House of COMMONS










Tuesday 20 May 2008




Evidence heard in Public Questions 61 - 108





This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.



The transcript is an approved formal record of these proceedings. It will be printed in due course.


Oral Evidence

Taken before the International Development Committee

on Tuesday 20 May 2008

Members present

Malcolm Bruce, in the chair

John Battle

Hugh Bayley

Richard Burden

Daniel Kawczynski

Ann McKechin

Jim Sheridan

Mr Marsha Singh

Sir Robert Smith


Memorandum submitted by the Department for International Development

Examination of Witnesses

Witnesses: Rt Hon Douglas Alexander MP, Secretary of State for International Development, and Mr Michael Anderson, Head, Iraq and Middle East Group, Department for International Development; Mr John Jenkins, Director, Middle East and North Africa Directorate, Foreign and Commonwealth Office, gave evidence.

Q61 Chairman: Secretary of State and colleagues, thank you very much for coming to give evidence to us on our brief update inquiry on the situation in the occupied territories of Palestine. We produced a report about 18 months ago and we are now conducting a London-based inquiry to try to bring ourselves up to speed with how things have developed. A good number of things have happened since. For the record, perhaps you would introduce your team.

Mr Alexander: It is a pleasure to be before the International Development Committee. To introduce my colleagues, John Jenkins is head of Middle East and North Africa Directorate in the Foreign and Commonwealth Office. Given the interrelationship of aid and the peace process it seemed appropriate to be supported by a colleague from the FCO. Michael Anderson is head of the Iraq and Middle East Group within the Department for International Development. With the Committee's permission, I propose to bring in both of my co‑witnesses at the appropriate stage.

Q62 Chairman: Thank you for putting that on the record. We had evidence from John Ging[1] via a video link direct from Gaza. He gave pretty stark and shocking evidence about the situation on the ground. He said it was a shameful situation and there was real suffering. He quoted statistics in relation to the numbers killed. He reported that 334 Palestinians had been killed and 756 injured in Gaza since the beginning of 2008. These figures included 60 children killed and 175 injured. He gave a catalogue of disruption and a shortage of food and fuel supplies. Even those who were dependent on the UN for food distribution did not get it for a period because it was unable to provide it. Perhaps I may start by asking you for your department's assessment of the humanitarian impact of the closure of the crossings and the effective isolation of the people in Gaza. Obviously, we are aware of the fact that you, Tony Blair and others have made calls for the crossings to be opened and relaxed and to allow in supplies, but what have been the results of that? How bad is the situation from the department's point of view, and what effect is its engagement having on improving the situation and creating access to essential supplies?

Mr Alexander: In preparing for this meeting of the Committee obviously I familiarised myself with the evidence of my immediate predecessor Hilary Benn in the session that gave rise to your previous report on the situation. If I correctly recollect, he described the situation as pretty grim. In that sense I am afraid that I come before the Committee with equally dispiriting news in terms of the humanitarian situation. To take the relevant parts of your question, first, we are seriously concerned about the humanitarian situation about which I will say a word and then move on to the issue of movement and access. The indicators available to us, the principal sources of which are both OCHA[2] and other UN agencies within Gaza, paint a very bleak picture. Ninety per cent of the water is polluted and over one million Gazans are dependent on some form of food aid. To take a couple of other statistics to put into context our discussion, there is a prevalence of anaemia in children aged nine to 12 months which has risen from 67.8 per cent in January 2007 to 69 per cent in August 2007. In the year to 2007 diarrhoea among children has increased by 20 per cent. Twenty to 30 per cent of wells do not work properly due to power cuts and fuel shortages, and 60 million tons of raw and partially treated sewage flows into the Mediterranean every day. Food prices, which is a source of concern and discussion far beyond the boundaries of Gaza, have increased by 17 per cent in the year to March 2008, and 76 per cent of Gazans - over one million people - are in part dependent on food aid. As to the related point raised in your first question, we judge the partial closure of the Gaza closings since Israel declared Gaza a hostile entity in September 2007 in response to the Qassam rocket attacks to be the principal cause of the deterioration, although other factors, including the ongoing violence, have contributed to the deterioration that I have described. Not only do the shortages cause difficulties in terms of humanitarian supplies accessing Gaza and the population therein but they also at a very basic level increase the costs of the efforts of agencies like the World Food Programme (WFP) to deliver aid. The WFP has calculated that additional cost created by Israel's food clearance procedures will reach $6 million in 2008/09 alone. Health infrastructure and equipment are deteriorating or breaking down, not least as a result of frequent power cuts and surges which damage dialysis equipment. To deal specifically with fuel before I come to the efforts we have been making, that situation came to a head last April when a militant attack on the Nahal Oz fuel pipeline closed fuel supplies. That was temporarily stopped. That was exacerbated by a prolonged strike by the Association of Gas Distributors in Gaza. Supplies of ordinary fuel and cooking gas are therefore severely limited. Reports in mid-April stated that 12 per cent of Ministry of Health staff were reporting late to work due to lack of transport and fuel cuts also shut Gaza's main power plant from 10 to 11 May. The cuts have left humanitarian agencies working within Gaza with little or no fuel. UNRWA's operations were suspended for several days at the end of April. Some fuel and gas are now flowing again but supply does not meet the manifest needs and could be cut off at any time. In terms of the response of the British Government I will say a word about the Quartet envoy in a moment. I can assure the Committee that we continue to raise directly with the Government of Israel the concerns reflective of the situation on the ground both in private and public. I and the Foreign Secretary David Miliband have issued three public statements on 11 and 21 January and 8 February specifically related to the humanitarian situation in Gaza and the issue of movement and access that you describe. I can assure you that in addition to those public comments these are matters we continue to press directly with the Israeli authorities. In relation to the actions of the Quartet, I last spoke directly to Tony Blair when he was here at the curtain-raising event for the Palestinian Investment Conference, to which I will travel in a few hours' time. Again, both in his contribution to the AHLC[3] meeting that took place in Lancaster House and in private conversation it was equally clear that he continues to press the Israeli Government on the issue of movement and access.

Q63 Chairman: Thank you for that update. John Ging's written evidence provided some of the information you have just given as well as his own impression of it. The particular point he made was that this was not a stage-managed crisis. There have been some suggestions that it has been blown up. He said: "It is a reality for Gaza's 1.5 million residents." When you look at proportionality, everybody understands that Israel is under severe pressure from rocket attacks on civilians and that causes a great deal of concern, fear and anger within Israel. Nobody underestimates the fact that whilst these rockets are not very well directed and do not hit many people they terrify an awful lot of the population, but the casualties and disruption in Gaza are extremely severe. The reality is that unless the crossings are opened and people can get goods and supplies in and out the situation moves pretty close to crisis. The impression one gets is that Israel will stop short of starving people out but pretty well up to that point almost everything else can be restricted. How could UK pressure turn round that situation? We are not talking about somewhere that is cut off from the world in the sense it is remote; it is next to a highly developed economy and there are supplies people need very close by but they just cannot get through. What is the effect of pressure by the UK and the international community to provide a means of delivering that? John Ging also made the point that the restriction on supplies into Gaza had severely affected the humanitarian condition but it had not stopped the rockets; in other words, the two do not seem to be connected. What can we do to improve that situation?

Mr Alexander: Clearly, we look to Hamas within Gaza in terms of the rocket attacks that continue to afflict Sderot in the southern part of Israel to take what action is within its power to end them. As to what action we can take, we continue to fund UNRWA and other humanitarian agencies amidst all the difficulties that your evidence clearly manifests. We continue to work the political and diplomatic tracks to try to effect change, but this is part of a broader peace process. I should also mention that in the recent discussions between Gordon Brown and Prime Minister Olmert of Israel this was one of the issues discussed. It was also a key message in what was quite a strong statement from the Quartet during its meeting that took place simultaneously with the Ad Hoc Liaison Committee just a couple of weeks ago in London. We continue to press the case for a UN access cell which we regard as a practical means by which we can secure the humanitarian access required by Gaza.

Mr Anderson: The humanitarian access cell is a very practical measure. We are looking to fund up to 800,000 to provide seven plus one UN officials to be on call 24 hours a day, to anticipate when people will need to use the crossings and to make sure that liaison with Israelis is effective, proactive and done in advance so that people can get through. We were particularly concerned about the benefits this could have for emergency medical cases where in the past people have been stuck at places like Erez unable to get across and unable to receive treatment. We are doing two things. On the one hand, we are pursuing the diplomatic front on a regular basis; there is routine discussion with the Israeli Defence Force to ensure they are doing everything they can to open up. On the other hand, we are taking very practical measures to try to facilitate movement and ensure that the relief effort is not impeded.

Q64 Chairman: Was that decision taken at the meeting in London on 2 May?

Mr Alexander: You can appreciate how frustrating it is given the scale of effort we are making in terms of both the humanitarian response and the political input. There is no direct correlation between British effort and results on the ground. In that sense it is important that we continue to work with our international partners. Perhaps Mr Jenkins can say a word about the continuing work with the UN, the Quartet and others to press the case for change on the ground.

Mr Jenkins: I was Consul General in Jerusalem for nearly four years. To have a practical impact on the ground there needs to be a collective international response, in particular through the UN which with UNRWA has the most significant international presence in Gaza and the EU which has the most significant level of donor funding available, together with other willing donors including regional partners like Egypt which has a major role to play in the southern Rafah crossing. That aspect is critical. The access cell is one aspect of the work that the UN has been trying to do on the crossing points. I think it has been very creative in thinking about how to link up humanitarian access issues with security issues which are also critical to Israel. That is the lever by which you will get these things open in the end. General Dayton, the US Security Co-ordinator, is involved in this as well along with General Jones and we are also providing support to them. We have been working very hard with them for a long time to come up with practical plans to get these crossings open. It is all linked together in that way.

Mr Alexander: In no way wishing to diminish the issue of movement and access and the powerful evidence you have already received, I should like to make clear that we are continuing to get aid into Gaza. For the record it is worth giving a sense of the continuing efforts we are making despite the very severe restraints under which we are working. In 2008/09 we have given 17 million to UNRWA which will help provide health education and other services, given that 70 per cent of Gazans are designated as refugees. We would expect to provide a further 2 million to UNRWA based on performance. The UK's contributions to the Commission's PEGASE mechanism also helped to provide allowances to 77,000 key workers such as doctors, nurses and also engineers engaged in Gaza power supply. As a department we have also given 2 million humanitarian support for Gaza and the West Bank through the ICRC[4] as recently as March, and as late as last year DFID provided 3 million to help pay debts for the Palestinian Authority with the private sector which benefited firms within Gaza. We are continuing to press the case for the provision of humanitarian support, but, as Mr Jenkins' comments reflected, none of us would deny the inter-relationship between the political process and the ability to achieve the scale of change on the ground we would like to see.

