Israel   

Facts on Israel

The territories Israel occupied since the 1967 war are not included in the Israel country profile, unless otherwise noted. On 25 April 1982, Israel withdrew from the Sinai pursuant to the 1979 Israel-Egypt Peace Treaty. In keeping with the framework established at the Madrid Conference in October 1991, bilateral negotiations were conducted between Israel and Palestinian representatives and Syria to achieve a permanent settlement. Israel and Palestinian officials signed on 13 September 1993 a Declaration of Principles (also known as the "Oslo Accords") guiding an interim period of Palestinian self-rule.

Outstanding territorial and other disputes with Jordan were resolved in the 26 October 1994 Israel-Jordan Treaty of Peace. In addition, on 25 May 2000, Israel withdrew unilaterally from southern Lebanon, which it had occupied since 1982. In April 2003, US President Bush, working in conjunction with the EU, UN, and Russia - the "Quartet" - took the lead in laying out a roadmap to a final settlement of the conflict by 2005, based on reciprocal steps by the two parties leading to two states, Israel and a democratic Palestine. However, progress toward a permanent status agreement was halted due to  Israeli-Palestinian violence between September 2003 and February 2005.

In the summer of 2005, Israel unilaterally disengaged from the Gaza Strip, evacuating settlers and its military while retaining control over most points of entry into the Gaza Strip. The election of Hamas to head the Palestinian Legislative Council froze relations between Israel and the Palestinian Authority (PA). Ehud Olmert became prime minister in March 2006 and presided over a 34-day conflict with Hizballah in Lebanon in June-August 2006 and a 23-day conflict with Hamas in the Gaza Strip during December 2008 and January 2009. Olmert, who in June 2007 resumed talks with PA President Mahmoud Abbas, resigned in September 2008. Prime Minister Binyamin Netanyahu formed a coalition in March 2009 following a February 2009 general election. Peace talks are currently stalled.

Cut diamonds, high-technology equipment, and agricultural products (fruits and vegetables) are the leading exports. Israel usually posts sizable trade deficits, which are covered by large transfer payments from abroad and by foreign loans. Roughly half of the government's external debt is owed to the US, its major source of economic and military aid. Israel's GDP, after contracting slightly in 2001 and 2002 due to the Palestinian conflict and troubles in the high-technology sector, grew about 5% per year from 2004-07.

The global financial crisis of 2008-09 spurred a brief recession in Israel, but the country entered the crisis with solid fundamentals - following years of prudent fiscal policy and a series of liberalizing reforms - and a resilient banking sector, and the economy has shown signs of an early recovery. Following GDP growth of 4% in 2008, Israel's GDP grew by 0.5% in 2009 and is expected to expand in 2010. The global economic downturn affected Israel's economy primarily through reduced demand for Israel's exports in the United States and EU, Israel's top trading partners. Exports account for about 45% of the country's GDP.

The Israeli Government responded to the recession by implementing a modest fiscal stimulus package and an aggressive expansionary monetary policy - including cutting interest rates to record lows, purchasing government bonds, and intervening in the foreign currency market. The Bank of Israel began raising interest rates in the summer of 2009 when inflation rose above the upper end of the Bank's target and the economy began to show signs of recovery..