The Failed State of Palestine

a review by Jerry Gordon (November 2013)

State of Failure: Yasser Arafat , Mahmoud Abbas, and the Unmaking of the Palestinian State
by Jonathan Schanzer
Palgrave Macmillan, October 2013
ISBN 978-1-137-27824-1





Israel Prime Minister Netanyahu and Secretary of State John Kerry met in Rome on October 23, 2013 for a seven hour conference to discuss the latest round of  P5+1 negotiations with Iran over its nuclear enrichment program. Netanyahu stressed the looming nuclear breakthrough and the tragic possibility of the US relenting on tough sanctions while he contends that the Islamic republic is on the ropes economically. During the press conference, Netanyahu and Kerry made statements regarding the final status agreement peace process discussions between Israel and  the Palestinian Authority led by President Mahmoud Abbas. Few details emerged about progress in the final status talks. The US is monitoring those talks through the efforts of former US Ambassador to Israel, Martin Indyk and Phillip Gordon, the National Security Council Coordinator for the Middle East and Persian Gulf. Those talks are fragile at best given an increase in low level violence in the disputed territories of Judea and Samaria and entreaties by PA President Abbas to EU companies to boycott Jewish businesses located there.

PA President, Mahmoud Abbas, effectively ended the peace process when he obtained full membership status at UNESCO in 2011, and non member status on November 29, 2012 when the UN General Assembly voted 138 to 9 to raise the status of the Palestinian Authority. Abbas demanded in memos to UN Secretary  General  Moon that the PA should be referred to the State of Palestine. The status at the UN brought recognition of the PA as a virtual state with upgrades in diplomatic recognition by a host of countries as a result of an intensive two year lobbying campaign by Abbas across the globe.

That unilateral action by the PA under Abbas at the UN in November 2012 effectively ended the 20 year old Oslo Accords signed on September 13, 1993. Abbas’ unilateral initiative backfired as major donors shied away from providing support for an increasingly corrupt dictatorial regime with few human rights and denial of a free press and free speech; rights guaranteed in the basic law of the PA.

In his new book, State of Failure: Yasser Arafat, Mahmoud Abbas and the Unmaking of the Palestinian State,  Dr. Jonathan Schanzer shows how the dysfunctional Palestinian terrorist movement of the PLO was incapable of morphing into a state. That Abbas’ unilateral action at the UN met with indifference and skepticism by the international community. Schanzer’s book is timely as it raises questions whether the current peace process is fallacious, as the pre-conditions for being considered a state under the Montevideo Convention of 1933 are absent. He suggests that the focus should be on fiscal and economic institution building, centralization of competing internal security arrangements and replacing decades of corruption. Schanzer’s new book recounts the history of evolving US policy leading up  to current  peace discussion endeavoring to achieve a conclusion to the 64 years of conflict  between Israel and the Palestinians. He addresses the heritage of ‘guerrilla governance’ of the PLO-Fatah and its opaque funding. Schanzer discusses the UN Resolutions that led to recognition of Palestinian autonomy, the diplomacy that paved the way for the Oslo Accords, return of Arafat from Exile in Tunis and series of interim agreements negotiated with Israel. He uncovers the seminal role of Salam Fayyad, a US trained economist and ex-World Bank official and his auditing team who  established  fiscal reforms, gathered purloined funds and created the Palestinian Investment Fund. These  fiscal and institutional reforms pursued by Fayyad, dubbed “Fayyadism,” had beneficial side effects of the reining in PLO violence and assisting in ending  the Second Intifada. The irony is that upon the death of Arafat and the ascension to PA Presidency by Mahmoud Abbas, Fayyad’s pursuit of further transparent government institution building was stymied. 

For more on Fayyad read this National Post excerpt from Schanzer’s State of Failure, “One-Man Show.”

This was complicated by  the overthrow of Fatah–PLO in Gaza by the Hamas coup of 2007. Following the coup, Abbas returned to the abusive dictatorial practices of Arafat by sidelining political competitors and denying free speech and a free press. In the process his actions masked fiscal corruption amid new disclosures of unaccounted billions of foreign donor funds. Schanzer examines how Abbas’ campaign for unilateral declaration of a Palestinian state may have effectively suborned the current final status peace discussion fostered by the US. He concludes with a set of 14 points  or pre-conditions for development of a possible viable Palestinian State.