Q65 Chairman: All I would say is that the evidence we have both in writing and verbally from John Ging reinforced the point he made that vital public services are in a pathetic state. He gave detailed, horrific descriptions verbally as well as in writing. There was one comment - which was perfectly understandable - from an Israeli source saying that Israel was being attacked with rockets while normal life carried on in Gaza. What is described by UNRWA is not normal life under any circumstances that would be tolerable. I take it you accept that.

Mr Alexander: If one looks at the deterioration in the economy in Gaza - never mind the public services you describe - the situation is far from normal. We are seized of both the urgency and importance of trying to find a way through very challenging political circumstances.

Q66 Richard Burden: Perhaps I may seek further clarification on what is happening as regards the crossings, in particular the discussions with the UN which you say are proceeding in a cautiously optimistic direction. What confidence can we have that that is likely to be different from the saga of EU monitors at Rafah? The EU monitors were there to observe that everything that happened at the Rafah crossing was above board but half the time they could not get to that crossing because the Israelis stopped them and, therefore, the crossing was shut. Why should this system not be equally entirely dependent on the grace and favour of Israel as the Rafah crossing?

Mr Anderson: There is absolutely no doubt that the effectiveness of crossings with the UN access cell or any other initiative will depend on the goodwill of the Israeli authorities because they regard their vital security interests as being at stake. That will continue to be the reality, so the key to success is building the confidence of the Israelis that their security concerns are being taken into account. There is an important difference between the UN access cell and the EUBAM[5] mission in Rafah. The EUBAM mission was there to do some monitoring of a crossing that was controlled by other people, so it was to provide overall assurances. A lot of the obstructive actions taken on EUBAM had to do with the Israeli position in respect of Corporal Shalit. It was clearly the case that if we had had some kind of agreement for Corporal Shalit to be released we would have had much better co‑operation from the Israelis on EUBAM. That kind of political reality will remain the situation in Gaza. If we are concerned about making a real impact on the dire humanitarian situation in Gaza we need to accept that reality and work very closely with the Israelis to ensure that they have the confidence to open up the crossings. In terms of ultimate confidence in whether the access cell will possibly be frustrated, of course it will be frustrated sometimes, but that is the reality in which we are working. What we can do is make sure that what we do is as professional, efficient and proactive as possible and so give the Palestinians the best possible chance of making crossings in these circumstances.

Mr Jenkins: I should like to make one point about EUBAM and the monitors at Rafah. I was there when we did the deal. I thought EUBAM worked pretty well. There were interruptions which as time went on increased; it became patchier, but it did get that crossing open and effectively kept it open until June of last year. I believed that it was quite a creative response and an unusual one in the sense that it was the first example of which I am aware in the Middle East where there was acceptance by the Israelis of a third party doing some sort of monitoring on their behalf at a border which mattered to them. In a minor way that was something of a breakthrough. What affected EUBAM were developments on the ground in Gaza in June 2007, but it could have continued. It was the one bit of the agreement on movement and access which lasted and worked.

Q67 Richard Burden: Perhaps you could talk briefly about Karni specifically and what is happening there. The reports are that it is closed most of the time. One hopes that the kind of initiatives you have talked about will help. For the record, in your view what is it that stops Karni being opened? Is there a security concern around Karni as opposed to concern in relation to something else, for example Corporal Shalit, that stops it being opened? If so, what is that security concern?

Mr Jenkins: The Israelis have had security concerns about Karni for a long time. I think there were a number of attacks, one actual and one or maybe two abortive attacks, on Karni back in 2006 when I was there. A large part of what General Dayton was trying to do at the time was develop a kind of cordon sanitaire arrangement at Karni which would stop these attacks. The attacks we saw at Karni then were analogous to the attack on the Nahal Oz crossing in the sense there were people within Gaza who wanted to interrupt the operation of those two interlinked crossings. It goes back to the centrality of security as an issue in unlocking this conundrum. What do you do about access and crossings? You need to get that right to make the crossings function on a sustainable basis. At Rafah security did not work. You need some sort of regime that makes security work for everybody. The Israelis would say that they do not have that assurance yet about Karni. I know it is something that General Dayton has focused on for something over a year.

Q68 Richard Burden: But Israel and nobody else controls Karni; it decides whether it is open or closed. If there is anything to be checked going through Karni they will do it for their own security reasons. They have in practice created a cordon sanitaire around Karni anyway. Given all that, what more could be done to resolve their security concerns; or is it just a matter of saying that some time in the future somebody somewhere might attack Karni? That is true, but nobody could ever give such a guarantee against that.

Mr Anderson: There are four elements. First, the closure of the crossings regime is partly directed by security concerns and is partly a political strategy on the part of Israel to put pressure on Hamas to sign up to the Quartet principles. Therefore, the decisions that have been taken about crossings are partly about security but they are also part of a broader political agenda. Clearly, there is a political element to this equation. Second, the Israelis have created a cordon sanitaire, but in the end if the crossings are to work there will have to be a credible Palestinian side of the crossing. In the nature of crossings, there are two sides. At the moment we do not have the kind of conditions in which the PA[6] can put in credible forces, ideally the Presidential Guard. Third, the infrastructure and equipment at Karni need to be upgraded. Wolfensohn dealt with this in part when he was on the case. Lieutenant General Dayton has continued with plans for how Karni can be upgraded. Clearly, there are infrastructure improvements at Karni so it could be made much more secure. Fourth, there is a question as to the intelligence patch around Karni and the management of information in and out; it is about who is coming, what their purposes are and so on. That could be greatly improved. A whole package of things would be needed in order to make Karni the kind of efficient crossing envisaged in the agreement on movement and access in November 2005.

Q69 Richard Burden: To put a question of fact, the US security co-ordinator was assigned to Karni and then removed. Is he back? Is he assigned to the Karni project?

Mr Jenkins: Are you talking about Keith Dayton?

Q70 Richard Burden: Yes.

Mr Jenkins: He still has plans for Karni. I am not entirely sure of the status of those plans as we sit here today.

Q71 Richard Burden: But Karni is still part of the plans?

Mr Jenkins: Yes, indeed.

Q72 Hugh Bayley: Ever since the land for peace deal fell apart the prospects for peace have moved backwards despite the best efforts of the Quartet. It is easy to point the finger at failures of Palestinian or Israeli leadership, but the fact is that we are now further from a peace settlement than we were last year, and last year we were further from a settlement than the year before. It seems to me absolutely essential that the siege on Gaza is lifted. Economic deprivation is a better recruiting sergeant for extremism than the use of force. I know that both our government and the Quartet have issued statements saying very clearly that humanitarian needs should be addressed but they seem to have no effect. It seems to me incredible that world powers cannot use pressure, including economic pressure, to achieve some change in the circumstances of the Palestinian people, especially in Gaza. Why is it that more than words are not apparent from the Quartet?

Mr Alexander: With respect, there is a lot more than words. The European Union is the largest funder of humanitarian support and assistance to the Palestinian Authority. Notwithstanding the very real constraints under which efforts by the international community operate they continue. It is hard to overstate, as Mr Anderson's answer anticipated, the inter-relationship between the views taken by the Government of Israel towards the security threat it faces and continuing rocket attacks from within Gaza and the broader political process in the Middle East. In that sense my answer to your question would be to say that we need to continue to be unstinting in our efforts both to provide the long-term support so we can see the emergence of a viable two-state solution, which means continuing to support the Palestinian Authority and the longer state-building process in which it is engaged, as well as provide the immediate humanitarian supplies that are so desperately needed but, at the same time, seek every opportunity as an international community constructively to engage with all sides in that peace process. I do not underestimate the sense of frustration that clearly you and we feel at the slowness of the progress made, but when you say we need more than words I point to the very real decisions reached in Paris in December where $7.7 billion was committed by the international community to manifest in a financial sense the potential benefits that could accrue to the people of the occupied Palestinian territories if we are able to secure the kind of breakthrough we want. That matters not simply in relation to the West Bank but also in relation to Gaza. To be able to persuade the Israeli Government that it does not face the kind of security threats it has experienced to date from what it has now designated a hostile entity requires the success of that broader peace process. I struggle to see how we could have a breakthrough on Gaza without a broader breakthrough in the Annapolis process. As to the latter, that would be one other point on which, with respect, I might take issue with you in the sense that 2007 was a pretty uniformly bleak year for the prospects of progress in the Middle East. Notwithstanding that disappointment, the fact is that real negotiations are now under way as a result of Annapolis and to an unprecedented extent the international community has supported it, not simply in terms of attendance at the original meetings in Maryland but also in reinforcing it with financial commitments in December. We have also sought to sustain that progress through meetings of the AHLC here in London and also at a further Quartet meeting which issued a stronger statement on issues like settlement and the humanitarian needs of Gaza than I can recollect. That means the international community continues to press the case for negotiations. A judgment has been made on those negotiations by the principal parties - we may get to those issues in due course - that they do not want to send out public messages on the progress being made against what are continuing fundamental disagreements on issues for negotiation. But the clearest indications we have - Mr Jenkins from the FCO point of view is better qualified than I to discuss them - are that there are real and substantive negotiations under way. Substantive discussions are taking place not simply between Mahmoud Abbas and Prime Minister Olmert but also between the Foreign Minister and the Palestinian Authority's chief negotiator twice weekly. Given how difficult these issues are, we need to be respectful of the right of negotiators to proceed in a way that they judge most likely to yield the outcome that we seek.

Mr Jenkins: It is critical that Gaza remains part of the goal of the Palestinian state for which we are all aiming. When one talks about Gaza, it remains an integral part of what we think will be the eventual Palestinian state of Gaza and the West Bank. That certainly remains the position of the Palestinian Authority. In terms of the negotiations that have taken place, we are told by Abu Mazen, Olmert and Livni, Abu Ala and Saeb Erekat that they are starting to drill down into some of the key issues particularly borders and water. As I understand it, there has been some detailed discussion about Jerusalem and the right of return of refugees. This is the first time since 2000 that this has happened. We are not privy to the details because, as the Secretary of State says, the parties have said they want to keep them confidential. I know there is a lot of scepticism here and possibly more in the Middle East than anywhere else about these negotiations and where they are going, but given it is the first time there has been a structured dialogue and discussion and they are talking about the key final status issues and want to keep the details confidential, because in the past when they have been leaked they have undermined the whole process, what we have to do is try to find ways to support that practically. That brings me back to the issue of Gaza and what we do about access and so forth which is an integral part of trying to sustain a Palestinian Authority and the negotiations on the part of the PA which can make some sort of progress on these issues. When one bears in mind that in Gaza we are historically the third biggest donor to UNRWA and something like 55 per cent of the Palestinian Authority budget which is sustained by donors goes into Gaza mostly in the form of salaries, there is a real practical link between the assistance we provide and sustaining conditions as far as we can in Gaza and giving Abu Mazen and Salaam Fayyad[7] a platform on which they can continue negotiations with the Israelis. The situation is not great but it is better than it was this time last year because we have a negotiating process which we simply did not have.

