I happen 
to believe in the final analysis, those very people who are 
voted for Hamas this time around, when they begin to think 
about the argument they'll decide well--more likely to change 
on that point than the issue that they're going to fail because 
they failed to provide the benefits that people have seen them 
provide up to them. Thanks.
    Chairman Lugar. Thank you, Senator Dodd. Senator Sununu.
    Senator Sununu. Thank you, Mr. Chairman. I recognize that 
Senator Biden had to depart given the time, but I did want to 
address some comments he made, knowing full well he, given our 
relationship, he'll take every opportunity to respond, but I 
think it's important to address for the record. He raised the 
notion of providing direct assistance to private sector 
entities operating in Gaza or the West Bank. I don't know if 
that's a good idea or not. I think it's worth discussing, and I 
certainly think that we ought to provide the kind of 
flexibility for the State Department that would enable them to 
look at these options, but I--it is somewhat contradictory and, 
I think, worth making clear for the record that Senator Biden 
has introduced legislation that would specifically prohibit 
that kind of activity. And more generally, it would restrict 
the State Department from working with the kind of flexibility 
required to address some of the ideas presented by Mr. 
Wolfensohn, certainly to address some of the ideas presented by 
Mr. Ross as well. And so, I want to begin by having you expand 
a little bit on one of those ideas, which would require some 
creative thought. You mention in your testimony the idea of 
addressing humanitarian categories, defining humanitarian 
categories, perhaps to include workers in the fields of health 
or education. Could you talk generally about what that might 
involve, ways, approaches, that might be considered for that 
kind of a flexible system?
    Ambassador Ross. Yeah, what I was getting at, I mean, 
there's--I think we have to take a look. When you break down 
the Palestinian budget, and you see how much is going just for 
salaries, and you see the consequence of what might be vast 
unemployment, I was looking for ways to try to be creative in 
terms of taking the humanitarian category and expanding it so 
it includes categories of some employment. The question is, you 
know, what's the mechanism for getting the money there, and I 
was looking at what might be one of two possibilities. One 
possibility is whether you do it through the office of the 
Presidency, assuming the Presidency is transparent enough and 
has the kind of implementing mechanisms which it doesn't have 
today to be able to do that.
    I wouldn't do it without those conditions being met, number 
one. The other is whether you can do it through private means. 
The other, the third, might be whether you are doing it with 
some kind of waiver that allows you to deal with the 
government, but the government in a way that it would be 
consistent with legislation here so that the Administration is 
given sufficient flexibility to explore mechanisms that might 
not even exist today. Here, I think I'm probably echoing what 
Jim Wolfensohn was saying. I wouldn't want to be in a position 
where you come up with something that's creative that doesn't 
deal with Hamas, doesn't deal with Hamas officials. And I 
realize this is going to be complicated because what happens if 
the head of the education ministry is a member of Hamas? You're 
not going to want to deal with that person. If you're doing it 
through an NGO, the NGO's going to probably have to deal with 
that ministry. If we're trying to get money to people who are 
employed by them, we will have to have some way to do that, and 
I wouldn't want to be in a position where the legislation makes 
that impossible. I don't have a problem with legislation that 
spells out the kinds of principles that are even in the 
legislation as long as you build in a waiver that gives the 
Administration the flexibility to be able to come up with 
something that is creative.
    Senator Sununu. One of the other restrictions that's in the 
legislation is a restriction, additional restrictions, new 
restrictions, on visas that would apply to all the members of 
the PLC. Do you think that that sends a good message to 
independent party members like Salam Fayad? And more 
practically, do you that's helpful to the work that you or Mr. 
Wolfensohn or Mr. Malley are trying to do to strengthen civil 
society in democratic institutions outside of the Hamas 
government?
