Of all the reasons for the ongoing conflict in Gaza, the most important is arguably the most prosaic: money. Before Hamas started firing over a thousand rockets into Israel, before Israel responded with airstrikes (and now, ground forces), and before the brutal kidnappings and murders of three Israeli teenagers in the West Bank and one Palestinian teenager in Jerusalem, there were the Gazan banks.
For six days in early June, Hamas gunmen physically forced the closure of all the banks in the Gaza Strip, due to a dispute over salaries with the West Bank–based Palestinian Authority. Since a violent Hamas coup against the PA in 2007, the Islamist group has been ruling Gaza with, as one former Palestinian official put it, “steel and fire”—a heavy hand. But even a regime of steel and fire requires cash. Over the past year, the Gazan economy—and by extension Hamas—lurched into crisis. The new military-led government in Egypt, which ousted the Muslim Brotherhood (of which Hamas is an offshoot), cracked down on the smuggling tunnels connecting Gaza to the Egyptian Sinai. For years, these tunnels, thought to number at least in the high hundreds, brought in everything from fuel, artillery rockets, and other military hardware to daily consumer goods, construction material and even automobiles. By one estimate, two-thirds of all trade into Gaza went through these tunnels.
Life in the coastal enclave continued to function, despite the Israeli blockade in place since the Hamas takeover. The sophistication of the current Hamas arsenal—from long-range rockets to hardened attack tunnels—is one sign of the success of the economy. So, too, is the class of Gazan nouveau riche, many of them connected to Hamas and the tunnel economy, who indulged in things like opulent villas and luxury sports cars. Not only did Hamas tax many of the products moving in, enriching its own coffers, but it also moved out much of its own officials’ personal wealth, primarily to real estate projects in the Egyptian Sinai. The effective shutdown of the tunnels by Egypt, however, marked the beginning of the end.
No longer could Gaza depend on cheap Egyptian gasoline (for cars) and diesel fuel (for its sole power plant). Blackouts now average about eight hours a day, but at one point late last year they were clocked at 18 hours per day. Unemployment began rising due to the slowdown of construction projects related directly or indirectly to the tunnel economy; indeed, the only construction ongoing in Gaza since late last year (when a Hamas attack tunnel built with smuggled cement and steel was uncovered inside Israel) is U.N. projects or, to a lesser degree, Qatari housing projects.
As a result, official figures from the Palestinian Central Bureau of Statistics puts the unemployment rate in Gaza at over 40 percent, with youth unemployment nearly 60 percent. According to U.N. data, just under 40 percent of Gazans live below the poverty line, with nearly two-thirds of the population receiving some form of food or humanitarian assistance. Finally, clean water and overall sanitation in Gaza are, according to foreign aid workers as well as press reports nearing crisis levels. Taken together, as one senior Palestinian official in Ramallah put it to me last month, “Gaza wouldn’t have made it to the end of the year.”
You know the situation inside Gaza was becoming extremely grave when even the Israeli authorities began taking notice, and, in a major policy shift, developed a plan to improve conditions there—well before the recent war, tragically.
In conversations last month with a senior Israeli officer from the office of the Coordinator of Government Activities in the Territories (COGAT), the army body responsible for the West Bank and Gaza, he freely admitted that Gaza was “in crisis.” The senior officer and his team had begun discussions with both the U.N. and the Quartet to formulate a long-term plan for the “standing-up” of the Gaza Strip (he declined to use the terms “development” or “reconstruction”).
The tentative proposal, confirmed to me independently by officials in Israel at both the U.N. and the Quartet, would see Israel loosening its safeguards on dual-use construction materials and goods entering the Gaza Strip, contingent on a strict U.N. verification process that ensures such items aren’t siphoned off by Hamas or other militant groups. The Israeli army officer ticked off a slew of projects that would be undertaken: desalination plants, power plants, sanitation and waste disposal systems, new hospitals, and even fishing farms off the coast of Gaza. The officer at one point pulled out a map and pointed to the natural gas pipelines that would connect Gaza to Israeli offshore fields, thereby alleviating the territory’s acute energy crisis.
The political obstacles to such a plan would be immense so long as Hamas still ruled Gaza, a point the officer conceded. Yet the risks of inaction were apparently greater. “Gaza,” he said, “is a ticking bomb. It’s our job to convince the [Israeli] politicians.”
What this Israeli officer saw from the outside, the Hamas rulers of Gaza were feeling up close and personally. Not only was the macroeconomy of its little statelet coming apart at the seams, but the group itself was effectively bankrupt—the Hamas government in Gaza actually passed a budget in January which reportedly only covered a quarter of its obligations. By all accounts, Hamas was at its weakest point since its founding over a quarter century ago, ruling over a restive population and looking for a lifeline. After seven years, the Israeli—and now Egyptian—blockade of Gaza had apparently succeeded in undermining “Hamastan.” Hamas in late April signed a “reconciliation” agreement with its arch foes in the Fatah movement, which controls the Palestinian Authority.
The Hamas-Fatah reconciliation deal was, if not flawed from the outset, then critically vague. The agreement signed was a framework deal, which left most of the devilish details regarding true reconciliation between Fatah and Hamas, and between the West Bank and Gaza, for future discussions.