Q73 Hugh Bayley: I hope you are right. Secretary of State, both you and Mr Jenkins cited UK aid as something that went beyond words, which I accept is absolutely right, but since June of last year what proportion of UK aid to the Palestinians has been routed specifically to Gaza?

Mr Anderson: UNRWA's estimate is that 46 per cent of the overall aid goes to the Palestinian territories together. They do not have a breakdown as between Gaza and the West Bank, but not a bad indicator of this is where the PA budget goes. The PA estimates that approximately 55 per cent of its budget goes to Gaza.

Q74 Hugh Bayley: But there are big worries, are there not? For instance, the salaries of Palestinian Authority officials in Gaza are of course paid but the officials are not in a position to do any work because their bosses are not in Gaza?

Mr Anderson: The bulk of the money goes into frontline workers and education and health. We have had problems with strikes and so on.

Q75 Hugh Bayley: Obviously, UNRWA must have figures to show where the money is spent. Would you be able to obtain from UNRWA and let us have the breakdown of expenditure between the West Bank and Gaza because there is a real concern? Given the enormously greater economic pressure on Gaza than on even the West Bank and that aid is to provide humanitarian relief because normal economic circumstances do not exist, we must make sure that sufficient aid is applied to provide for humanitarian basic needs which it is intended to supply in Gaza as well as the West Bank. Your answer does not tell me that that is happening.

Mr Anderson: We are very happy to go back to UNRWA to ask again to see whether or not they can give us a breakdown. The difficulty for UNRWA in the past in giving a breakdown is that a lot of its sourcing is global and it does not have good data on the distribution of some it. We are very happy to go back and ask for that again.[8]

Q76 Hugh Bayley: Given the incredible difficulties in getting material in and out of Gaza, it must be possible to determine which trucks taking UNRWA goods and service got through and which did not?

Mr Anderson: The details on exactly which shipments and in what quantities are going in when are available. We have data on that if you would find that helpful.

Q77 Hugh Bayley: I think it would be helpful.

Mr Anderson: We can provide that.

Q78 Hugh Bayley: To try to be optimistic, until the siege on Gaza is lifted the economic prospects are absolutely dire and the political consequences which I have already mentioned are in my view entirely negative to the peace process. To what extent will the Palestinian Investment Conference look at investment in Gaza and will creating conditions in which investment in enterprises that can operate be one of the priorities for the conference?

Mr Alexander: It will be one of the functions of the conference. I say that on the basis that I along with the Prime Minister hosted the curtain-raising event for the event that takes place in Bethlehem tomorrow which I will attend. There was a prominent focus on Gaza along with the economic opportunities on the West Bank at the curtain-raiser. One of the confidence-building measures of the Quartet's special envoy, Tony Blair, is the extension and development of the sewage treatment plant in Gaza. That is one of the specific projects that has been identified. I can give you the assurance that is one of the continuing focuses of the conference. If it is helpful perhaps I can write to the Committee having attended the conference and give more detail about the discussions that take place.[9]

Mr Anderson: There is a specific session at the Palestinian Investment Conference on Gaza that will focus on economic issues. There is a lot of opportunity there for infrastructure investment. Bear in mind that prior to June 2007 Gaza along with Nablus were a very important part of the overall Palestinian economy. In terms of exports to the EU, many of which are agricultural, Gaza is a major source. Therefore, the economic opportunities in Gaza, if we can open up movement and access, are very substantial. The Palestinian Investment Conference which starts tomorrow will have on the table $1.8 billion worth of project proposals. The UK Government has put in a lot of effort. It has funded Ernst & Young to go in and make sure that these project proposals provide a credible prospectus with a business case and good details on the information that investors need to make investment proposals. We think that a large number of these will be viable even in the absence of liberalisation of movement and access. Obviously, economic growth particularly in Gaza will depend on movement and access liberalisation, but we can make an important start. Leadership on this has been shown by Salaam Fayyad who by background is an economist who believes strongly - we support his assessment - that a lot can be done even in current circumstances. Therefore, we feel that there is no excuse just to sit back and wait for movement and access to open up. We can make real progress, get the investment started and begin to get the wheels moving on this.

Q79 Sir Robert Smith: Dealing with the humanitarian situation caused by the siege which you have all agreed is dire, you have talked about various funding that DFID is doing in the region. Specifically UNRWA has asked for $168 million of emergency funds and so far only $90 million has been pledged. Given the severity of the situation that we have all agreed upon, does DFID have any plans to put any money into that emergency appeal?

Mr Anderson: We negotiated what was then a unique five-year agreement with UNRWA in March 2007. The deal we put on the table with UNRWA is that we would provide them with predictable funding over a period of years. It has two components: a core tranche which is very substantial - it is 17 million this year - and a performance tranche of an additional 2 million. One of the objectives was to provide predictable funding. A second objective was to create strong incentives for UNRWA to reform and be more effective particularly in monitoring and evaluating its work. A third message to UNRWA in general was that we wanted it to begin to operate in a situation where funding spikes would be a routine part of the work it did and it should plan for them in advance. We wanted UNRWA to get away from lurching from crisis to crisis. UNRWA got in the business of funding some of its core activities through emergency appeals. We are trying to shift it back to a position where it is funding its core activities much better. Not only has our aid for UNRWA increased; we have been urging others to join in this approach and increase the overall profile for UNRWA funding in the entire donor community. Part of the consequence of that is that we were urging donors to increase on a sustained basis the level of support for UNRWA and we would not necessarily look to UNRWA as the only vehicle for dealing with crises. In March we made a commitment of an additional 2 million to the International Committee of the Red Cross, in part because UNRWA alone is not ideally situated to deal with surges in need. Therefore, the surge in need which you have rightly identified is great at the moment and is not fully subscribed to. We have taken the decision to put a greater portion of our funding into core budget support for the Palestinian Authority following consultation with Salaam Fayyad. We put it on the table and asked whether he wanted more money in the core budget to make sure that salaries were being paid or emergency assistance through UNRWA. There are two arguments. One is that in order to build up the capacity of the Palestinian Authority you need to continue to work with it rather than through parallel systems. As good as UNRWA is it is still a parallel system. The second argument is that this is a more sustainable response than lurching from crisis to crisis. We hope that other donors will come to the table. Other donors are less willing than the UK to provide budget support. Although the $7.7 billion pledged in Paris is not yet committed we hope that they will help to fund that gap, but at the moment we think that the UK has a credible set of reasons why it does not plan to do that.

Mr Alexander: At the same time that this is identified as a humanitarian need there is also an identified fiscal crisis facing the PA. In that sense in part the judgment that has to be reached, given that salaries are paid both to Gaza as well as West Bank civil servants and public service workers, is how we balance our innovative and long-term approach, which is what UNRWA seeks, with sustaining the only entity that is capable of being a credible negotiating partner for the peace process which underpins the prospects for resolving both the humanitarian crisis and the broader political challenge that we face.

Q80 Sir Robert Smith: You refer to planning to avoid spikes. It cannot really control the political factors that create humanitarian situations. Are there other problems in its management that you have identified?

Mr Anderson: There is a whole series of management-informed targets which UNRWA itself has identified, including achieving better results in education and having in place better monitoring and evaluation systems, financial controls and so on. Part of the business case it has itself identified is that UNRWA is in the business where it needs to have a contingency on which to draw because spikes are part of its business; they are normal in UNRWA's business. In the past UNRWA has not planned for those spikes. We have encouraged UNRWA to support its own initiative to move towards planning to have flexibility in its budgeting. It will need to continue to make emergency appeals, but we want it to be an organisation that is better able to anticipate and absorb spikes in need.

Q81 Jim Sheridan: Secretary of State, what are your views on the current position with Hamas? The Chairman has already made reference to the video conference with John Ging who gave an extremely detailed account of exactly what was going on in Gaza. I take the view that when people like John Ging, a highly respected figure, tell you something perhaps you should listen to it. He said quite clearly that the current blockade in Gaza was not having the intended effect in stopping the firing of rockets into Israel. The only people who suffer are the civilians in that area. I should also be interested to know your views on organisations such as Oxfam. Oxfam says quite clearly that now it is time for Hamas to be brought to the negotiating table, if for no other reason than for it to justify what it is doing to its own people. It is important that that happens given the control it has within the civilian population but also under international law Hamas should be encouraged to come along. If we do not invite Hamas what other steps or measures can we take to make Hamas face up to its responsibilities in terms of what it is doing for its people? You and I know that in our profession we have to negotiate with people we would rather not deal with, but that is the nature of the job we do. Surely, it is time that Hamas is brought to the negotiating table to seek its views on what is going on there.

Mr Alexander: As my parliamentary neighbour, I hope and trust that was not a reference to Renfrewshire politics. I will deal with the points in the order in which you put them. First, is this achieving the intended effect? I suppose that implicit in that question is: is the effect of the blockade to radicalise those within Gaza and thereby cause greater security risks to the people of Israel? Clearly, Hamas aims to portray the current situation as having been caused solely by Israel's actions and deploys that narrative on an ongoing basis with the public in Gaza, but it is right to recognise that Hamas itself has chosen violence and must accept responsibility for the rocket attacks which pose a real security threat to the people of Israel. That is why in terms of the statements David Miliband and I have made and in our private and public utterances we unreservedly condemn the continued rocket attacks from Gaza into Israel and recognise the security dilemma that that poses for the state of Israel in terms of its response. Equally, we have been clear that any response by the state of Israel must be consistent with its obligations under international law and that applies in relation to access by humanitarian aid to people within Gaza. As to negotiations with Hamas, clearly Abu Mazen leads on the question of how the Palestinian Authority can once again be judged to be in control of Gaza. In that sense there is an intra-Palestinian dialogue in which it is right to be respectful of the right of Abu Mazen to take that forward not simply in terms of his position within the PA but his position within the PLO. Our position as a member of the Quartet has not changed and on that basis we do not have contact with Hamas. I have great respect for Oxfam; indeed, I have just been on the airwaves in recent days complimenting them on its work with partners in Burma, but it is right to recognise that while NGOs, even respected ones, within the development community have a point of view on these issues, ultimately it is for the government to reach a view on the right approach. The approach we have taken is one that has been agreed in concert with international partners. Because we believe that the key to making progress in terms of the negotiated settlement, which is the aim of all of us, is to support the process being led by Olmert and Abbas in the bilateral talks, we do not want to do anything that is judged to undermine the process or the capacity of Abu Mazen to be seen as a credible negotiating partner with the state of Israel. We judge that that includes talking with Hamas at this stage absent some significant movement by it towards the principles set out originally by the Quartet: recognition of the state of Israel, adherence to previous agreements and the renunciation of violence. We do not judge that these set an unreasonably high bar. On that issue I appreciate that there are others who disagree with us and that may be reflected in the comments from Oxfam to which you have referred, but we see them as fundamental conditions for it to be able to engage in a serious way and negotiate ultimately with Israel. In passing I note the recent comments made by President Carter following his conversations with Hamas, but I think that a political dialogue is impossible so long as one party is dedicated to violence and the destruction of the other. In that sense there is a heavy responsibility, but we regard the principal responsibility as resting with Hamas and do not regard the bar that is set as being unachievable. I assure you that the reason the bar has been set at that level, which incidentally was determined long before the most recent actions taken by Hamas in 2007, is to ensure that there can be credible negotiations rather than that it should prevent them.

