Controversy over the release of Palestinian tax receipts tests the United States’ ability to pressure Israel and suggests that Prime Minister Binyamin Netanyahu’s ultra-religious, ultra-conservative government may not survive an end to the Gaza war.

Prime Minister Benjamin Netanyahu, Photo: Tomer Neuberg/Flash90

The controversy also suggests that differences among members of Mr. Netanyahu’s ultra-nationalist, ultra-religious cabinet and between the United States and Israel on post-war arrangements in Gaza, may leave Israel with its least preferred options: shouldering responsibility for a war-devastated Gaza whose population has been traumatized by Israeli conduct of the war or a political vacuum that likely would be filled by Hamas and other Palestinian militants.

Israel has so far resisted US pressure to release hundreds of millions of dollars in taxes on imports and exports collected since October 7 on behalf of President Mahmoud Abbas’s West Bank-based Palestine Authority. Israel says it fears the funds would find their way to Hamas.

In a phone call this week with Mr. Netanyahu, described by a US official as “frustrating,” President Joe Biden insisted that the prime minister needed to resolve the issue. Mr. Biden ended the call by saying, 

Mr. Biden wants the funds released as part of an effort to revitalise the discredited Palestine Authority and position it for taking control of Gaza once the war ends. Mr. Netanyahu has insists that the Authority has no role.

However, earlier this month, Mr. Netanyahu appeared to leave the door open when his national security advisor, Tzachi Hangebi, hinted that Israel could drop its objection.

National Security Adviser Tzachi Hanegbi speaks during a statement to the media in Tel Aviv. Photo: Avshalom Sassoni/Flash90

In an op-ed on the London-based, Arabic-language Saudi Elaph news website, Mr. Hanegbi acknowledged international pressure to turn Gaza over to the Authority. “We make it clear that the matter will require a fundamental reform of the Palestinian Authority," Mr. Hangebi said, adding that Israel "is ready for this effort."

Even so, hardline Israeli Finance Minister Bezalel Smotrich tweeted in response to the phone call that “

we will never leave our destiny in the hands of foreigners

, and as long as I am the Minister of Finance, not a single shekel will go to the Nazi terrorists in Gaza. This is not an extreme position. This is a lifesaving and reality-based position.” Israel’s currency is the shekel.

Finance Minister Bezalel Smotrich. Photo: Yonatan Sindel/Flash90

This week, Mr. Netanyahu cancelled a meeting of the three-member war cabinet to discuss post-war arrangements in Gaza, 

 that the governance issue should be discussed by the 16-member security cabinet that includes the finance minister.

With no good ‘day after’ options and caught in a Catch-22 between the United States and his far-right coalition partners, Mr. Netanyahu may see prolonging the fighting for as long as possible as his most promising political survival strategy, despite domestic pressure to prioritise bringing home Hamas-held hostages above prosecuting the war.

In a surprise turnaround, Hamas appears to be offering Mr. Netanyahu temporary relief.

Rather than travel to Cairo this week to discuss a 

 to secure prisoner exchanges that would also end the war, Hamas exile leaders stayed in Doha to talk about a more limited Qatari proposal for the release of 40 of the more than 100 hostages still held by Hamas during a two-four week temporary truce.

According to Israeli officials, Qatar suggested that Hamas’ decision indicated the group had 

dropped its earlier refusal to discuss prisoner exchanges without Israel first permanently halting its assault

 and withdrawing its forces from Gaza. It was not clear what prompted the reversal, but some recent media reports indicated that 

The potential Qatar-mediated deal for another temporary ceasefire and prisoner exchange, is unlikely to significantly boost Mr. Netanyahu’s standing in Israel.

A majority of Israelis want to see the back of Mr. Netanyahu, Israel’s longest-serving prime minister as soon as the war ends. They blame him for intelligence and operational failures that could have prevented Hamas’ October 7 attack.

“Changing prime minister in the middle of war is not good, but 

Yair Lapid, founder of the Yesh Atid party, leader of the opposition in Israel. Photo: AP/Sebastian Scheiner

Mr. Netanyahu’s problem is compounded by the fact that the decision when to end the

war may not be his alone, depending on whether the United States applies real pressure and whether the US has the kind of leverage most analysts believe it does.

Supporters of Israel argue that the United States may have the clout to force Israel’s hand but that overt pressure could backfire.

“Threatening to withhold US aid unless Israel changes its policies would only 

have the effect of making the Israelis feel they must go it alone

,” said Dennis Ross, a Middle East peace negotiator for Presidents George W. Bush and Bill Clinton and member of Barak Obama’s national security council.

Mr. Ross quoted a senior Israeli official as saying, "If America says you have to stop or we will cut you off, we will fight with our fingernails if we have to -- we have no choice."

The former negotiator noted that Mr. Netanyahu owed his re-election in 2016 to his willingness to stand up to Mr. Obama’s public criticism of Israel’s West Bank settlement policy.

“An Israeli prime minister can gain politically by standing up to a US president who is perceived not to understand the region and who seems willing to pressure Israel to make risky sacrifices,” Mr. Ross aid.

It would be difficult to accuse Mr. Biden of not understanding Israel’s vison of the Middle East.

In the Gaza war, Mr. Biden has supported Israel wholeheartedly, opting to embrace Mr. Netanyahu, for whom he has little love, in a bearhug. The president’s expectation that in return Mr. Netanyahu would be receptive to US demands has so far remained unfulfilled.

US President Joe Biden greets and hug Prime Minister Benjamin Netanyahu upon his arrival at Tel Aviv's Ben Gurion Airport. Photo: Brendan SMIALOWSKI / AFP

Moreover, the experience of Israel’s 2021 war on Gaza contradicts Mr. Ross’s assessment.

At the time, Mr. Biden got the result he wanted within 24 hours when he after 10 days of fighting dropped the bearhug and opted for the sledgehammer.

In a phone call with Mr. Netanyahu, the fourth in little more than a week, Mr. Biden advised the Israeli leader that he “

expected a significant de-escalation today

When Mr. Netanyahu sought to buy time to continue the bombing, Mr. Biden replied: “Hey man, we’re out of runway here. 

Israel and Hamas agreed to a ceasefire a day later.

Mr. Netanyahu was in a less precarious situation in 2021 than now. As a result, it may take more than telling the prime minister that their conversation is over, even if that risks shoring up Mr. Netanyahu’s domestic standing.

However, that does not seem to be what Mr. Biden was signalling.

Days after the phone call, US Secretary of State Antony Blinken, who is expected to visit Israel next week, bypassed Congress for the second time in a month to 

approve an emergency US$147.5 million weapons sale to Israel

 that includes parts for M-107 155-millimetre howitzer shells.

Netanyahu appears increasingly caught between a rock and a hard place

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