It quickly became evident, however, that Fatah was dictating terms to Hamas in these negotiations, and not the other way around. To take the most prominent example, the new “national consensus” government sworn in on June 2 was ostensibly meant to be independent and technocratic, yet all the key posts were filled by pliant confidantes of PA President Mahmoud Abbas.
The vagueness of the reconciliation agreement reached a critical state on the issue of payment for Hamas’s public sector workers in Gaza. The group expected that after giving its consent to the new PA government, this new PA government would then pay the wages of the estimated 40,000 government workers in Gaza affiliated with Hamas, who had not drawn a paycheck in nearly six months. Hamas’s demand was given greater insistence by the fact that the PA government continued to pay salaries to the 70,000 Fatah-affiliated public employees in Gaza to essentially stay home and not work (as it has done for the past seven years).
In early June, after the new government was seated and after the salaries arrived in Gaza for only the Fatah workers, Hamas took action. For six days its gunmen forced the shutdown of all the banks in the territory, under the logic that if its people weren’t getting paid, then the Fatah workers wouldn’t be able to access their money either.
It was, as a senior PA finance official in Ramallah responsible for this issue explained to me in the middle of the crisis, “a game of chicken with Hamas.” According to this official, who requested to remain anonymous so he could speak freely, he received a phone call from senior Hamas leader Moussa Abu Marzouk, who threatened that there would be “blood on the streets” if payment wasn’t made.
The only problem was that even if it wanted to, the PA couldn’t pay the Hamas workers in Gaza, a point the PA official relayed not only to Hamas but to Abbas and the new government. The issue wasn’t political, but legal and financial. As upstanding members of the global banking system, Palestinian banks couldn’t simply transfer money to members of a U.S.- and European Union-designated terrorist organization like Hamas. Most of the PA’s international donors who support the already-strained PA budget would also not allow such transfers to happen—according to the senior finance official, both because of Hamas’s terrorist designation as well as long-standing European concerns about the inefficient Palestinian public sector. “We can’t just add 40,000 more employees to the payroll,” he told me, “they’re not needed, and the bureaucracy is already overblown.”
The Hamas-Fatah agreement did in theory provide a mechanism for resolving the impasse, via committees made up of technocrats from several PA ministries that would vet the Hamas public employees. Yet, according to several sources in Ramallah, these committees would only start their work after the elections called for in the reconciliation deal—that is, by the end of the year at the earliest.
In the interim, the only way that the Hamas employees could be paid, according to the senior PA official, would be via suitcases of cash—between $20 to $40 million per month—provided by Hamas’s backers in Qatar, which could only reach Gaza via the Rafah crossing with Egypt. The new Egyptian government has, to date, shown zero interest in facilitating a cash transfer to a group it too considers a terrorist organization.
Confronted with the above realities, Hamas eventually backed down, at least temporarily. After six days of forcing the Gazan banks shut, the Hamas leadership blinked first, and allowed their re-opening so that the 70,000 Fatah employees could access their money (the fear being that having 110,000 Gazans going without pay is far worse than just 40,000). Blood did not run in the streets—at least not then—but Hamas, as the PA finance official put it presciently, “always has the weapon of escalation.”
Unlike the argument put forward in a recent New York Times op-ed, neither the West nor Israel precipitated this latest round of fighting in Gaza. Faced with a growing economic, social, and humanitarian crisis of its own making in the Gaza Strip, Hamas—via the reconciliation agreement with Fatah—attempted to relinquish its financial responsibilities, but not its weapons.
In an interview last month, Sheikh Hassan Youssef, a prominent West Bank Hamas leader, readily admitted that governing had taken a toll on Hamas, and that they were in crisis. “The sovereign loses,” he observed. "We [tell Abbas] 'take.' Hamas is [now] responsible for nothing." While the PA only had, he said, “the option of negotiation, Hamas has many other options,” adding that if Hamas’s demands were not met, there would be an “explosion, and the Israeli authorities will be the target of the explosion.” What we are witnessing now in Gaza is, in many respects, Hamas exercising these “other options.”
“Hamas,” the Times op-ed says, “is now seeking through violence what it couldn’t obtain through a peaceful handover of responsibilities.” There’s another word for such behavior—terrorism. But the bigger lesson from the crisis surrounding the Gazan public sector workers is that such a peaceful handover of responsibilities was never going to be easy so long as Hamas itself refused to abide by the reasonable conditions put to it by the Quartet seven years ago: renunciation of violence, recognition of Israel, and acceptance of past Israeli-Palestinian agreements. Absent such a move, Hamas could not be recognized as a legitimate political actor by the international community; the terrorist designation would remain, and with good reason.
The continued rejection by Hamas of any peaceful settlement to the Israeli-Palestinian conflict was the original reason for the Israeli blockade around Gaza after the 2007 Hamas coup, and it’s the real reason why the Hamas public sector workers never got paid. Hamas is now trying to violently extort the international community, Egypt, the PA, and Israel to give it what it wants—an easing of the blockade, payment to its people—without offering anything in return. Broke, desperate, and with few remaining friends in the world outside of Turkey and Qatar, the only real leverage Hamas has is the threat of continuing this disastrous war of choice, and heaping more devastation onto the people of Gaza.
Neri Zilber is a visiting scholar at the Washington Institue for Near East Policy.