Mr Jenkins: I said that I was Consul General in Jerusalem. I was also Ambassador in Damascus. Therefore, I was in the two places where Hamas was established. It is true that Abu Mazen is authorised to negotiate on behalf of the Palestinian people because he is chairman of the PLO which is the institution that chairs the negotiations. I recall speaking to Abu Mazen two or three times back in 2006 after Hamas had won the elections about what it would take to make Hamas part of the negotiating process. His position was that it needed to subscribe to what he considered to be his government's programme. He tried this twice in formal letters to the then Hamas Prime Minister, inviting Haniyeh to sign up. Both times Haniyeh refused. He did not just refuse; there was no answer to those letters. Therefore, there is a fundamental disconnect between Hamas's desire to exercise power in the Palestinian territories and the PLO's desire arising out of Oslo to have serious negotiations with Israel. Personally, I think it would be great if Hamas wanted to be part of the negotiating process and would allow Abu Mazen to negotiate on behalf of the Palestinian people and accept the conclusions of those negotiations. A couple of times it seems to have come close to it but each time it approaches the point when it says it will let Abu Mazen do this it steps back again; it says it will not happen and refuses to recognise Israel. There are no negotiations; it will offer a 10-year truce or whatever it is, but that is all; and in the end it wants back the whole of mandated Palestine. That does not seem to be a basis on which Hamas can be part of the negotiating process. Whether it wants to participate in something which has international legality behind it - the Oslo process which empowers Abu Mazen to do what he is doing - or to strike off completely on its own irrespective of international legality and continue on the course it has set is a decision it must make itself. I think that it should do the former but at the moment it is doing the latter.

Mr Alexander: Another matter that it may be helpful to draw to the attention of the Committee is the point that we reached in discussion on the criteria set for Fatah.

Mr Jenkins: The three Quartet principles are in effect those to which Fatah signed up at Geneva in December 1988 in the exchange of letters between Arafat and Rabin and with Clinton in 1993: recognition of Israel; signing up to previous undertakings, including Oslo, and renunciation of violence. Those were exactly the principles to which Fatah signed up, so they are not being asked to do anything that Fatah did not do.

Q82 Jim Sheridan: To expand on the response you have given, I go back to the situation in Northern Ireland. The response was exactly the same until paramilitary groups gave up their arms. We managed to overcome that and get a peace agreement in Northern Ireland. I do not defend Hamas in any way or wish to force it, but if the status quo prevails and it refuses to speak what other measures can be taken to make it face up to its responsibilities to the people of Gaza?

Mr Alexander: First, although there is a superficial attraction in drawing a parallel between the ultimate resolution of the historic conflict in Northern Ireland and the continuing challenge of finding a resolution to continuing conflict in the Middle East, I am not sure how helpful it is. Even if you take that example as your starting point, a fair reading of what happened not simply in terms of the Good Friday agreement but the discussions that preceded it involving Michael Ancram and John Major's government was that at some level within the IRA leadership a judgment had been reached to take the democratic and political path and renounce violence. That may not have been publicly articulated immediately, but it was not simply that the British state chose to engage in negotiations, albeit at that stage in secret; a separate and equally important judgment had been reached within the Provisional IRA in terms of the path forward to try to secure its objectives. In that sense it is still open to Hamas to participate in discussions, negotiations and consultations internationally, but ultimately it rests on judgments and the responsibility that it has. In that sense I am not sure it is always the right parallel to draw in terms of a willingness to negotiate on the one hand and a willingness to negotiate on another. The relevance of the point on which Mr Jenkins concluded his earlier remarks is that all too often in the public press it is suggested that somehow there is a uniquely onerous set of obligations being placed on Hamas as a barrier to it participating in further discussion when in essence the criteria set for credibility in having those discussions are exactly the same as those set for another significant part of the Palestinian community, Fatah, in a previous time. amHSecond, I do not want to leave the Committee with the impression that somehow we are sanguine about the status quo. Clearly, already in this evidence session there has been great emphasis placed on the humanitarian efforts we are making. We are unstinting in our efforts to try to find a political way forward, but in order to do that it is essential that we have a credible negotiating partner in the Palestinian Authority. Of course the armed takeover of Gaza in 2007 by Hamas has complicated what was already an extremely challenging political situation, but I think that if we want to get to a negotiated two-state solution one of the prerequisites is a credible negotiating partner. If you accept the legitimacy of having a credible negotiating partner then at some level you also need to accept the ability of that negotiating partner, in this case Abu Mazen and the Palestinian Authority and principally the PLO, to be able to resolve the issue in relation to the takeover by Hamas. In that sense the intra-Palestinian conversation rightly has to be led by the PLO leadership.

Mr Jenkins: I do not want to pontificate on the situation in Northern Ireland, but one aspect of that which seems to be distinct from the situation in the occupied Palestinian territories is that all the parties engaged in the negotiations in that case could in some sense do the deal and sign up to something. In Palestinian and Israeli terms that means Palestinians talking to Israelis. The fundamental conversation that needs to take place is between those two parties because they are the ones who in the end will sign the deal. I see no indication that Hamas is prepared to do that. This takes us back to the Quartet principle on the recognition of Israel about which there is a lot of debate. It seems to me that a fundamental principle that lies behind this is that recognition in particular gets you a seat at the table because you recognise the power of the other party to do the deal. Of all that I have seen of Hamas in public and the indications from private dialogue or debate going on within Hamas over the past two years nothing tells me that its fundamental position on this or the desirability of negotiations leading to two states has changed. I think there has been inconclusive debate within Hamas about this and that the power of the radicals - the military wing and so forth - is such that for the moment it has closed off the possibility of this evolving into something more serious. At the moment I just do not believe we are in a position to move this forward. Hamas really needs to decide which way it is going.

Q83 Chairman: I do not know whether you have any observations to make about the apparent engagement by the French at arm's length as reported today? I do not defend Hamas, but it will argue that there was an election. It went into the election in a situation where consistently Israel said that it should not be allowed to contest it because it had not signed up to the principles but the international community said that it could contest it and it won. There is competition between Hamas and Fatah as to who is defending the rights of the Palestinian people. Therefore, in terms of realpolitik does not somebody somewhere need to test from where the point of engagement will come?

Mr Jenkins: I think there is a contest between Hamas and Fatah. Speaking to another point which has been raised about opinion in Gaza, quite often you see polls saying that Hamas has more support in Gaza and so on. Having looked at polls over the past four years, they tell me that Palestinian opinion is very volatile and the thing which appears to be growing is the bit in the middle which says in respect of both Fatah and Hamas "a plague on both your houses". In a way, it is that unrepresented segment in the middle that loses out through the freezing of forward political movement within the Palestinian territories. As to the French, I read about this yesterday in the French press before it was reported this morning in the Guardian. Looking at the press reports, the man concerned is a former ambassador and is no longer a member of the French diplomatic service. They have said that this is not the French opening talks with Hamas. I believe what I read in the press statement.

Mr Alexander: If we have an interest in seeing a single unified Palestinian Authority there is an urgency and importance in having not simply the capacity of the proto-state build but also these negotiations proceeding in the sense that if you are Abu Mazen sitting today in Ramallah you want to see tangible benefits emerging from the Annapolis process, not simply because it makes sense for the broader Middle East peace process but it clearly would be a strengthening of his position not only in terms of the West Bank but his claim to support within Gaza. In that sense I think there is a real urgency in seeing sustained progress in the Annapolis process on which I am sure we are all agreed.

Q84 John Battle: Given the positive approach you take to Annapolis, how is it possible to conclude an agreement as suggested by the end of 2008 without the participation of Hamas? Is that not completely idealistic?

Mr Alexander: To add an important caveat, I am not panglossian in terms of Annapolis, but I think optimism offers more potential for progress than pessimism at this stage. Let us not underestimate the historical differences or the fact that intelligent, committed people have been working on these issues for many decades to find a way forward. I think that the kind of timescale that has been set for the progress that the parties want to see in the course of 2008 is a necessary corrective to the idea that this is a process without end and we can take our time as an international community or as individual partners in negotiating. I cannot prescribe where that process will reach in terms of the remaining months of 2008; nor can I yet offer you clear views as to where Abu Mazen will reach in terms of his strategy to ensure there is a single unified Palestinian Authority not only with legal but actual authority over Gaza and the West Bank. Obviously, I will take the opportunity to discuss that issue with him and Salaam Fayyad in the course of our discussions tomorrow.

Q85 John Battle: It almost seems as though we are operating in parallel universes. One is more hopeful. I do not use the word "optimistic". It is seriously negotiated by the best minds with the intention of seeing the process go forward which we should and must support. Then President Bush of the US makes a visit and the reaction to that is that Israel steps up its rocket campaign. How can there be prospects of peace in the future if the response is to step up the rocket campaign against Gaza by Israel? We are taking a step back. In that sense what should the international community do in circumstances where there are parallel discourses going on, one being the rocket attacks and the other being the Annapolis peace process?

Mr Alexander: It will not surprise you that I come before you to speak on behalf of the British Government, not the Government of Israel or the Administration in Washington. Notwithstanding that, I am not sure how clearly the connection can be made between the rocket attacks you describe and the visit of the President of the United States. For me that would be conjecture rather than a clear connection. I know that there is a wide variety of opinions about the President of the United States both among the British public and within Parliament. It is less often recognised in debates around the Middle East that he is, if I recollect, the first American president to state support for a two-state solution. As Mr Jenkins pointed out earlier, frankly Annapolis is the only show in town. For the first time in seven years we have a negotiating process moving forward. That is not to underestimate the profoundly difficult and challenging final status issues under discussion; it is not to diminish the historic alliance between the state of Israel and the United States, or the strong desire on the part of the international community collectively to find a solution to the Middle East. The reason I am optimistic is that we have a process by which progress can be made. Without such a process we would return to the period we witnessed after the Clinton presidency. For years we had no process by which progress could be made.

