The cynical ceremony Hamas staged for the Israeli hostages will be remembered primarily for the appearance of the three released captives. They stood there, gaunt and weak, facing a hate-filled crowd, unwillingly playing roles in a performance orchestrated by a murderous terror organization. But those who looked at the bigger picture could spot many additional details that should worry and trouble Israel. The Hamas members surrounding the hostages appeared healthy and fresh, their uniforms seemingly straight from the tailor and their weapons polished. The stage featured massive printed banners and a speaker system, while Hamas camera crews documented the event and a drone captured the ceremony from another angle. White pickup trucks – reminiscent of the October 7 nightmares – were also part of the well-choreographed scene, moving freely to and from the chosen location in Gaza. While Israel set the goal of completely eliminating Hamas, and the IDF invested 16 months of intensive warfare in this mission – the spectacle revealed to the world that day and in previous release ceremonies showed that the organization not only remains dominant in the Gaza Strip but is also well-equipped and capable of staging impressive productions.

A series of pressing questions arise from this event and others documented in the Strip. How does Hamas manage to maintain its power and continue functioning as a governing body? For months, we have been told that the organization suffered devastating blows, that all its infrastructure was dismantled, its leadership eliminated, and tens of thousands of operatives killed; how then can it showcase formations of uniformed operatives, equipped and armed from head to toe? Where did it obtain the necessary funds? Is it merely utilizing emergency stockpiles prepared in advance and stored deep in the tunnels, or is Hamas continuing to receive supplies from outside the Strip? And to broaden the scope – how has the entire Gaza economy been functioning since October 7, 2023?

An investigation by Makor Rishon reveals that during the war, Hamas managed to get its hands on enormous sums of money, goods, and resources that allow it to remain in power. The main source of funding is provided with the approval of the State of Israel, through the border crossings it established: humanitarian aid. Additional tens and hundreds of millions of shekels enter the Strip through other means, also under the watchful eye of Israeli authorities. And what doesn't enter through the door or window, Hamas simply loots.

These are not negligible amounts or just a few sacks of flour and rice. According to security establishment estimates, close to a billion dollars have reached Hamas since October 2023, through direct and indirect means. This is what enables it to continue paying salaries to its operatives throughout 16 months of war, and also to recruit new operatives to replace those killed. If there's anything not lacking in the Gaza Strip, it's 15-year-olds who would be happy to receive cash. Even Gazans who don't receive direct salaries from Hamas are forced to purchase basic food products from it, understanding they have no way to survive without it.

To find answers to these questions, we spoke with numerous sources, both within and outside the military and security establishment. Most chose to remain anonymous, with only a few agreeing to be interviewed by name. The picture they paint shows that Israel is preventing Hamas' elimination with its own hands, and that no plan from Trump or any other source can truly change the reality in Gaza.

Two-column distribution

All interviewees we spoke with agreed on one basic point: humanitarian aid is the central factor enabling Hamas to maintain control in Gaza. Food packages, clean water, medical equipment, tents, and fuel – all these serve Hamas operatives, their supporters, and families first. Hamas sells the remaining goods to Strip residents, and the money received is used to pay operatives and maintain its mechanisms.

What scale are we talking about? According to the Coordination of Government Activities in the Territories (COGAT), before the war, several hundred trucks entered the Strip from Israel daily, no more than 500 trucks at peak. These carried food, fuel, construction materials, raw materials, furniture, clothing, and goods of all types. Additionally, goods entered the Strip from Egypt through the Rafah crossing, at a volume of 100-200 trucks per day. As soon as the war broke out, all crossings were closed, but almost immediately, the IDF began preparing to transfer humanitarian aid to Gaza. Already on Friday, October 13, 2023 – six days after the murderous attack, and while at Camp Shura they worked around the clock trying to identify the dead – a special discussion was held at the Kirya in Tel Aviv aimed at formulating a plan to transfer aid to the cities and refugee camps from which the murderers came. One participant in this meeting, a person whose many acquaintances, subordinates, and employees dealt closely with the horrors of the Black Saturday, told us he found it hard to believe this was the topic of discussion to which he was rushed, while smoke still rose above the kibbutzim.

Hamas naturally anticipated the closure of the crossings and prepared supply warehouses in advance. But the quantities were limited, stockpiles dwindled, and as the campaign progressed, Hamas began suffering from shortages of food, medical equipment, and fuel – which was especially necessary for operating the tunnel network. Then, about fifty days after the October 7 attack, the first hostage deal arrived. Besides releasing a small number of Palestinian prisoners, the deal included bringing large quantities of equipment and food into the Strip under the banner of "humanitarian aid." For Hamas, this was oxygen for breathing: it refilled warehouses and prepared well for continued fighting.