    Ambassador Ross. I certainly wouldn't want to be in a 
position where the very people that we would want to be working 
with who have credibility in Palestinian circumstances and who 
fit the general principle I was establishing--I would have a 
principle--as I said, anyone who is committed to peaceful 
coexistence with Israel and rejects violence as a means to 
pursue Palestinian aspirations ought to be someone acceptable 
for us to work with. Certainly, Salam Fayad would fit that 
category. I know very few people who wouldn't feel that he 
would fit that category, and I wouldn't want someone like that 
to be precluded from being able to come here.
    Senator Sununu. Mr. Malley, yet another set of restrictions 
are on the PLO mission, the PLO mission in Washington, the PLO 
mission in New York. I think, as you fully understand, Hamas is 
not a member of the PLO. Do you see either a security value or 
a diplomatic value to placing additional restrictions on those 
missions just at a time when we're trying to maximize the value 
of discussions of people, again, outside of the government or 
outside of Hamas and the new government?
    Mr. Malley. No, I think you're right. There seems to have 
been some confusion about the PLO and the PA. I mean, the PLO 
has not changed any of its--I mean, it's still led by Fatah, by 
Mahmoud Abbas. I don't think that we should be thinking of 
restrictions at this point applying to them. More generally, on 
the issue of legislation, I think you are raising the point 
about constraining the hand of the Executive too much, I think 
Jim Wolfensohn made a very articulate and very strong case 
about why, particularly at a time of flux, we want to be 
careful not to hinder the ability of the Executive Branch, to 
do things in any event, at this point the Executive's actions 
seem to be very consistent with the sentiment I'm hearing from 
members of this committee and from the Congress as a whole, 
which is not to fund or deal with Hamas. I don't think that we 
should have much to fear on that score from the Administration. 
So, I understand the impetus to write legislation and 
sometimes, to counter more harmful legislation, but I think we 
need to bear that in mind.
    My understanding of Senator Biden's legislation was not 
that it would bar these kinds of activities. I thought, in 
fact, he was quite favorable to democracy promotion and other 
types, but you probably would know better. But I think that we 
do need to, in any event, regardless of the legislation that 
comes out, be careful to allow flexibility for the Executive, 
for the State Department and the White House, to try to remain 
present and active on the humanitarian scene among 
Palestinians.
    Senator Sununu. I appreciate your response. And to be 
clear, yes, the legislation does allow funding to flow to 
democracy-building organizations, but it would (1) prohibit the 
kind of private-sector solution he suggested or implied that he 
might endorse. It does specifically prohibit that, and it 
states that a visa shall be denied to members of the 
Palestinian Legislative Council regardless of their independent 
affiliation, regardless of what work they've done in the past, 
as in the case of Mr. Fayad, and it also creates additional 
restrictions, new restrictions, on the PLO mission in 
Washington and the U.N. even though Hamas is neither a member 
nor exerts any control over the PLO mission, as you described.
    So, I think there are a lot of issues we need to look at 
and to work on. It's going to take a lot of creativity and the 
kind of flexibility and foresight described by you, by Mr. Ross 
and by Mr. Wolfensohn, but I think it's important that we 
underscore the need for that flexibility and not try to craft 
into legislation restrictions that would prevent us from then 
implementing a solution that we saw as worthwhile, controllable 
and divorced from the influence of Hamas, which has been 
designated a terrorist organization and which, therefore and 
rightly so, is prevented from receiving any kind of direct 
assistance or aid as it well should be. Thank you, Mr. 
Chairman.
    Chairman Lugar. Thank you, Senator Sununu. May I ask you, 
Senator, to chair the meeting to the conclusion of the hearing, 
if you can, for a few minutes. I'm obligated because the 
majority leader's unable to greet the distinguished President 
of Liberia. And so, I will move to that responsibility, but 
with thanks to both of you for extraordinary testimony. We 
appreciate so much your coming to our committee, and we thank 
you again and hope that you will be back. And Senator Dodd has 
an additional question for you.
    Senator Dodd. I'll be brief, and I won't hold you up here. 
And of course, if you want to let me take over the committee--
--
    [Laughter.]