Q86 John Battle: But when President Bush visited at the very same time Israel said that it would step up the military operations in response to the rocket attacks. Therefore, the signal appears to be going in the opposite direction and was not clawed back in any way by the international community in general. Nobody said that would not help the peace process; it was just left as if that was the situation which moved it in the wrong direction. My heart dipped when I saw that.

Mr Jenkins: Often the matters that periodically derailed the peace process in the 1990s were the violence and terror. The good bits of the 1990s were when the peace process continued in spite of the violence. For seven years we have hardly seen anything. There have been occasional meetings mostly with Abu Mazen and at Sharm el-Sheikh but they were always stopped by violence. I am not starry-eyed about all of this and I recognise there is massive scepticism about the whole Annapolis process, but it is the first continuous negotiation-sustained in spite of the violence-for seven years. That seems to be an important point which suggests to me there is something which both parties think is really valuable in what is happening and want to keep hold of. There may be elements of domestic politics in this on both sides, but given the past and where we are it seems to me that this is something we should recognise, grasp and support as much as we can.

Mr Anderson: Mr Battle, you raise a characterisation which I recognise about what seem to be parallel universes in which on the one hand the facts on the ground are just terrible. On the other hand, there is optimism about the peace process. That is precisely why Tony Blair is there trying to move forward the confidence-building measures. We strongly recognise that the facts on the ground are fundamentally connected to the confidence that the parties will have in the peace talks. But I think that in the mind of Abu Mazen in these two parallel universes the future of Palestinian unity with Hamas and what happens in terms of negotiations with Israel are matters that are absolutely and intimately connected because clearly the political strategy for Abu Mazen and Salaam Fayyad is that if they can deliver some progress on the peace front that is the magic key to finding a way into Palestinian unity where popular support among Palestinians will recognise that 'we all need to be in it together'. So there is a purpose to Palestinian unity which is doing a deal where real benefits are delivered to the Palestinian people. I strongly recognise that often they appear to be different worlds but they are quite strongly connected in an overall political strategy which we support.

Q87 Daniel Kawczynski: Secretary of State, at the beginning of this session you said that you were flying out to the conference later today to be held to talk about the aid that goes to Palestine. What message will you take with you to some of these countries about stumping up the cash they have promised to the Palestinian authority? You will know that part of the economic crisis in Palestine is the result of a lack of finance from donor countries. I am particularly interested in Saudi Arabia. As Chairman of the All-Party Group on Saudi Arabia, I am continually told by the Saudis that they are doing everything possible to give money to the Palestinian Authority. Interestingly, Saudi Arabia has a budget surplus this year of over $300 billion. We are borrowing about 45 billion. I should like to have your comments on that.

Mr Alexander: First, as a point of clarification the principal focus of the conference that I shall attend tomorrow is not international donations but private sector growth within Palestine. That is complementary to the continuing efforts to provide both the capacity to develop the architecture of governance within the Palestinian territories and the immediate humanitarian needs. We need a sustainable economic foundation which requires a dynamic and thriving private sector which has been a big focus of the work that Tony Blair as Quartet representative has taken forward. You raise a very valid point and was one much discussed at the Ad Hoc Liaison Committee meeting at Lancaster House just a couple of weeks ago under Norwegian chairmanship. Progress was made in the sense that another Gulf country, Kuwait, made an $80 million commitment at the conference which was regarded as a significant step. We were genuinely heartened and not a little surprised by the scale of the contributions that emerged in Paris in December. In that sense we had worked hard to facilitate that outcome. We had been vocal fairly early on with full understanding of the relevant parties that we wanted to encourage others, to be something of a cheerleader for significant donations to add momentum and sustain progress on Annapolis. That being said, the Arab pledges in Paris totalled $1.5 billion, 20 per cent of the total. You are right to recognise that there is a gap between pledges being made and commitments being delivered. My recollection is that there is a meeting of the Gulf Co-operation Council at which some suggestion is made that Saudi Arabia may take the step that you are looking for. I do not know whether Mr Jenkins can clarify the date of the meeting.

Mr Jenkins: There is a GCC summit, I believe, on the 24th or the end of this month. This was a matter that came up a good deal at the AHLC both in its plenary meetings and the meetings that the Quartet had with the Arab foreign ministers who were present. There was a lot of discussion about the need for Arab donors to provider faster funding this year to the Palestinian Authority. To be fair to the Saudis, historically they have been the most consistent of all the Arab League states in providing funding to the Palestinian Authority. They were the ones who consistently provided $7 million to $8 million a month as its contribution throughout the 1990s and up until 2006. I think the Saudis have done pretty well over the years. There is now an issue about getting funding into the Palestinian Authority faster to deal with the looming fiscal crisis that Salaam Fayyad faces. That is something which he himself has highlighted at the AHLC. Tony Blair has been very active on this in the Gulf since his appointment as Quartet envoy. When he is not in Palestine quite often he is in the Gulf to try to get those states to meet their pledges.

Mr Alexander: This is a matter about which we talked to Salaam Fayyad. I had conversations with him even ahead of the December conference at which we discussed the Saudi contribution. If you have opportunities to continue to make the case that I know you have been making through the All-Party Group that there is urgency in terms of the fiscal crisis facing the Palestinian Authority we would be genuinely grateful.

Q88 Daniel Kawczynski: Obviously, given the present price of a barrel of oil, which is likely to continue its upward trend, some of these countries in the Arab League find themselves with a lot more resources at their disposal. I presume you will tell us that in comparison we are better at fulfilling the pledges we have made. Can you confirm that we have stumped up the cash we have said we would?

Mr Alexander: Yes - not least because we hosted the AHLC meeting along with the Norwegians, we certainly made sure of that in terms of being able to say that we were beginning the spend of the 243 million we had committed in Paris.

Mr Anderson: In the first quarter of 2008 we spent 39 million which is well ahead of the trajectory of delivering our 243 million pledge over the course of three years. Therefore, the UK is right out in front in setting an example on giving aid on the ground. We are also right out in front in terms of making a large commitment to budget support which is absolutely vital to both increased capacity and the sustained existence of the Palestinian Authority. It really faces an existential crisis unless it is able to face its fiscal challenges.

Mr Alexander: To be fair to Salaam Fayyad, he has been fulsome both in private to us and in public in recognising the extent to which the British have been leaders both in terms of translating pledges into commitments but also the manner in which that money has been committed, addressing the most urgent and specific needs that the Palestinian Authority faces. As to your observation on the continuing rise in the price of oil, which bears on a point made earlier about why in the international community there is such a sense of urgency, one of the contributory factors, in addition to the fact that the global need for oil is growing at about two per cent a year and production at about one per cent a year, which itself contributes to rising prices, is that a significant risk premium is built into concerns in terms of security of supply emerging from the Middle East. In that sense there is very practical benefit in terms of fuel costs and the price of a barrel of oil which would emerge if we were able to see the kind of progress we all want to see in the Middle East peace process. Again, that is a clear example of interaction between commerce and politics. If we were able to find a way through the Middle East peace process in a manner that resulted in a greater premium in terms of oil prices the benefit would immediately be felt not simply in our own petrol tax but also in the global economy.

Q89 Ann McKechin: Secretary of State, has the Ad Hoc Liaison Committee made a formal assessment of the likely impact of the shortfall in funds? Are donors fully aware of what the impact would be and how soon it would kick in in terms of the current cost and essential services?

Mr Anderson: The Ad Hoc Liaison Committee did not issue any formal report. There was a Chair's Summary but it did not go into detail. The tracking is being done by Salaam Fayyad; he is keeping a close eye on it. On current projections he anticipates a fiscal shortfall for the PA of $650 million. It will start to kick in in late June, so we hope there will be very strong Saudi and further Arab pledge of support before then.

Q90 Ann McKechin: As to economic development, given the fact it has been effectively strangled in Gaza by the current blockade and also an increasing number of roadblocks in the
West Bank, what is your assessment of the possibility of an improvement in economic development? Given the fact this has gone on for a considerable period of time, how quickly could things recover if there was an easing of the blockade?

Mr Alexander: It is extremely difficult to achieve sustainable economic growth under present circumstances for the reasons you describe, principally the constraints on movement and access. It is probable that the West Bank economy grew in 2007 but, at the same time, we judged there was a significant contraction in terms of Gaza. Regrettably, if one looks at where the principal drivers of growth are judged to have been even in terms of the West Bank economy that was principally in terms of aid and support for the public sector rather than private sector investment. There were significant concerns there. The IMF has suggested three scenarios based almost solely on the Israeli closure regime. Its pessimistic scenario is the status quo with little or no improvements in movement and access, leading to continuing falls in per capita income of about two per cent a year. Its baseline and optimistic scenarios cover modest and marked improvements in the closure regime and a corresponding one to two per cent and five per cent increases in per capital incomes. The IMF has itself recognised the fairly mechanistic connection between rates of growth or contraction and change in terms of movement and access.

Q91 Ann McKechin: Given that there are so many young people in the West Bank and Gaza - I believe that about half the population of the latter are under 16 - has any thought been given to how employment can be created should there be a change in circumstances? People need to see some rapid progress if they are to believe that a political settlement is possible.

Mr Anderson: A critical factor in employment is that we need to see a larger sector of the economy taken up by the private sector. In 2000 when the Palestinian economy was quite a different place the PA expenditure was 27 per cent of gross domestic product. By 2007 it had nearly doubled to 50 per cent.

Q92 Chairman: Do you mean that the private sector or the economy had contracted?

Mr Anderson: There were two things going on. First, there was a growth in public expenditure; second, the economy contracted. Of those two, you are right that the larger factor was the contraction of the overall economy. Salaam Fayyad has very impressively managed to bring that down to 47 per cent in a short period of time, but what this illustrates is that the part of the economy that has collapsed has been business. There is a long historical tradition of Palestinians being very effective entrepreneurs. As we saw between the two intifadas, Palestinian growth took off given the right policy context. You are absolutely right about the demographic bulge of young people that faces the Palestinians and the need to create a lot more jobs, but the key to that must be getting the private sector moving again. That does not require a huge amount of public sector pump-priming. There can be some of that. For example the confidence-building measure that Tony Blair has recently announced on the housing initiative is a way to create construction jobs which would be helpful, but the real key is simply to unlock the potential of the private sector that is there. Yet again that focuses on the importance of making political progress on movement and access. On that front I can report that the Quartet representative Blair has recently shifted the strategy on movement and access restrictions to focus on the small number of restrictions which make the biggest difference. In the past we have perhaps spent too much time looking at the aggregate number of roadblocks and restrictions. Blair's team has recently focused down. There are probably 40 to 60 roadblocks and other restrictions that make the biggest difference. The Blair tram are focusing on some of those and will try to make progress in the next few weeks.

