Ground Offensive Not Resulting In Lasting Resolution

BMI View:  The Israeli ground offensive in the Gaza Strip will last less than a month. A ceasefire will not result in a lasting solution to the conflict, and Hamas will remain in control of the Strip. The offensive could lead to radicalisation in Gaza, while the heavy death toll of Palestinian civilians will increase Israel's isolation on the international stage.

We expect the ongoing Israeli 'Operation Protective Edge' military operation against Hamas - the militant group and political party that still effectively rules the Gaza Strip - to end with a ceasefire which will not result in a long-term solution to the conflict. In a major escalation in the 11-day offensive, Israeli tanks and troops entered Gaza on July 17 after Prime Minister Binyamin Netanyahu ordered a ground invasion. Israel will seek to erode Hamas's military capabilities - an objective that it feels cannot be achieved with air and missile strikes alone - and to put pressure on Hamas and other Palestinian groups to accept a ceasefire.

This development was anticipated by BMI. In our most recent analysis of the Israel-Hamas conflict ( see 'Israel-Hamas Flare-Up Hitting Financial Markets', July 9), we wrote: ' We see significant risk that the ongoing exchange of fire between Israel and Hamas will escalate into a protracted Israeli air campaign or ground operation in Gaza, despite neither side having much to gain from a further flare-up.'

No Lasting Agreement In Sight 
Palestinian Territories - Map

BMI View:  The Israeli ground offensive in the Gaza Strip will last less than a month. A ceasefire will not result in a lasting solution to the conflict, and Hamas will remain in control of the Strip. The offensive could lead to radicalisation in Gaza, while the heavy death toll of Palestinian civilians will increase Israel's isolation on the international stage.

We expect the ongoing Israeli 'Operation Protective Edge' military operation against Hamas - the militant group and political party that still effectively rules the Gaza Strip - to end with a ceasefire which will not result in a long-term solution to the conflict. In a major escalation in the 11-day offensive, Israeli tanks and troops entered Gaza on July 17 after Prime Minister Binyamin Netanyahu ordered a ground invasion. Israel will seek to erode Hamas's military capabilities - an objective that it feels cannot be achieved with air and missile strikes alone - and to put pressure on Hamas and other Palestinian groups to accept a ceasefire.

This development was anticipated by BMI. In our most recent analysis of the Israel-Hamas conflict ( see 'Israel-Hamas Flare-Up Hitting Financial Markets', July 9), we wrote: ' We see significant risk that the ongoing exchange of fire between Israel and Hamas will escalate into a protracted Israeli air campaign or ground operation in Gaza, despite neither side having much to gain from a further flare-up.'

We believe that the operation will last less than a month. Should it adhere to the limited objective of destroying tunnels constructed by Hamas and other groups to infiltrate armed fighters into Israel, any incursion would be limited to the perimeter of the Gaza Strip with accompanying sea-borne raids. However, it is more likely that ground troops will seek to enter deeper into the Gaza Strip in order to inflict heavier losses on Hamas. Journalists were told they had 30 minutes to evacuate seaside hotels in central Gaza City, an indication that the Israeli operation will not be limited to border areas. On the other hand, the length and intensity of the operation will be limited by the potential for casualties among the Israeli forces, and dramatic risks to the civilian population should the army enter densely populated areas.

No Lasting Agreement In Sight 
Palestinian Territories - Map

Pressure On Both Sides To Continue Fighting...

Netanyahu's decision to order a ground invasion was influenced by strong pressure for a tough response to Hamas from the right of his government coalition. On July 7, Israeli Foreign Minister Avigdor Lieberman ended his Yisrael Beytenu party's political alliance with Netanyahu, accusing the premier of responding weakly to the surge of rocket fire from Gaza. Criticism from his own ranks resulted in the sacking on July 15 of deputy defence minister Danny Danon, a member of Netanyahu's Likud party. Jewish public opinion in Israel also appears to be pushing the government towards a tougher response and a clampdown on Hamas military infrastructure. 