    Senator Dodd [continuing]. No telling what might happen 
here with a Democrat running the show here. I'll try and be 
brief, and let me thank Mr. Malley as well. I think the 
legislation that Senator Biden has introduced, and certainly 
Senator Sununu has strong views in the matter, but I think the 
legislation is a lot more nuanced and does allow for a lot more 
flexibility, and it was suggested, but that's not the point I 
wanted to make. I want to raise the issue with Russia. I gather 
this hasn't come up, but it sort of stunned everyone when Putin 
invites Hamas to come to Moscow. And while he didn't meet with 
Hamas himself, his foreign minister did. We had the benefit of 
listening to the foreign minister here a week or so ago at a 
coffee, and the issue came up, and he sort of dismissed it as 
not being terribly important, but it seemed a lot more 
important to me that this member of The Quartet, here working 
on issues, that would all of a sudden invite an organization 
that has been declared by the European Union, the United States 
and everyone else as being a terrorist organization flat out, 
with plenty of evidence to support that conclusion, would all 
of a sudden invite this organization to come to Moscow in a 
very official status after its election. I wonder if you might 
just give us how you analyze this, and is it--through the lens, 
is this Russia trying to reassert its position in Middle 
Eastern politics, curry favor within the Arab world? What's 
going on here? This wasn't a, in my view, just sort of a 
coincidence. It was obviously well though out, I presume. 
What's going on here, and should we be concerned about it? Is 
it taking us in a direction we ought to be paying more 
attention to?
    Ambassador Ross. Yes, I think I was very troubled by it. 
First, when Hamas won the election, President Putin was quick 
to come out and declare that this was a failure for American 
policy in the Middle East. So, not exactly the kind of 
statement that a good friend normally rushes out to make, and 
the Russians are a part of The Quartet. They agreed to the 
conditions for recognition, and they're the first ones to 
defect by inviting them to there. As soon as they send the 
message, and even if they say well, we were tough in the 
meeting, the meeting was the message, because Hamas's position 
is the world is going to adjust to us, not that we have to 
adjust to the world. So, when Russia does this, and the net 
effect of Russia doing it, and Russia--had the foreign minister 
come out at the end of the meeting and said we conveyed a tough 
message, we told them they have to meet these conditions, and 
we're not going to have any more meetings until they do, you 
could say OK, well, this was a way of reinforcing The Quartet's 
message. They didn't say that. They had them there for 3 days. 
And at the end of the 3 days, the message from them was this is 
a process, implying they're going to continue to meet with 
them. So, I think (a) it should be a source of your concern; 
(b) an answer to your question of what's going on. I think the 
Russians, in a lot of different ways, are trying to demonstrate 
not only a kind of independence, but also a continuing role on 
the world stage. And I think if they want to play a role in the 
world stage, which is understandable, and Russia obviously is a 
very significant country, if they want to do that, that's fine. 
But if they want to be a member of The Quartet, then they can't 
do it as a member of The Quartet. If they want to remain as a 
member of The Quartet, then they really have to stick to what 
are the terms of The Quartet. I would like to have seen, and I 
understand there may be other considerations and other 
equities, but at a time when Russia wants to strike out on its 
own, if it's going to do that in a way that raises a profound 
cost to what we're collectively trying to do, there should be 
some consequence when they do it.
