Israel mulls over transferring control of Rafah border crossing; Knesset shuns two-state solution

Israel’s Parliament passed a resolution expressing formal opposition to the establishment of an independent Palestinian state, warning that it could serve as a base for terrorist groups.

Growing optimism that Israel could reach a ceasefire deal with Hamas is driving a rebound in the country’s markets.

Israel considers letting EU, Palestinians control Rafah crossing

Israeli officials were considering transferring control of Gaza’s Rafah border crossing to the European Union and Palestinians, according to people familiar with the matter.

Though Prime Minister Benjamin Netanyahu has scorned the idea of Israel ceding the crossing, Israeli officials were in talks with the EU and the US about the proposal, the people said. If enacted, it could foreshadow an end to the conflict between Israel and Hamas and enable more aid to get into the devastated Palestinian territory, said the people, who asked not to be identified discussing the sensitive talks.

The negotiations underscore the EU’s renewed diplomatic efforts to relieve some pressure on Palestinian civilians and help stop the war. The bloc has for months called for a truce but had little influence over the Israeli government as it tries to destroy Hamas.

Brussels helped run the crossing before 2007, when Hamas took control.

Netanyahu has said that whatever Israel does, Hamas won’t be allowed to retake control of any border areas. His government also insists on Israel’s troops remaining in the vicinity of the crossing and along the Gaza-Egypt border.

After a visit to Rafah on Thursday, Netanyahu said it was “vital” to hold the Philadelphi Corridor and the Rafah crossing. The Philadelphi Corridor is the southern portion of Gaza that runs along the border with Egypt.

The prime minister has previously clashed with his generals over the crossing, according to an Israeli official. They are more inclined than Netanyahu — who will have the final say — to reopen it, the official said.

The crossing linking Gaza and Egypt has become a key source of tension in recent months between Israel and Palestinian authorities, as well as the Egyptian government. It was the main route for aid going into Gaza before Israeli forces took it over from Hamas in early May, since when it’s been shut.

The US, United Nations and Arab states have urged Israel to reopen it to enable more supplies of food, fuel and medicine to get to Palestinian civilians.

White House spokesperson John Kirby on Thursday said he couldn’t confirm specific reports on an emerging accord.

Still, “We want to see that crossing back open,” he said. “We want to see it open in a sustainable, credible way that can allow for the flow of humanitarian assistance into Gaza, specifically, and we are in constant touch with our counterparts, both in Egypt and in Israel, about trying to achieve that outcome.”

Israeli authorities are considering allowing a combined contingent of security-cleared Palestinian officials and the European Union Border Assistance Mission to Rafah, known as Eubam, to take charge of the crossing, said the people, who spoke on condition of anonymity so they could discuss the confidential plans.

It’s unclear how close the sides are to completing an agreement. Netanyahu’s office didn’t immediately respond to a request for comment on that question, while the Israeli defence ministry declined to comment.

Netanyahu is due to meet US President Joe Biden in Washington next week and address Congress, in what will be his first trip outside of Israel since the war began in October.

Hamas, designated a terrorist organisation by the US and EU, started the conflict when its fighters swarmed from Gaza into southern Israel on 7 October, killing 1,200 people and taking 250 hostages. Israel’s offensive on Gaza has killed more than 38,000 Palestinians, according to the Hamas-run health ministry there.

Israel’s Knesset shuns two-state solution in latest US clash

Israel’s Parliament passed a resolution expressing formal opposition to the establishment of an independent Palestinian state, warning that it could serve as a base for terrorist groups.

“The Knesset is adamantly opposed to the establishment of a Palestinian state west of the Jordan River,” the legislature said in the resolution, which was adopted at a sitting in Jerusalem on Thursday with backing from 68 of its 120 members.

About three-quarters of United Nations members have expressed their support for, or recognition of, Palestinian statehood. While the prospect of it being able to peacefully co-exist with Israel looks increasingly remote in light of the war raging in the Gaza Strip, some of Israel’s allies say a two-state solution — which has been discussed for decades — is what’s needed to advance peace in the Middle East.

During Netanyahu’s visit to Washington next week, the Biden administration is expected to urge acceptance of a Palestinian state as the way to bring Arab states into the rebuilding of Gaza and normalisation of relations between Israel and Saudi Arabia.

John Kirby, the spokesperson for the US National Security Council, told reporters on Thursday that a two-state solution “is not something that President Biden is going to give up on” even though it would require “strong courage and leadership in the region to bring about that outcome”.

At the United Nations, US Ambassador Linda Thomas-Greenfield told reporters that it’s “the only, only future that we see for this region in which Israelis and Palestinians can live side by side in peace”.

UN Secretary-General António Guterres was “very disappointed” by the Knesset’s decision, which he saw as “clearly inconsistent with UN resolutions, international law and prior agreements,” according to spokesperson Stephane Dujarric.

Israeli assets rally on growing optimism for a ceasefire

Growing optimism that Israel could reach a ceasefire deal with Hamas is driving a rebound in the country’s markets.

The shekel has rallied by about 3.6% in July, while Israeli stocks are outperforming the global benchmark for the first time since February. Local-currency bonds are vying with Colombia to hand investors the best returns in developing markets, alongside advances in Israel’s dollar-denominated debt.

Investors are paying new attention to Israeli assets, believing that Hamas and Israel are closer to accepting a US-backed ceasefire plan after almost 10 months of fighting. Lebanese militia Hezbollah — backed by Iran — has also pledged to stop attacking Israel if a pact materializes.

“The recent outperformance comes from the rising probability that some sort of ceasefire agreement can be reached,” said Brendan McKenna, an EM currency strategist at Wells Fargo in New York. “That is creating positive investor sentiment toward Israel, at least for the time being.”

The shekel’s advance is putting it within earshot of its strongest level since June 2023. Local bonds have returned around 5.4% this month, a turnaround from the 7.2% loss in the first half of the year when the risk of a widening war — drawing in Iran and the US — prompted investors to flee.

Similarly, Israel’s dollar debt has clawed back around two-thirds of losses sustained in the year through June, when the country’s sovereign bonds were the developing world’s worst performers. Likewise, credit default swaps have cut the cost of hedging against default by the Israeli government in the next five years to the lowest since 2021. DM

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