Q93 Richard Burden: If I may put some historical context, when we carried out our previous inquiry a lot of emphasis was placed by DFID on the fact that whilst the boycott of the PA was going on the actual amount of funding to the occupied territories was not going down; on the contrary, to some extent it was going up. All that was happening was that we were shifting where it went but it still went on payments to the poorest and helped maintain fuel supplies and so on. In a sense my question could have been asked then but, looking back, what was meant by that? Was it saying that the quantitative nature of the aid and to which organisations it went changed but it was doing the same kinds of things, or was it saying that the assistance became qualitatively different at the time of the boycott? If it was the latter what was the difference? What new things were you trying to achieve? Has the department made any assessment of how effective things were during that period? What was that assessment and how, if at all, does it inform the ways you have gone about resuming direct assistance to the PA and, say, policies towards things like funding NGOs and other civil society organisations?

Mr Alexander: Let me start and then I will ask Mr Anderson to say a word or two given that this period preceded my time within the department. One of the untold stories amidst much of the concern and disappointment in terms of recent years within the Middle East has been the extent to which Britain has genuinely been a leader - this was a department that I did not lead at the time and so it is not in any way a personal observation - in developing innovative and effective new mechanisms and instruments for aid in what is and has been an almost constantly changing political environment. In that sense I think we can take real pride in the work we have done. For example, the establishment of the Temporary International Mechanism ensured that essential aid continued to reach exactly the type of people you were describing, whether it be teachers, doctors or engineers. Over the piece we provided about 15 million through the Temporary International Mechanism and an equivalent sum to its successor PEGASE established by the European Union. The rationale was to ensure that we were able to get the resource directly on the ground with all of the stringent conditions that were set in terms of checks and audit being secured. In that sense it required a degree of policy innovation as to how best to do it both by checking with the individuals who received the money against five lists to establish whether they had any connection with terrorist organisations and it was subject to both pre and post-audit checks. There has been real innovation about which I will ask Mr Anderson to say a word. That is not simply my assertion in terms of what has happened with TIM. There was an independent review in July 2007 which said that it was both appropriate and an effective instrument to continue donor engagement with the occupied Palestinian territories. As you implied in your question, it has informed the development of what now has been taken forward principally by the World Bank. In that sense it has affected PEGASE and informed the thinking of the World Bank in terms of the new instruments to be used. I have probably talked enough about a period of the department when I was happily ensconced in transport.

Mr Anderson: I can answer your question very simply. There was an aid framework for the Palestinians within DFID prior to January 2006 and that was 30 million a year. We did not modify that up or down, so the level of UK assistance remained exactly where we anticipated it to be prior to the 2006 elections; it did not change. What did change was how we disbursed it because we took the view that we could no longer provide budget support through the Palestinian Authority once Hamas formed the government in March 2006. As this Committee will know very well, budget support is an instrument which DFID regards as an important tool in helping to build government capacity and helping donors to align behind the country priorities and build leadership and capacity. That is particularly important in the context of the Middle East peace process. An absolutely vital function of aid in the Middle East peace process is to help create a Palestinian Authority which has the capacity to manage its own affairs, police its own borders and guarantee the security of its people and Israel. That is an absolutely essential function of aid in the context of the Middle East peace process. Therefore, we wanted to continue budget support. The Temporary International Mechanism was designed largely internally by DFID and was launched through the European Union with the EC running it. In particular, the third window of TIM which provided allowances and salaries was a real attempt to mimic as closely as possible budget support without going through the Hamas-controlled systems which we could not use. We felt that we had to provide assurances to UK taxpayers that there was simply no chance that UK assistance was going into the hands of terrorists or those pursuing violence. Therefore, we came up with a system with the European Commission which we hoped would do the very best at minimising the undermining effects of the parallel system. The review which was carried out - if the Committee does not have a copy of it we shall be happy to provide one - was conducted by the European Commission and was an independent assessment. It was in the public domain. It indicated that one of the drawbacks of the TIM was that to some extent it created parallel systems, but in the circumstances that was inevitable and it had to be temporary. A further element of the review was that the TIM should work more closely with the Palestinian Authority in terms of priorities and management. After Salaam Fayyad came into power in July 2007 that became possible, and that was precisely what the TIM did. In its new form PEGASE we feel it is now doing that. We have taken the decision to move away from the TIM and into direct budget support for precisely the reasons I have indicated. Our view was that given the circumstances at the time where most donors went for project support, or humanitarian support, or stopped support entirely, the UK effort sustained capacity building and delivery of frontline services by doctors, nurses and teachers. We think we did a pretty good job.

Q94 Mr Singh: Poverty rates increased in the West Bank and Gaza throughout 2006. I presume there was an increase in 2007 and that has continued this year. According to the figures we have, in 2006 64 per cent of the West Bank population was below the poverty line and for Gaza the figure is 78 per cent. Given that the central mission of DFID is poverty reduction, is it fair to say that we are fighting a rearguard action in the West Bank and a lost cause in Gaza?

Mr Alexander: First, as to the information available to us, we do not have good data on the levels of poverty in 2008. Second, it would be remiss of me if I did not challenge the assertion that getting humanitarian assistance to people in desperate need is somehow a lost cause. DFID is called upon to work in increasingly challenging environments and undoubtedly Gaza and to an extent the West Bank meet that criterion. That challenges us to be both innovative in terms of the approach we take but not nave in presuming that aid alone will ever be the solution to the problem we face. In a conversation about a conventional aid programme no doubt I would be telling the Committee we would seek to balance the development assistance we offered with development of the private sector which in turn would allow a credible exit strategy. That is true in terms of both Gaza and the West Bank as we have described and that will be the substance of the conversations tomorrow at the Palestinian Investment Conference, but in the context of the Middle East it is only part of the story. Unless we find a way forward in terms of a credible peace process then notwithstanding our best efforts to stimulate economic growth within the private sector, to secure humanitarian access and the kind of innovations we have heard about in terms of the Temporary International Mechanism that delivered allowances to 77,000 frontline workers, we shall continue to fight a rearguard action against the consequences of the failure of politics to find sustainable common ground on which people in the Middle East can live and in turn prosper. In that sense I would say that the very difficult circumstances in Gaza, which were further complicated by the armed takeover by Hamas in 2007, does not diminish our determination to work there. If anything, the kinds of figures you quote on levels of poverty make very clear why it must continue to be a priority for DFID to work directly in the region at the same time that it supports the efforts of our colleagues in the Foreign and Commonwealth Office to find a sustainable peace process and way forward.

Q95 Mr Singh: I appreciate that humanitarian assistance is of the utmost importance in the situation in which we find ourselves, but is it fair to say that most of DFID's aid is now spent on humanitarian assistance rather than development projects to reduce poverty?

Mr Alexander: Our aid is spent both on humanitarian assistance and in building the capacity of the Palestinian Authority, first, to be a credible negotiator and, second, to be able to bear the responsibilities of the two-state solution which is the ultimate goal in terms of the peace process. There is a very clear correlation between the capacity of the Palestinian Authority to be allowed to make that evolution and the consequential impact in terms of levels of poverty because there is an inter-relationship between the economics and politics in the region. In that sense our humanitarian assistance is a necessary but insufficient condition of the progress we want to see. That is why in addition to the humanitarian aid we provide we continue to provide support for the capacity of the Palestinian Authority to develop and support the efforts of the international community to find a way forward in terms of the peace process. With humility, we recognise that we are only one part of the jigsaw and that is why cross‑departmental working on this issue is so important. At both government and international level it is critical that we pool our resources because none of us independently will be sufficient to the task.

Q96 Mr Singh: Is there any co‑ordination of aid resources to Palestine by the international community or is everybody doing their own thing?

Mr Alexander: To take the most basic example, UNRWA has worked there for many decades and is reflective of a co-ordinated international response. We have been innovative in providing both core funding and also an incentives-based package against an established set of criteria. We are but one of a number of donors that provide support in a co-ordinated fashion through UNRWA and we continue to work with our colleagues in the European Union, which is the largest single funder of the Palestinian people, along with the United States and others to make sure we have as co-ordinated an approach as possible. Clearly, there are a number of actors, but there is progress in terms of co-ordination and UNRWA is one example of where that co-ordination takes place.

Mr Anderson: Leaving aside the humanitarian side, the systems of aid co-ordination for development assistance were renegotiated at the AHLC which the UK hosted in December 2005. That was the result of UK leadership in the aid co-ordination effort in which Mr Jenkins played a big role. What is agreed is that the Ad Hoc Liaison Committee remains the international supervisory body but on the ground in Jerusalem there is the Local Aid Co‑ordination committee. There are four working groups dealing with governance, infrastructure, economics and the social sector. Those working groups co-ordinate the aid. The idea is to put the Palestinian Authority in the lead on setting the agenda and to work closely with the Authority, and the UK has put a lot of effort into making sure that those structures work. They do not always work as well as we would like. To be honest, a good part of the reason is that a lot of the donors who operate in the Palestinian Authority have strong incentives to have their national flag on programmes that they run. The truth is that aid effectiveness sometimes is undermined by that set of incentives, but we and the World Bank work very hard to try to pull everyone together so that does not happen. On the humanitarian side, the co-ordination is very good. There is always room for improvement but OCHA has done a very good job of pulling together various agencies - 11 major UN agencies and a number of NGOs - in the form of a consolidated appeal. Co-ordination is taking place. In terms of compliance with the Paris principles on aid effectiveness we are not doing badly given the circumstances.

Mr Jenkins: This has been an issue in Palestine since the start of the Palestinian Authority. Various mechanisms were designed in the 1990s to enhance aid effectiveness. I think it became clear some years ago that these were not working very effectively. It sounds as though we are all congratulating each other, but in my time DFID has worked extremely hard on this issue in making this much more effective with real resources and people on the ground because it is critical to making aid effective.

Q97 Sir Robert Smith: I should like to clarify why if direct assistance to the Palestinian Authority is resumed there is still a need for a funding mechanism like PEGASE?

Mr Alexander: In terms of progression from the Temporary International Mechanism to PEGASE and now the World Bank, in part it reflects the real progress that is being made by Salaam Fayyad in terms of strengthening public financial management and systems within the Palestinian Authority. He is an individual with a significant international reputation given his background in the World Bank; he is impressive in terms of his understanding as to the steps that need to be taken in order to allow the international community to make direct budgetary support payments. He already has a track record of being seen to deliver on that progress. We have worked very closely with him in facilitating the progress he has managed to make to date, but equally he is clear given his own position as a leading Palestinian and having worked in the development field as an economist for a number of years that it is far preferable not to have parallel systems. In that sense there has been a genuine urgency in his work but he does not miss an opportunity to tell even his valued partners that the best way they can support him is to address the fiscal crisis that is being faced and to uphold and strengthen the legitimacy and capacity of the Palestinian Authority's own systems, and in that regard he serves the cause of the Palestinians well in terms of both words and actions.