    Mr. Malley. Yes, I think I will give two answers to your 
question. First, I think Russia is developing its own strategy 
in the Middle East. It sees opportunities in Iran, it sees 
opportunities in Palestine, and I think we should be aware of 
it and understand it and see what to do about it. I do have to 
add, though, on the question of other countries talking to 
Hamas--and as I said, I don't think we should. I don't think we 
should engage with them until they meet the conditions. But if 
you at least suspend disbelief for a minute and to contemplate 
the possibility that they may evolve, and I, as I said, however 
skeptical, I think it's worth giving it a chance, then somebody 
needs to talk to them. We learned it with the PLO. We learned 
it with the IRA. All of these cases took time. I'm not saying 
this is an identical case. But if nobody with weight is talking 
to them and telling them what they need to do in order to get 
whatever benefits they're looking for, I think we're going to 
be stuck in this position. I'm not sure how we're going to come 
out of it ahead because of what I said in the opening, which is 
that I don't think the Palestinian people will take from this 
the lesson that they need to vote for those who got them here 
in the first place--in the situation they're in in the first 
place, which is Fatah. So, I--you know, why Russia's doing it 
is one issue, but the principle that other countries--like 
Egypt, like Jordan, like Saudi Arabia, like Turkey--may want to 
engage, that I don't think we should be taking the stance that 
everyone should be boycotting them because otherwise, we are 
condemning ourselves to the failure that we're predicting, 
which is that Hamas won't change, but I think----
    Senator Dodd. Do you disagree with Dennis's observation, 
though, that--is it--the world is going to come to us and 
accept us, or that we're going to have to change our stripes 
here? What is the--what is--I mean, it seems to me that's--if 
your goal that you stated earlier was that Hamas was going to 
change, it seems to me the message has to be pretty clear and 
universal that major countries are going to sort of create a 
status for them that leaves the appearance that they don't 
really have to change that much. Doesn't that exactly run 
directly contrary to your earlier statements about what you'd 
have heard?
    Mr. Malley. What I said in my statement is I think we need 
to--we have our own principles. I think that other countries 
should have the same general principle, but I would be in favor 
of a more nuanced approach by others if, in fact, we're seeing 
a process of change of Hamas. Hamas is not going to, in the 
next months, perhaps a year, even in the best scenario, is not 
going to decide that it recognizes Israel's right to exist as a 
Jewish state and renounce violence. But I am hoping for other 
signs of change, as I explained earlier, and Dennis echoed some 
of them, and I think those are the kind of changes that 
countries like Egypt and Jordan and Russia and others--may be 
able to extract from Hamas. I don't think it's inconsistent. 
What Hamas really needs now is not a meeting with Putin, which 
they didn't even get, they need money, and the big prize for 
them is international legitimacy, which only we can give them.
    Senator Dodd. Hasn't Iran basically promised the money 
already anyway?
    Mr. Malley. Number one, they promised--I don't think, and 
as Jim Wolfensohn and others have said, I don't think there's 
any evidence either that they are doing it or that they even 
have the financial capacity to really make up for the 
shortfall. I'd also say on this, from Hamas's perspective, 
being seen as in bed with Iran, a Shiite country at a time of 
rising tensions between Sunnis and Shiites within the region is 
not very appealing. They do not want to be seen by their own 
constituents, by the Muslim brotherhood of which they are a 
part, by Egypt or Jordan on whom they depend in some ways 
politically, to be in league with Iran. So, I think that that's 
not--that may become a self-fulfilling prophecy, but I don't 
think that's where they are going to naturally go, and I think 
we want to do everything we can so that they don't go in that 
direction.
    Ambassador Ross. Although I'd just add that, here again, is 
some of the areas where you see there is some split between the 
internal Hamas and the external Hamas. The external Hamas, 
especially based in Damascus, is, in fact, quite close to Iran. 
Khaled Mashal went to Iran before the election to request 
moneys to match what Iran was giving to Hamas and giving to 
Hisbolah, and then he went again after the election. So, they 
don't have that same kind of hesitancy, although I think this 
is one of the areas where there's a potential fissure within 
Hamas, number one. And just on this more general point, I think 
it's--I reiterate the point I was making on the Russians, and I 
would say generally, at a time when Hamas wants to demonstrate, 
and they're trying to tell their own people things will be OK 
and--because there is a degree of nervousness that you feel 
among Palestinians right now about the estrangement of Hamas 
from the international community. The last thing you want to do 
is give a level of reassurance. They haven't changed anything 
yet, and there's already some reaching out to them.
    Senator Dodd. Yeah. Thanks very much. John, thank you very 
much for coming out.
    Senator Sununu [presiding]. Thank you, Senator Dodd. Thank 
you, gentlemen. The hearing is adjourned.

    [Whereupon at 12:00 p.m., the hearing was adjourned]
  

                                  
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