Focus Gaza-Israel

European Funding for Palestine: Cooperation or Counterinsurgency?

Once again, the financial lever is at the heart of Europe’s response to ‘the resurgence of the Middle East conflict’, alongside public statements on ‘Israel’s right to defend itself’. Although the sustainability of this aid is not in doubt for now, the announcement of tighter controls and postponement of certain expenditures are already raising concerns in Ramallah, along with anger. On 21 November, the European Commission met in Strasbourg to decide whether or not to resume European aid, following its suspension on 9 October.

The President of the European Commission Ursula von der Leyen at a plenary session of the European Parliament in Strasbourg on the situation in Gaza, 18 October 2023
Frédérick Florin/AFP

Controlling Palestinian access to funding was already a major issue under the British mandate. Zionist organisations benefitted from the significant financial windfall provided by Jewish groups in Europe and the United States, while French and British colonial forces suppressed fundraising efforts to support the Palestinian insurgency in neighbouring Arab regions under their control. At the same time, the Mandate administration was trying – without much success – to stem the tide of revolt by helping Palestinian peasants dispossessed by colonisation.

After the 1948 Nakba, UNRWA became the main conduit for humanitarian aid to Palestinian refugees installed in camps, waiting for their ‘repatriation’. The United States was the largest donor of this aid up until the 1970s (gradually overtaken by Europe), attempting to stem the spread of communism, then nationalism, and finally Islamism1. Meanwhile, Palestinian resistance groups, formed in exile in the 1960s, found financial support from Arab and Muslim governments and private sponsors. After 1967 and Israel’s occupation of the West Bank and Gaza Strip, part of these funds were channelled there in support of the Palestinians’ sumud (‘steadfastness’) against Israeli colonisation and expropriation.

In the late 1970s, USAID launched a program dedicated to improving well-being and quality of life in the occupied territories. This time the goal was to break the PLO’s influence and get people to support the agreement on limited Palestinian autonomy signed at Camp David between Israel and Egypt. The political background of this aid was then well understood and widely denounced within Palestinian society2. However, the evolution of the global geopolitical context during the 1980s, and the loss of its main Arab political and financial backers, led the PLO to change its positions, inclining towards accepting a transitional political autonomy within the 1967 borders, recognising the State of Israel, and renouncing armed struggle.

Supporting peace by camouflaging Israeli occupation

European funding directly paid to the Palestinians takes place in this context. At the beginning of the 1990s, the international community committed to financially supporting the peace process ratified by the signing of the Oslo Accords between Israel and the PLO. The explicit goal is to generate ‘peace dividends’ for the Palestinian population – who had just emerged from the first Intifada – by pushing for economic development. The EU and its Member States are by far the main donors. Their participation is at the heart of European foreign policy, and designed to promote security, democracy and good governance within the frameworks of the ‘Euro-Mediterranean Partnership’, ‘Partnership for Peace’ or even ‘European Neighbourhood Policy’.

It is estimated that the occupied territories received $46.4 billion in development aid between 1993 and 2020, about half of it from Europe3. In addition to supporting the budgetary expenditures of the Palestinian Authority (salaries of civil servants, health costs, socio-economic aid), this funding covers a range of programs, from the construction of infrastructure and public buildings to humanitarian assistance, as well as institutional reform, women and youth empowerment, and support for the private sector. Initially motivated by the prospect of an imminent peace, this aid quickly became a smokescreen to cover up the failure of the two-state solution, and a meagre palliative in the face of Palestinian economic collapse.

Indeed, the so-called peace process did not end Israeli occupation, and settlement building accelerated. The Palestinian Authority’s meagre prerogatives were constantly challenged on the ground by the Israeli administration, which ultimately controls the commercial, monetary, and financial sectors, as well as borders and most of the territories. The Second Intifada in the 2000s led many observers to denounce the passivity of the donors and underline their inconsistency, especially the EU, whose aid ultimately served to finance Israeli expansionism, flying in the face of international law and any political solution4. Europe hasn’t even been able to prevent the occupying army from regularly destroying the very institutions and infrastructure it funded, making its own taxpayers bear the cost of this endless waste. Yet the raison d’être of European funding continues to remain unchanged and will continue to increase with each new escalation in the conflict.

An instrument for political and social engineering

However, the EU and its members have not hesitated to place conditions on aid to the Palestinians, on numerous occasions and in multiple ways. The most emblematic – and controversial – example is probably that of the Israeli and international sanctions imposed after Hamas won the election in 2006. Europe immediately suspended its budgetary aid as well as any project with the government and focused its efforts on responding only to the strictly humanitarian needs of the population. A new mechanism for assistance was established whereby the private sector and local and international NGOs were invited to replace the Palestinian Authority5. This diplomatic and financial boycott led to an unprecedented political crisis and the hardening of inter-Palestinian divisions. Several attempts at national unity were defeated.

