Summary

For decades, the United States has worked toward the resolution of the Israeli-Palestinian conflict, most recently under the 2003 Roadmap for Peace, which calls for an independent Palestinian state coexisting peacefully with the State of Israel. Since fiscal year 1993, the United States has provided more than $2.2 billion in assistance to the West Bank and Gaza to support the Middle East peace process and encourage progress in reforming the Palestinian Authority. In fiscal years 2005 and 2006 alone, the United States provided over $420 million in Economic Support Funds for the West Bank and Gaza; this funding is primarily administered by the U.S. Agency for International Development (USAID). In the conference report accompanying the 2005 supplemental appropriation legislation, the Congress directed that the assistance be allocated to two broad development categories--economic revitalization and infrastructure development--each with five subcategories. In January 2006, Hamas--designated a terrorist organization by the United States and others--won a majority of the seats in the Palestinian parliament. On January 30, 2006, the United Nations (UN), the United States, the European Union, and Russia--known as the Quartet on the Middle East--stated that they would provide support and assistance to the Hamas-led government only if it agreed to nonviolence, to recognize the State of Israel, and to respect previous Israeli-Palestinian peace agreements. In June 2006, the Congress directed that the Department of State (State) submit a new assistance plan. For fiscal years 2005 and 2006, the Congress mandated that the Comptroller General of the United States report to the Congress on U.S. assistance to the West Bank and Gaza. In response to this mandate, we reported in September 2006 on the steps USAID had taken to help ensure that U.S. assistance did not support terrorist activities in the West Bank and Gaza. In this report, also in response to the mandate, we examine the status of (1) USAID's obligations and expenditure of the fiscal years 2005 and 2006 appropriations for the West Bank and Gaza and (2) the fiscal year 2005 supplemental appropriation in greater detail to determine whether USAID allocated the funds in accordance with congressional guidance.

As of December 31, 2006, USAID had obligated $300.8 million and expended $109.1 million of the $422.9 million in assistance provided by the United States to the West Bank and Gaza from fiscal years 2005 and 2006 appropriations. After Hamas won a majority of the seats in the Palestinian parliament in January 2006, USAID slowed and, in April 2006, selectively suspended assistance to the West Bank and Gaza to prevent U.S. assistance from potentially benefiting a terrorist organization. USAID resumed assistance in July 2006 after the Department of State notified the Congress of its new U.S. assistance plan, along with a revised spending plan, for the West Bank and Gaza in response to the June 2006 congressional mandate. The revised spending plan emphasized humanitarian projects, private sector support, and democracy/civil society programs directed to the Palestinian people. In February 2006, USAID requested that the Office of the President of the Palestinian Authority return $50 million in fiscal year 2005 appropriations. The Palestinian Authority returned $45 million, and USAID has since reobligated these funds to other projects. The remaining $5 million funded road projects that USAID canceled. According to a mission official, as of January 30, 2007, USAID and the Palestinian Authority had not yet resolved the value of the pre-cancellation construction, close-out and security costs, and the remaining funds to be returned. USAID obligated the fiscal year 2005 supplemental appropriations for projects in the West Bank and Gaza almost equally between the two congressionally directed categories: economic revitalization and infrastructure development. However, as a result of the parliamentary election and the subsequent shift in U.S. strategy for assistance to the West Bank and Gaza, USAID's obligations to the 10 subcategories differed from the allocations originally put forward by the Congress. Before the election, the U.S. assistance plan supported the administration of the Office of the President of the Palestinian Authority with a wide range of development projects; after the election, all funds going to the Palestinian Authority were canceled or, in the case of existing obligations, withdrawn and funneled through other organizations. Examples of specific projects funded in part with the 2005 supplemental funds include labor-intensive construction projects to improve infrastructure and generate employment, and the training of doctors to improve medical care in the region. The results of these projects included new classrooms being built, doctors being trained, and facilities being rehabilitated.