Schanzer, VP for Research at the Washington, DC-based Foundation for the Defense of Democracies, has the requisite background and access to sources in both Israel and the PA to disclose the wanton corruption and suppression of human rights. Abbas is now serving in the ninth year of a four-year term. Schanzer was a former financial terrorism analyst with the Office of Financial Assets Control of the US Treasury Department. Further, in his latest book, he effectively makes the case of why the PA has failed. He asserts the current peace process directed  towards a final status agreement between Israel and the Palestinian Authority in less than nine months is delusionional. Because of his efforts in disclosing the corruption of Abbas’ sons he has been sued by them but was recently vindicated in an important Washington, DC Federal court decision.

In June 2012, Schanzer, published a Foreign Policy article about the windfall profits reaped by Yasser Abbas, the son of PA President, Mahmoud Abbas. Schanzer’s article was entitled “The Brothers Abbas: Are the sons of the Palestinian president growing rich off their father's system?” Yasser Abbas brought suit in the DC Federal Court against Foreign Policy, (FP) FDD and Schanzer in a baseless SLAPP suit. The younger Abbas was seeking to intimidate FP, FDD and Schanzer. He alleged that the charges in Schanzer’s article were baseless and sought $20 million in economic damages and a retraction. FP is a publication of the Washington Post. As noted by FDD President Cliff May, “United State DC Federal District Court  Judge Emmet Sullivan struck down this meritless libel suit.”

Josh Gerstein, in his Politico blog post on the dismissal of the Abbas suit by Judge Sullivan noted:

The question of U.S. aid to the Palestinian Authority, and the level of corruption in the PA under both Yasser Arafat and Mahmoud Abbas, is fundamentally a matter of the public, not private, interest, Sullivan wrote. “The question of whether the sons of the President of the Palestinian Authority are enriching themselves by virtue of their political ties, and whether some of their wealth can be traced to U.S. tax dollars is part of that issue.”

May cited the Lawfare undertaken by the younger Abbas seeking to intimidate other media for alleged defamation:

As public scrutiny over his business and political activity has increased, Mr. Abbas has used the threat of defamation litigation to counter bad press … Between 2008 and 2010, Mr. Abbas and his family have filed defamation lawsuits or threatened to sue for libel on three separate occasions against an Israeli television channel, Reuters, and Al-Jazeera.

For more information on the District of Columbia Anti-SLAPP Suite statute and decision by Superior Court Judge Sullivan, current status of appeals and motions, listen to this presentation by The LawFare Project with Nathan Siegel, Esq. counsel for Schanzer,, in the matter brought by Yasser Abbas, “Abbas’s Son Loses Predatory Libel Lawfare Suit.”

The perennial question of why there are missing billions of donor funds for the PA was raised in a recent unpublished report by the Brussels based European Court of Auditors (ECoA) in mid-October 2013. David Singer noted the findings of the ECoA and independent PA corruption commission reports, in an Israel National News article, “Palestinian Authority – Billions in Aid Go Missing”:

Brussels reportedly transferred more than US$2.64 billion to the PA and Gaza in [2008 to 2012]  – but had little control over how it was spent – the auditors said in the damning report seen by The Sunday Times.

EU investigators who visited sites in Jerusalem, Gaza and the PA noted “significant shortcomings” in the management of funds sent to Gaza and the PA.

These disturbing revelations followed closely on the heels of a report in Bethlehem-based Ma'an News on 10 October claiming that the PA’s anti-corruption commission – established in 2010 – was working to retrieve PLO-owned land registered to individual PLO leaders – according to commission chief Rafiq al-Natsheh.

[. . .]

“If suspects accused of stealing public money (are moving funds abroad), that falls within our jurisdiction, We will ask these countries to help us restore the stolen public money. Transferring money anywhere (abroad) will not prevent us from calling suspects to account and restoring that money.”