In June 2007, Hamas seized full control of the Gaza Strip by force, while it was ousted from government in the West Bank by President Mahmoud Abbas. The Israeli administration immediately declared the Gaza Strip ‘hostile territory’ and tightened restrictions on the movement of people and goods at its border. A siege was imposed by land, sea and air which has continued since. Emergency aid is being maintained, but humanitarian agencies are in a hurry to end all relations with local authorities. On the ground, however, they maintain a form of coordination to carry out their activities, via arrangements which are constantly renegotiated. Many of these agencies are quick to denounce this as insufficient as well as ineffective.

A new funding mechanism (PEGASE) was meanwhile activated in early 2008 by the EU, aiming to support the ‘reform and development plan’ of Salam Fayyad’s government in the West Bank. A former employee of the IMF, Fayyad has fully met donors’ expectations by making it a priority to improve taxation, develop the banking and financial system, and promote the private sector. Strengthening internal security is also a key element to create a conducive environment for investors. However, nothing is designed to enhance political autonomy or even to reduce Palestinian economic captivity to Israel. At the same time, the PEGASE mechanism allows for tighter control of Palestinian expenditures in line with Israeli and European requirements for transparency, good governance and the ‘fight against terrorism’.

Growing Palestinian captivity to foreign funding

Growing sectors of Palestinian society have been linked over the years to the aid economy. The occupied territories, especially the West Bank, host a dense community of foreign organisations, UN agencies, local NGOs, financial institutions, and private consultants working in the fields of development, good governance and humanitarian assistance. Likewise, the decline of the Palestinian productive apparatus and the influx of foreign funds make the Palestinian Authority a major socioeconomic actor. Many families rely on the salaries and pensions it pays. In 2021, civil servants amount to 208,000, which is 21% of the active workforce6.

Aid is therefore a revenue big enough to impact – and thus subvert the underlying politics of – the programmes, activities, and agendas of the many recipients7. This largely explains the Palestinian Authority’s frenetic drive to push ahead with reforms designed to ‘clean up’ its institutions and establish a ‘balanced’ market economy, while the territory it controls is sinking like a stone. While calls to disengage from Israel’s colonial economy and its production modes are growing, dependence on foreign funding is also at the forefront of concerns8. By maintaining its objectives of pacification and liberalisation, aid not only appears ineffective but would ultimately contribute to disarming Palestinian society and its economy and increasing their captivity under occupation.

Towards a shift in European aid objectives

As of 7 October, some European countries have suspended their programmes to avoid ‘financing terrorism’, while others are boosting their budgets to deal with the ‘humanitarian crisis’ in Gaza. So maybe not the volume, but the direction and channels of aid will be affected, in terms of tighter steering and control. This rapid fusion of ‘development and peace objectives’ with Israeli counterinsurgency concerns illustrates the trap for European cooperation in the occupied territories. However, managing the externalities of war, occupation and colonisation should no longer be an option.

No matter how much money Europe disburses, it will always find itself at odds with Palestinian concerns unless it takes serious action to stop Israeli expansionism. Certainly, there will always be local players ready to take on the role expected by donors, and even to profit from it. But the failure of this strategy speaks for itself, and the waste in human lives is far too great to avoid correcting its course. Palestinian aspirations are being expressed more strongly than ever. Also, the fracture is now obvious, with some already talking about boycotting European partnerships and funding. If it is truly to help, aid must never again be party to crimes committed against an entire people.

1Jalal Al Husseini (2010), ‘UNRWA and the Refugees: A Difficult but Lasting Marriage’, Journal of Palestine Studies, Vol. 40, No. 1, pp. 6–26.

2Khalil Nakhleh (2004), The Myth of Palestinian Development: Political Aid and Sustainable Deceit, PASSIA, Jerusalem.

3OECD data (

4Le More Anne (2005), ‘Killing with Kindness: Funding the Demise of a Palestinian State’, International Affairs, Vol. 81, No. 5, pp. 981–999.

5FIDH (2006), Couler l’État palestinien, sanctionner son peuple : l’impact de l’asphyxie économique du Territoire Palestinien occupé sur les droits de l’Homme. Rapport n° 459, Mission internationale d’enquête.

6UNCTAD (2022), Report on UNCTAD assistance to the Palestinian people: Developments in the economy of the Occupied Palestinian Territory, 08 August, Geneva.

7Sbeih Sbeih (2018), ‘Collective development projects in Palestine: Propagation of the neoliberal vulgate and normalisation of domination’, Civil Society Knowledge Centre, Lebanon Support.

8Jeremy Wildeman & Alaa Tartir (2014) ‘Unwilling to Change, Determined to Fail: Donor Aid in Occupied Palestine in the aftermath of the Arab Uprisings’, Mediterranean Politics, 19:3, 431–449.