Smotrich repeatedly approved a safety net for Palestinian banks, receiving in return concessions for establishing settlements
First publication: For years, Finance Minister Bezalel Smotrich has used Israeli clearing for the Palestinian banking system as a tool of pressure. At a recent cabinet meeting, Itamar Ben Gvir told him: "You sold your principles for the sake of building a few houses." The Shin Bet under David Zini warned that without financial oxygen for banks in the West Bank, the PA faces collapse.
The events this week in the Palestinian village of Kusra illustrate the loss of control in the West Bank. A central issue concerns temporary indemnity, which is causing controversy within the security establishment. The IDF fears the Palestinian territory is on the verge of an explosion due to Jewish extremist activities, the rot of the PA, and a worsening economic situation. However, the Shin Bet maintains a different view, identifying stability, a deterred Palestinian street, and an increase in thwarted attacks. Some attribute this gap to the positions of Shin Bet head David Zini, yet he is actively expanding the service's "Jewish Department" and is not interested in undermining the PA.
About seven weeks ago, the cabinet convened to discuss a technical but essential matter: the clearing mechanisms for Palestinian banks. Trade between Israel and the PA exceeds 20 billion shekels, serving as a vital source for the Authority's existence. Banks Discount and Hapoalim act as correspondents for Palestinian banks. Historically, the government provided them with "indemnity letters" to protect against lawsuits related to terrorist financing.
Upon taking office, Bezalel Smotrich realized that controlling this mechanism gave him immense power to use an "economic chokehold" on the PA. He began signing only short-term extensions while focusing on exposing the terror ties of the Palestinian banking system. Nervousness grew within Israeli banks due to the threat of multi-billion dollar civil lawsuits from American citizens. Ultimately, the cabinet decided to extend the indemnity letters until the end of 2026 to ensure the system continued to function.
Smotrich used these guarantees as an effective tool to achieve political concessions, particularly in Washington, favoring the expansion of settlements and ignoring the establishment of new agricultural farms. At one point, Israeli banks, wishing to avoid risks, were ready to withdraw, but the government insisted on continued cooperation. The only minister to vote against this was Itamar Ben Gvir, who accused Smotrich of selling his principles for the sake of building houses.
The core of the problem is that the PA, despite its weakness and corruption, remains a clear Israeli interest. Without it, Israel would have to restore full occupation over two million Palestinians, including administrative duties. Realpolitik in the current chaos allows figures like Smotrich to achieve short-term gains, but the price of this pressure on the security establishment is becoming increasingly heavy.