Q98 Sir Robert Smith: Therefore, will PEGASE be phased out?

Mr Anderson: When TIM changed into PEGASE a fourth window was added. The European Commission runs its own budget support window. There are now two budget support vehicles for the Palestinian Authority: the European Commission which operates under PEGASE and the World Bank Trust Fund which is a much more standard operating procedure. The idea is that PEGASE will stay in place in part because for the very first time the European Commission is committed to the provision of budget support through its own mechanisms. In the past it has always worked through the World Bank. In terms of aid architecture this is a new thing. But there are also some donors who are not comfortable working through budget support, so PEGASE provides the three other channels by which other money goes in. It presents a package of different kinds of aid instruments with which European Union Member States are comfortable.

Q99 Sir Robert Smith: How much of the PEGASE funds do you expect to go to Gaza? Is there an impartial distribution of those funds to the territories?

Mr Anderson: Of the three windows of PEGASE the most important is that dealing with budget support. On Salaam Fayyad's estimate, approximately 55 per cent of that goes to Gaza. As to the other three windows, the funding that is probably most important for Gaza is the second one which is purely about supplying fuel and other supplies, so it is really paying Israeli companies to supply fuel which is absolutely vital. Therefore, 100 per cent of the fuel that goes to the Gaza power plant now is paid for by the European Commission under that heading. In terms of the improvements made by Salaam Fayyad, it is worth visiting the webpage of the Ministry of Finance which every month provides a record of where all the expenditure goes. In terms of transparency this is a remarkable achievement; it is the kind of dream world that we hope for in our other partner governments.

Mr Alexander: Your parallel universe is ending!

Mr Anderson: In terms of transparency it does not get better than this. Salaam Fayyad is doing his utmost to deliver world-class public financial management in the face of some big challenges. Partly because of his background in the International Monetary Fund he is taking very dramatic steps to improve the transparency and effectiveness of the public financial management system.

Q100 Chairman: When we produced our previous report the most shocking thing on the West Bank - we did not go to Gaza - was how obstructive the roadblocks and various other barriers were. When I was speaking at a Palestinian reception across the road I simply said it was great that $7.7 billion had been offered in aid and development but it was difficult to see how that could be spent if people could not move around and engage in normal activities. I received a pretty rapturous reception for just saying that. All I did was point out something which was fairly obvious, but it is a huge problem. It appears that since we reported the number of obstacles has gone up. According to OCHA following a detailed field survey completed on 18 March 2008 obstacles to movement in the West Bank increased to 612. This represents an increase of 236 obstacles over the baseline figure of August 2005. The Government of Israel claims to have removed 61 obstacles from the West Bank, which is only a fraction of the number, but OCHA says that when it checked it found that of those six had not been removed, 11 did not exist, 17 were insignificant, nine were of minimal significance and 30 had very recently been put in place. It does not seem to me that there is a realistic engagement given that Israel is increasing the number of obstacles and making the situation worse and then claiming the removal of obstacles which did not exist or do not really count. Is there any serious engagement in this very practical issue? When you visit the West Bank and see it you can understand that no one can do normal business in that situation.

Mr Alexander: My experience when I visited in December was very similar to yours. The first visit I made on my arrival was to OCHA's headquarters where I was given a presentation. You probably had it. One is taken to where the physical barriers exist. OCHA remains the most authoritative source in terms of numbers. The figures we have within the department show that as recently as 18 March there were 612 physical barriers including checkpoints, roadblocks, earth mounds, trenches, fences and gates. That represents a 61 per cent increase in the situation at the time of the Agreement on Movement and Access, with a baseline of 376 in November 2005. As to the prospects for forward movement on this issue, on 30 March this year Defence Minister Barak indicated that measures would ease movement and access on the West Bank and the easing of restrictions on businessmen and suggested a target of 50 roadblocks which would involve clearance by the Israelis. My recollection is that since that announcement was made only five significant obstacles have been removed notwithstanding the 61 that you described. That gives a sense of how slow progress is on this issue. In addition to the statement made by Mr Barak, amidst a rather bleak outlook on the whole issue of movement and access the other small point of light that I identify is the continuing work of Tony Blair as special envoy of the Quartet to try to identify the specific roadblocks that have the greatest impact on the Palestinian economy.

Mr Jenkins: One of OCHA's great achievements is to have become the respected international interlocutor of the Israeli Defence Force in talking about these obstacles and barriers. We did not have one before and it was difficult for OCHA to get into that position. It was done under David Shearer, the former head of OCHA, in Jerusalem. As far as I know, that continues which means that there is at least a basis for having this conversation with the IDF. The IDF simply will not say, as it said before characteristically, that these figures are wrong. I believe that to have a common data set as we have now is good. It has not impacted on the number of obstacles although that has fluctuated over the past four or five years, but the sort of approach that Tony Blair is trying to pioneer in Jenin in expanding space around an urban commercial centre, dealing with security and economic and social issues at the same time with Salaam Fayyad and the Palestinian Authority who are very keen on this, seems to me to be the right approach. It will be slow.

Q101 Chairman: But do you believe you are seriously engaging with Israel when it makes claims that are, to put it mildly, disingenuous? I have just double-checked what the Secretary of State said. I have added up the ones that they said did not count. That leaves five out of 61 which presumably did count. Therefore, if the Government of Israel says that it has removed 61 and OCHA can quickly say that of those 56 are for all practical purposes irrelevant or do not exist, what is your assessment of how successful Tony Blair can be in Jenin given that the Israeli authorities have the right at any time to move in and close it down if they feel their security is threatened? Are they really serious about engagement in this?

Mr Alexander: Frustrating and disappointing though the pace of progress is on this issue, candidly in conversation with the Israelis it is almost impossible to talk about the number of constraints on movement and access without having a dialogue about the number of suicide attacks because they see a mechanistic relationship between the strengthening of the barriers to movement and access within the West Bank and the very significant decline in terms of the number of suicide bombing attacks within Israel. In that sense we just need to be honest with each other as to the rationale behind the approach that the Israelis have taken to this issue. They feel that they face an existential threat and there is public support behind the action that has been taken. That is not to say that we are in every instance in agreement with them in terms of the specific measures that have been taken, but at least we need to understand the rationale they adopt. It is not coincidental that the conversations I have had on the issue have been with the Defence Minister.

Q102 Chairman: But is it not also true that quite a lot of these roadblocks and obstructions are not to protect the state of Israel but to protect illegal settlements within the West Bank? Therefore, one argument may be valid but that argument is not.

Mr Alexander: I hold no brief to speak on behalf of the Israeli state. Our position in terms of settlements is that they are, as you suggest, illegal. Equally, it is right to recognise that that is not the position that the IDF takes when an illegal settlement is established. It takes the view operationally that its responsibility then is to defend and protect citizens of Israel. There are immediate consequential impacts, namely a security cordon is established and buildings are demolished with all of the damaging consequences with which this Committee is familiar. In that sense the fact that we continue to disagree with the Government of Israel in terms of the legality of these outposts and settlements does not diminish the fact that the Israelis take a contrary view in terms of both settlements and outposts. As to engagement by the Quartet's envoy Tony Blair, I spoke to him ahead of the AHLC meeting and the Quartet meeting in London a couple of weeks ago about whether at that stage we were in a position where there would be significant movement from Israel in terms of the removal of roadblocks. Unsurprisingly, given that there was not significant movement even before the conference he was able to say that there had not been the movement he wanted. On the other hand, it rather echoes the statement I made in terms of the broader challenge of Annapolis. It is hard to think of a better alternative than to continue to work through every channel we have, including the office of the special representative of the Quartet, to try to make the case to Israel that there needs to be movement on this; otherwise, notwithstanding the efforts we as the international community and Salaam Fayyad and Abu Mazen will make tomorrow we will not see the kind of sustainable economic growth for all the reasons we discussed in relation to Ann McKechin's question.

Mr Jenkins: The security angle to this is absolutely critical. That is why what Salaam Fayyad wants to do in Jenin and maybe in Nablus as well seems to me to be the approach we have to adopt. One must try to create a space in which Palestinians can function and for the economy to start to grow. There is a disproportionate number of obstacles around the major towns certainly to the north of the West Bank. Nablus is a particular example but Jenin is also one. If you can isolate and remove the obstacles that stop these places functioning economically and backfill with Palestinian security in such a way that you provide a platform for the economy to grow without intervention by the IDF that is the path we have to take. It is a process that will proceed very much by attrition and it will be slow, but that is the nature of the beast.

Mr Alexander: For completeness, I have just been passed the figures for suicide bombings. In 2002 there were 36; in 2003, 20; in 2004, 12; in 2005, seven; in 2006, three; in 2007, one; and to date in 2008 there has been one. Those figures are cited not because I disagree with the suggestion that there are significant discussions to be had with the Israelis in terms of whether each and every one of the barriers just discussed is necessary to avoid this, but it is important to recognise how significantly these figures weigh in the calculations not simply of politicians but also the public within Israel. Much as I would like to suggest there is a significant disparity between the position taken by the public and that taken by the politicians, the politicians to whom I speak in the state of Israel feel they have the strong support of the public in ensuring these roadblocks and restraints remain in place for the improvement they judge in security. The sustainability of that security - whether or not it offers a long-term and viable basis on which Israel can exist alongside its neighbours - is a wholly different discussion, but it is important to be clear as to what they tell us in bilateral discussions as to the very strong approach they have taken to this issue in recent years.

Chairman: I appreciate that is an explanation of the Israeli perspective, but it is very difficult to understand the commitment that Israel claims to a two-state solution when the West Bank does not even have internal movement and Gaza is effectively blockaded and President Bush says that he wants a settlement by the end of this year. He was somewhat credulous about the good intentions of the parties in that situation, security notwithstanding.

Q103 Richard Burden: Perhaps I may explore a little further the strategy of Tony Blair in removing the major impediments to movement and where it might go. I understand that that approach has quite a lot to commend it, but perhaps you would say how we can avoid some of the possible dangers in that approach. When I was last there I was told that a number of the roads previously reserved for settlers were no longer so reserved and anybody could travel on them. The reason they are no longer reserved for settlers is that no Palestinian can in practice travel on them because the restrictions now are such that unless Palestinians want to travel from one Israeli settlement to another they will have no business being on that road anyway: all the routes to villages, towns and so on leading off those roads were blocked off at that stage. Is there a danger we could reach a stage whereby what are seen to be the key elements or obstacles to economic activity are removed so there is one isolated Palestinian town joined up with another and movement between those two but with the villages still being cut off and Palestinians in practice still not being able to move around the West Bank? We cease to have a situation where we can look at a Palestinian state based on territorial contiguity and instead have a strange patchwork based on transport continuity, with Israel saying that the Palestinians can get from one place to another, so what is the problem? Is that a danger and, if so, how do we guard against it? What mechanisms are in place to work out at each stage whether what is going on here is helping the Palestinian economy or is a way of making the occupation just seem a little nicer?