The whole pattern of corruption and dictatorial kleptomania was evident from the beginning when Yasser Arafat returned from exile in Tunisia in the wake of the Oslo Accords. This comment from the late Michael Kelly in March 2002 Washington Post column, “Phases of Arafat” sets the stage for what occurred in the PA and subsequent internal battles between Hamas and Fatah-PLO that Schanzer elucidated in his earlier book, Hamas vs. Fatah: The Struggle For Palestine:

On July 1, 1994, Yasser Arafat entered Gaza to establish the Palestinian Autonomous Region – betwixt-and-between creature of the Oslo peace process that was supposed to become the physical base of another ambivalent notion, the Palestinian National Authority. I went as a reporter to Gaza a few hours before Arafat arrived and I stayed there for about five weeks, observing the early days of life and governance under the Palestinian Authority. Arafat's entry into Gaza was an object lesson: a purposely uncaring display of brute power. He arrived from the Sinai in a long caravan of Chevrolet Blazers, Mercedes-Benzes and BMWs, 70 or 80 cars packed to the rooflines with men with guns. The caravan roared up the thronged roads and down the mobbed streets, with the overfed, leather-jacketed, sunglassed thugs of Arafat's bodyguard detail all the time screaming and shooting off their Kalashnikovs to make their beloved people scurry out of their beloved leader's way.

This was the whole of the Palestinian Authority from the beginning, an ugly little cartoon of Middle East despotism, a tinpot's tinpot of a regime. There was never any pretense of democracy, of rule of law, of a free press, of a working system of taxes or courts or hospitals. There was never any real government. No one ever bothered to build an economy or create jobs or even pick up the trash or pave the streets. There were only security forces – many, many of these – and villas by the sea for Arafat's cronies, and millions of dollars in foreign aid that seemed to always turn up missing, and prisons and propaganda.

A CBS 60 Minutes report by Leslie Stahl in 2009 discussed how much Arafat stashed away in an interview with auditor Jim Prince. The report noted:

“What are Mr. Arafat and the Palestinian Authority worth today?” asks accountant Jim Prince. “Who is controlling that money? Where is that money? How do we get it back?”

So far, Prince's team has determined that part of the Palestinian leader's wealth was in a secret portfolio worth close to $1 billion — with investments in companies like a Coca-Cola bottling plant in Ramallah, a Tunisian cell phone company and venture capital funds in the U.S. and the Cayman Islands.

Although the money for the portfolio came from public funds like Palestinian taxes, virtually none of it was used for the Palestinian people; it was all controlled by Arafat. And, Prince says, none of these dealings were made public.

“Our whole point is to bring it out of control of any one person,” Prince says.

That's what happened with the portfolio money, which is now under the control of Salam Fayyad, a former World Bank official who Arafat was forced to appoint finance minister after crowds began protesting his corrupt regime.

Schanzer discusses the critical role of Salam Fayyad and the team of US auditors led by Jim Prince and his key role in trying to reverse the tide of rampant kleptomania under Arafat that segued to his successor, Mahmoud Abbas.

In Schanzer’s discussion of Fayyad’s formation of the Palestine Investment Fund (PIF) he noted:

In the end Fayyad settled on a model based on a German public investment fund. In 2003, the PIF had a net income of $40.1 million on revenue of $85.1 million. Moreover by forcing the sale of assets not related to economic development or in competition with the private sector, hundreds of millions of dollars were put back into the Palestinian Treasury – up to $700 million.

Fayyad noted the daunting aspects that Schanzer contends dogged his efforts under both Arafat and Abbas:

The systems were not mature or sufficiently developed in the management of public funds There is an anything goes type of environment. . .When you have that environment it would be naïve to assert there was no corruption. Of course there was. You have a system that is totally loose. No controls. No audit. Extra budgetary spending taking place all over the place. It’s wrong and it needs to be fixed.