Hamas also has some incentives to see a continuation of the conflict. Although the group has much to lose militarily from the ground offensive, the more extremist wings of the movement might see a chance to buttress the group's credentials as an anti-Israeli resistance force and recover some of its popularity. Indeed, Hamas's reputation in the Gaza Strip improved after the last flare-up in 2012. While the movement is powerless against Israeli airstrikes and had been able to carry out only minimal damage through its arsenal of missiles, a ground invasion offers the possibility to inflict casualties on the Israeli army, which would further reinforce the credentials of the group. Indeed, one Israeli soldier has already been killed in Gaza as of the time of writing, while several have been severely wounded. The successful kidnapping of any Israeli troops would result in an even larger tactical victory from Hamas's perspective. Finally, Palestinian casualties are likely to keep mounting, and regional leaders would therefore come under increased popular pressure to support the group. This comes at a time when Hamas feels increasingly isolated in the international stage, particularly as the new Egyptian government led by President Abdel Fattah al-Sisi opposes the group due to its alliance with the Muslim Brotherhood.

Security Under Threat
MENA - Political Risk Rating

...With No Long-Term Solution In Sight

We expect the invasion to end with a ceasefire. This will most likely be brokered by Egypt, although other regional players more sympathetic to Hamas, such as Qatar and Turkey, could seek to play a role in the negotiations. The ceasefire will fail to provide a long-term solution to the conflict. Israel will not annex Gaza to its territory. The Strip would prove ungovernable for Israel, and the demographic balance in Israel and the Palestinian territories would eventually tip against the country's Jewish inhabitants. However, Israel does not want to see Hamas decisively weakened either, as this would cause a power void in Gaza that the Israeli government is unprepared to fill. Hamas ensured that a ceasefire - albeit a fragile one - since the end of the recent Israeli military offensive in November 2012 was respected, stopping more radical groups from firing rockets. In addition, although the ground offensive will allow Israel to significantly erode Hamas's military infrastructure over the short term, much of the group's weaponry will very likely remain intact, and the most rudimental missiles (often home-made) can easily be manufactured again. This underscores the fact that a military-only solution to the conflict is highly unlikely to be successful.

A ceasefire will not lead to better terms for the Palestinians. Given public opinion in Israel and the strength of hawkish political parties, as well as the hawkish position likely to be favoured by the Egyptian brokers, we do not expect many concessions from the Israeli government. Also, as a ground offensive will likely result in an overall military victory for Israel, a weakened Hamas will be unable to exert much influence on the terms of the ceasefire. The Israeli economic blockade of the Gaza Strip, which has been in place since border restrictions were tightened after Hamas ousted rival Fatah from Gaza in 2007, will remain in place.

Increasing Risks Of Palestinian Radicalisation

In the absence of a political solution, there is a significant risk that more radical groups in Gaza will gain popular support as Palestinians' bitterness and sense of grievance against Israel increase. This would add to the security challenges faced by Israel. However, we do not expect popular discontent to develop into a large-scale popular uprising - a so-called third intifada. Crucially, we do not expect an armed struggle to develop in the West Bank. Mahmoud Abbas, the president of the Palestinian National Authority and head of the Fatah political party - which is in charge of the West Bank - is outspokenly opposed to a new uprising and is unlikely to provide the political, military and logistical support for violence. On the other hand, Abbas will emerge politically weakened from this latest conflict. His moderate stance is struggling to make headway between the more radical positions espoused by Hamas and the Israeli right.

Israel's International Isolation To Continue

Operation Protective Edge comes only a few weeks after peace negotiations between Israel and the Palestinians were formally ended by Israel on April 24, following the announcement by the Palestinian Authority of an agreement for a unity government between Fatah and Hamas. Israel found itself diplomatically isolated in the face of broad international acceptance of the new unity cabinet. International criticism regarding the heavy civilian death toll resulting from the latest Israeli offensive will only increase Israel's perception of its own isolation, which is likely to result in increased public support for right-wing political parties in the country.

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Sector: Country Risk
Geography: Israel, West Bank and Gaza
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