Mr Alexander: I suppose I would say with humility that life is full of risks. In that sense I think the greater risk is simply to engage in what could increasingly become a dialogue of the deaf over aggregate numbers, in the sense that by any measure we have not seen the progress that all of us in this room would I am sure have wished to see on movement and access in recent months and years. Notwithstanding the efforts made bilaterally and multilaterally I think it is a perfectly reasonable for Tony Blair as special representative of the Quartet to adopt the approach of seeing whether or not there is another route by which we can avoid a situation whereby the constraints become ever greater, the impoverishment increases and critically hope diminishes. In that sense I do not believe there is an "either or" between economic development and progress in the peace process. Certainly, from the conversations I have had with Abu Mazen and Salaam Fayyad it is critical for the viability of the Palestinian Authority and an alternative state to emerge that a credible peace process is seen to be moving forward. Sustaining that possibility among the Palestinian people, never mind among those engaged in negotiations, requires that if progress is not being made in the dialogue on movement and access we have to search for other routes that prove more fruitful. I have had conversations with Ehud Barak in terms of movement and access; I have talked to him directly on the position of the British Government and our concerns not simply about where it leaves the state of Israel in terms of international public opinion but where it leaves Palestinians in the context of the relative impoverishment or prosperity of an emerging Palestinian state. But if we have quoted to us the diminution in the number of suicide bombings and are told that the first responsibility of the state of Israel is to protect its own population then to find a way to channel that conversation to identify where the balance point lies between the need for a viable economic solution to emerge and the legitimate security concerns of the people of Israel seems to be exactly the job in which we need somebody like Tony Blair to engage. That does not guarantee the outcome or prescribe how many or where those barriers exist, but it seems to me to be an important conversation in which to engage; otherwise, the risk is that over a period of time we will see the haemorrhaging of confidence in the legitimacy of the process in which we are engaged. That haemorrhaging of confidence would itself have an impact both on the ongoing negotiations and in turn the facts on the ground.

Mr Anderson: The danger identified is absolutely valid and is one on which we shall be working with Blair's team to try to ensure that does not become a reality. There is another danger in focusing only on roadblocks and particular obstacles to movement and access. The regime of regulation which imposes a challenge for economic growth in Palestinian territories is also related to other aspects. For example, for each building permit granted to a Palestinian there are 55 orders for the demolition of Palestinian buildings. There has been a lot of discussion about the number of gates within the official separation barrier. We have had arguments on the number of gates, but we also know that at the moment only 64 per cent of them operate in accordance with officially published opening times. That is another example of where in practice constraints are imposed. Sixty per cent of Palestinian families in the Seam Zone between the barrier and Green Line do not have access to their land. Of the Israeli settlements, only 1.3 per cent are owned by settlers and some 40 per cent of settlement land is owned privately by Palestinians who have not been compensated. There is a whole series of policy issues, not just access, over which Israel has direct control all of which we need to take in the round and address. We hope that one of the things Blair will be able to do is continue to make progress on all of them. That said, in addition to the very real security concerns of Israel, 36 suicide bombings a year equate to three per month. If one compares that with the bombings in London even at the most intense times of the Northern Ireland conflicts one can imagine the sort of impact that has on the population. Israel is very clear that it cannot return to those days. But the other consideration which clearly is borne in mind is that Israel is managing facts on the ground with an eye to the bargaining chips it has in the peace talks. There is no point in pretending that that is not the case. As long as the peace talks proceed that will continue to create incentives for Israel to have bargaining chips which is why the Annapolis process is absolutely vital. To go back to the question of the extent to which we expect Israel to deliver, it will not deliver on all of these until such time as we have some movement on a final settlement which gives Israel what it needs which is security.

John Battle: The phrase "facts on the ground" is one that Israel imposed on the international debate in a sense and it has become the benchmark for defining the situation. We sometimes say that there are the facts and we make our commentary on them, but the very phrase "facts on the ground" tells me that one side is setting the terms of the debate and we ought to be aware of that all the time.

Q104 Ann McKechin: In the context of increasing the number of bargaining chips let us turn to the question of settlements. Perhaps the reason why settlements are continuing apace is because of the timidity of the international community's response.

Mr Alexander: I am not sure that I share your view. In the conversations that I have described I have set out very clearly the British Government's position and the Prime Minister, Foreign Secretary and others have done the same. The position of the British Government remains unchanged. In the exchanges that I have had with Israeli ministers "timidity" has not been the first term they have used to describe our continuing assertion that settlement on the occupied Palestinian territories is illegal.

Q105 Ann McKechin: A great number of statements have been made but there have been no real consequences. One issue that has been raised consistently is the European Union trading agreements which allow Israel to have preferential treatment. If there is no consequence to increasing the number of settlements - there were 1,000 new units in 2007 alone and 13.5 million for settlement building already set aside for this year's budget - surely the inevitable conclusion is that Israel will simply be encouraged to increase the number of bargaining chips it has by the time it reaches some form of negotiation?

Mr Alexander: There is a judgment to be made as to whether the more appropriate response to the situation in the Middle East is to disengage economically or politically, to impose sanctions or at some level to walk away. That has never been and is not the position that the British Government has adopted in relation to finding a way forward in the Middle East peace process.

Q106 Chairman: That is a slightly unfair response to Ms McKechin. She does not suggest that that is what the policy of the British Government and the international community is or should be. She is asking what sanctions at all is one prepared to apply to try to even the balance?

Mr Alexander: As I say, we are not convinced of the case that sanctions would themselves assist. I recognise that that is a judgment to be made, but in terms of our long-standing discussions and engagement with the state of Israel I am not convinced that the response to that would yield the results for which we are looking. I recollect a conversation - this is not part of my brief and my officials will clearly be very concerned - to which I was party shortly after President Clinton left the White House. He was talking about the part he had played in trying to find a way forward in the Middle East. He said that unless there was a belief in the minds of the Israeli Government that you would literally be in a trench next to them as the tanks rolled across the Jordan River they simply would not listen to you. He was speaking on his own behalf and it does not represent the position of the British Government, but it is a telling remark by someone who in a number of ways came closer than many others to finding a way forward in the Middle East. It is a recognition that psychology matters in this as well as economics, and in that sense there is a judgment to be made as to how best we can influence not simply the Palestinian Authority but also the Government of Israel. We have not regarded sanctions against the state of Israel as the way we can maximise the leverage that we need, reflecting the extent to which the Israeli economy is now integrated not simply into the European economy but the global economy. Some years ago I had the opportunity to visit Haifa and see for myself Intel and Microsoft plants in the same business park. First, I am not convinced of the idea that there would be a straightforward or immediate response following the imposition of sanctions. Second, I think the reason we have resisted that path is not because we do not have robust exchanges with the Israelis both in private and if necessary in public but because of a judgment as to how best we can influence the capacity - I hesitate to say "the facts on the ground" - of the peace process to find a way forward.

Mr Jenkins: In the 40 years since the settlement enterprise started the Israelis have not managed to persuade anybody that settlements in Jerusalem, East Jerusalem, the West Bank or Gaza are legal. There is a consistent international position on this; it is our position. I do not speak on behalf of the Government of the United States either, but I note that Condi Rice has been pretty vocal recently about this and has pushed back particularly on the issue of settlements in East Jerusalem. I believe that is an international acquis to which it is worth holding on. In the end the resolution of this will be the same as the resolution of everything else; it will be a package deal that concludes the negotiations and constructs a Palestinian state on the 1967 borders. Ultimately, all these things are interlinked, but it is important to recognise that on this particular issue the international community as a whole has been very consistent over the past 40 years. In the end, if we get to a stage where there is a conclusion to negotiations and a peace deal with a Palestinian state this will be one of the matters, which is clearly associated with the whole issue of borders, that will be resolved.

Q107 Ann McKechin: In relation to settlements and the E1 plans already there is a definite sign of development by the Israeli authorities, including the expropriation of Palestinian land surrounding four West Bank villages and investment in public infrastructure such as police stations and roads. The Government has stated previously that if E1 goes ahead it will threaten the prospects for a sustainable Palestinian state with access to Jerusalem. What is our Government's strategy now to try to ensure that that does not proceed?

Mr Jenkins: We have been as robust as anyone in saying that any construction leading to settlement activity is illegal and risks cutting off access between the north and south of the West Bank, which is the critical issue; that is the bit which goes down the Jordan valley. The rest of the EU and the United States have been as robust on that. This arises in the context of the barriers to travel up and down the West Bank because it is an integral part of that. This is an issue on which we need to keep pressing the Israeli Government extremely hard. Ultimately, like all the other settlement issues and those relating to the barrier around Jerusalem it will be resolved as a package. The security issue again is integral to the whole issue of the wall or barrier around Jerusalem of which E1 will form a part. This is a matter on which we have made our views extremely clear to the Israeli Government and we shall continue to do so, but ultimately the answer will lie in some sort of package deal.

Q108 Ann McKechin: Presumably, that will be before the E1 settlement is built; otherwise, effectively the chances of a two-state solution will be substantially reduced?

Mr Jenkins: I do not think that any of the settlements at the moment mean that a two-state solution is unavailable. It means that when we reach the stage, as I hope we shall, where a two-state solution is on the table to be negotiated there will be mechanisms to deal with the existing settlements. Settlements have been removed before; Gaza is one example and the Sinai withdrawal is another. It is slightly different on the West Bank given the level of population but clearly it needs to be dealt with. That is something we and the rest of the international community have said consistently, and that remains our position.

Chairman: Secretary of State, we thank you and your team very much. You will appreciate that this Committee like your department is interested in the development of the Palestinian territories. Inevitably, we stray into foreign policy issues which is why we appreciate the attendance of the Foreign Office representative. Our fundamental frustration is that one looks at the situation and thinks that if there was peace there would be no need for DFID to be there. It would have the capacity to be a viable and functioning economic area and our money could be spent in other parts of the world where perhaps there was a greater need for aid. These exchanges have been extremely useful and have given an insight into the tensions. The facts on the ground are moving against us, or in the other direction. We appreciate that your evidence in this context is slightly out of order. Tony Blair is still to come and no doubt we shall have an interesting exchange with him, too. This session has been extremely useful.

[1] The Director of Operations (Gaza) for the UN Relief & Works Agency (UNRWA)

[2] UN Office for the Coordination of Humanitarian Affairs

[3] Ad Hoc Liaison Committee

[4] International Committee of the Red Cross

[5] EU Border Assistance Mission

[6] Palestinian Authority

[7] The Prime-Minister of the Palestinian Government

[8] Supplementary written evidence submitted by DFID

[9] Supplementary written evidence submitted by DFID