Fayyad and his US auditor team blocked funds and payments by banks in the PA territories and Gaza, transferred  funds to the Treasury, stripped patronage authority over payroll and positions from the Civil Service Bureau and produced the first detailed budget for the PA. However, as much as Fayyad had gained control over funds, there was leakage of hundreds of thousands of dollars  through foreign accounts to fund terrorist operations during the Second Intifada. Further, there was the matter of profiteering in monopolies retained by Arafat and others handed out to PLO cronies. Then following Arafat’s death in 2004 there were revelations of direct investments by Arafat and lush payments to his widow Suha:

Bloomberg reported that: Citigroup,  Inc. …Invested $6.8 million  for Yasser Arafat through  managers  “who set up accounts under other names.” Time raised questions about whether his wife received large sums from the PA, noting that “Arafat was guilty of skimming $2 million a month from the gasoline trade in the territories.”

Schanzer cites Elliott Abrams, Bush National Security Advisor saying:

When Arafat died we undertook an effort to find his money … in conjunction with a couple of European governments…My memory is that we found hundreds of millions of dollars.

Abbas was elected rais or President of the PA on January 9, 2005 and fractional warfare erupted. Fatah-PLO in Gaza was defeated  by Hamas. Fayyad succeeded Abbas as Prime Minister at the insistence of the Bush Administration following the Hamas coup in Gaza in 2007. However, corruption continued. Ironically, one item on Fayyad’s reformist agenda, consolidation of security forces under US training alleviated Intifada violence. However, as Schanzer points “it strengthened Abbas” ultimately freezing out Fayyad, who resigned in March of 2013.

Abbas was propped up by the Bush Administration panicked by the rout of Fatah in Gaza. Because of the disclosures of scandals in the various PA ministries, Schanzer cites the Ma’an News agency report In 2008  saying the  PA “carried out an unprecedented campaign of censorship and intimidation against West Bank and Gaza Strip journalists. The editor in chief of Donia- al Watan, Abdulla Issa, is cited as saying, “The block was aimed at pressuring us to stop publishing articles on corruption. . . Abbas doesn’t want to fight corruption or bring the corrupt to account.”

Jim Prince of the original audit team indicated that the reconstitution of the PIF board “violated the firewall between President Abbas and the investments of the PIF.” Under the new regime Abbas’ economic advisor, Mohammed Mustafa became CEO of the PIF.

The Bush backing enabled Abbas to isolate and ultimately force out competitors like Gaza security chief Mohammed Dahlan and Arafat’s economic  adviser and CEO of the PIF Mohammed Rachid. Schanzer notes that in June 2012 Rachid and “two associates . . .were convicted of taking a total of $33.5 million from the PIF. Rachid got a 15 year jail term. Rachid protested his innocence and using an Arabic language website,, countered with charges of corruption leveled at Abbas, his family and inner circle.”   

Dahlan, despite, being effectively ejected by Abbas, remained as a competitor giving challenges via his supporters inside Fatah and even outside financial  pressure. Thousands of Dahlan followers disrupted the 25th Anniversary celebration of Hamas waving signs supporting “ President Dahlan.” Abbas struck back with raids in July 2011 on Dahlan’s Ramallah villa, arresting security guards and seizing weapons. This was  despite Dahlan having immunity as a member of the Palestine Legislative Council. Dahlan shot off accusations alleging that Abbas had taken $1B from the PIF, while Abbas countered that Dahlan “had taken $300 million in US aid and poisoned Arafat.” Schanzer cites an AP article noting in September 2012 that the UAE “cut aid from the $174 million in 2009 to $42.5 million in an attempt to pressure Abbas to reinstate a disgraced former aide, Mohammed Dahlan.”

Abbas’ unilateral initiative victory at the UN on November 29, 2012 effectively vaulted the PLO to replace the PA and undermined the Oslo Accords. Schanzer notes:

Within days of his UN victory, Abbas had requested that the UN begin referring to the PA Government as  the State of Palestine.” …the PLO had already potentially scuttled the interim government put in place by the Oslo Accords and the corner-stone of negotiations since 1994.

Schanzer notes the irony of Abbas leading the charge to close down the PA:

By shutting the doors of the PA, the PLO could leverage its new found status at the UN to consolidate power. The last thing anyone needs is a more muscular PLO. The PA was created to curb the bloated PLO …as being ossified and less than transparent.

He cites a New York Times editorial comment:

“If there is ever to be a peace agreement between Israel and the Palestinians there has to be a competent government to run a Palestinian State and leaders with whom to make a deal.”

Schanzer  suggests a plan to create a competent Palestinian state using a send up on the Wilsonian Fourteen Points. They include:

  1. Condition aid on achieving state institution building, transparency, good governance and achieving a peace agreement.
  2. Raise expectations to push the Palestinian leadership to do the right things.
  3. Aid should be tied to economic development on sustainable practices and not political patronage.
  4. Separate the peace processing from economic development and vice versa which led to corruption arising during  the Oslo Accords.
  5. Leave Economics out of the peace process which led to corruption arising during the Oslo Accords.
  6. Seek out trained public administrators supplanting terrorists like the PLO.
  7. Consolidate all security forces to afford peace with Israel and stability for donor funding.
  8. Develop a private economy supplemented by both private and public foreign aid.
  9. Foreign aid should flow through a single Treasury account.
  10. Embolden free expression  and a vigorous free press to act as a watchdog over basic freedoms.
  11. Establish and maintain an independent judiciary for checks and balances and prevention of abuses of power.
  12. Establish the basis for a multi-party system.
  13. Eliminate PLO conflicts of interests within the PA and future Palestinian governments.
  14. Bring back the best people from the Palestinian Diaspora to build a functioning private sector and government.

These are all sensible suggestions if a civil polity existed among Palestinians instead of warring families, and clans spawning discord. Establishing a functioning private economy and banking system might be a beginning. However, as in the case of autocratic regimes elsewhere in the Middle East, without the rule of law you will not facilitate the return of talented entrepreneurs to engage in business. Because of Israel‘s zooming economy next door, perhaps the early experiments in cross fertilization of high tech incubators might trigger a mini-high tech boom in the PA. This will not occur without reaching the conditions expressed by Schanzer and others. It is probably not lost on Palestinians and Israelis that the former have been called the Jews of the Arab world. Abandoned by their Arab brothers at the conclusion of the 1948/49 they were left to languish as festering eyesores in UNWRA refugee camps. Over 200,000 were expelled from Kuwait as a result of Yasser Arafat’s support for the late Saddam Hussein during the First Gulf War. The Christians among them fled abroad to their Diaspora as evidenced by more than 300,000 of them in Chile. The reality is until Hamas is crushed and their Islamic hatred of Jews is abandoned, even with Schanzer’s thoughtful suggestions, we see little prospect for lasting peace in the foreseeable future. Palestinians cannot form a viable state that meets the criteria of the 1933 Montevideo Convention: (1) a permanent population, (2) a defined territory, (3) government and (4) the capacity to entire into relations with other states. Perhaps they could, as others both Palestinians and Israelis have suggested, achieve this in a country where Arab refugees comprise the bulk of the population and have the space, natural and human resources to establish a viable state, Jordan.


Also see Jerry Gordon's collection of interviews, The West Speaks.


To comment on this book review, please click here.

To help New English Review continue to publish timely and interesting book reviews like this one, please click here.

If you have enjoyed this article and want to read more by Jerry Gordon, please click here.

Jerry Gordon is a also regular contributor to our community blog. To read his entries, please click here.




Leave a Reply

Your email address will not be published. Required fields are marked *

New English Review Press is a priceless cultural institution.
                              — Bruce Bawer

Order here or wherever books are sold.

The perfect gift for the history lover in your life. Order on Amazon US, Amazon UK or wherever books are sold.

Order on Amazon, Amazon UK, or wherever books are sold.

Order on Amazon, Amazon UK or wherever books are sold.

Order on Amazon or Amazon UK or wherever books are sold

Order at Amazon, Amazon UK, or wherever books are sold. 

Order at Amazon US, Amazon UK or wherever books are sold.

Available at Amazon US, Amazon UK or wherever books are sold.

Send this to a friend