The flow of supplies to the Strip did not stop at the end of the ceasefire. From the beginning of the war, the American stance supporting Israel came with an unequivocal demand: Israel must bring in humanitarian aid for Gaza residents. Even when Hamas' deep involvement in supposedly civilian organizations like UNRWA became clear, and despite knowing that the terror organization was seizing many aid trucks, this demand remained and even intensified. In April 2024, Secretary of State Antony Blinken again demanded that Israel not prevent or reduce aid to the Strip. His words came against the backdrop of accusations against senior Israeli officials at the International Criminal Court in The Hague, and an international campaign speaking of "starving the population in Gaza." In July, the Americans even imposed personal sanctions on the founders of "Tzav 9" organization for blocking trucks headed to the Gaza Strip. "A violent extremist organization," was how "Tzav 9" was defined in the official announcement.

As the US presidential elections approached, pressure from the Biden administration to bring more and more aid into the Strip increased. In a letter Blinken sent in October 2024, it was stated that Israel needed to change its policy due to "severe humanitarian conditions in Gaza." The demands from Israel included "flooding" the Strip with aid at a volume of at least 350 trucks per day, humanitarian pauses in fighting, easing restrictions on goods passage, and bringing aid to northern Gaza. If the Israeli government did not do this, the Americans threatened it would lead to a complete arms embargo. Bringing aid into the Strip was a central topic during Blinken's visit to the country a month later. Since then, aid volume has stabilized at 200-250 trucks per day.

Under American pressure, the IDF operated along two parallel tracks throughout the war. On one hand, it expanded its maneuver, took control of more and more areas in the Strip, and prevented movement of people and goods. After capturing the Netzarim axis and bisecting the Strip, came the entry into Rafah and control of the Philadelphi Route, a move that closed the Strip's southern border and prevented smuggling from that direction. But parallel to the military maneuver, the volume of humanitarian aid that Israel allowed into the Strip kept growing.

According to Customs and Border Crossings Authority data, during 2024, 42,700 humanitarian aid trucks entered the Strip. The current hostage deal led to a sharp increase in supply flow to the Strip: in the 42 days of Phase A of the current deal, if completed, 600 trucks per day are supposed to enter, totaling 25,200 aid trucks within a month and a half. These are resources transferred directly and indirectly to Hamas, and no one doubts this. Throughout the entire Gaza Strip, by the way, there are reportedly 300 functioning trucks. To bring in such quantities of equipment and food and distribute them, these trucks need to operate around the clock and return to border crossings more than once per day. In fact, under the cover of the hostage deal, trucks are entering the Strip in numbers similar to those before the war, except now they bring only essential equipment and food. Other goods are not defined as humanitarian and are not permitted to cross the border. This means that the quantities of basic resources entering the Strip are even larger than before. The trucks are supposed to go directly to shelters designated for the civilian population, or to international organizations' warehouses, from where goods are distributed once daily among the shelters.

The long columns of trucks are, as mentioned, an inexhaustible resource for Hamas. According to estimates, the organization seizes 25-30 percent of the humanitarian aid entering the Strip – 150 trucks per day. Throughout the war, documentation increased showing how Hamas operatives attack truck drivers, take control of vehicles, and steal the goods on them. Unit 504 officers heard from a Strip resident, a chef working for an American NGO, that Hamas systematically steals equipment and food from UNRWA warehouses as well. The IDF Arabic spokesperson published videos showing how masked Hamas men beat residents and loot food sacks from them. Other documentation showed operatives impersonating UNRWA workers and stealing fuel and medical equipment from the organization's warehouses. Meanwhile, Hamas launched an "enforcement operation" against humanitarian aid thieves, killing more than twenty Gazans suspected of theft. In a video filmed in the Strip, organization operatives were seen spraying the word "thief" on the back of a resident who tried to take food from an aid warehouse. The message to Gazans was clear: only one entity in the Strip is allowed to steal.

Sometimes Hamas takes on the role of the generous uncle passing out aid packages to residents. In one such case, Hamas took over a distribution line operating at a school and clinic, and began distributing food vouchers to residents, including baby food, creating absolute resident dependence on the organization. In other cases, two columns could be seen at distribution centers – one for Hamas members and one for Gaza residents. Those in the first line received twice the amount of supplies as their neighbors in the parallel line.

Some of the aid Hamas steals, it immediately resells to residents, the victims of the theft. Its revenue from this channel is estimated at $50 to $100 million per month, totaling nearly a billion dollars since the war began. For comparison, the Qatari cash suitcases that entered the Strip contained $30 million each month.

Then there's fuel. Fuel entry into the Strip before the ceasefire was done sparingly and only according to precise needs definition, such as operating generators in hospitals and humanitarian facilities. Even from this small amount, Hamas stole and used for its purposes. Under the current deal, 50 fuel and gas tankers enter the Strip daily, unloading their contents into special containers – and the IDF has no ability to prevent Hamas from seizing this supply as well.

Even when Hamas doesn't take goods by force, it ensures it profits from them. It collects protection money on every truck entering or moving within the Strip, even for essential aid to hungry residents. This week, Kan 11 reported that under the ceasefire agreement, Hamas set up checkpoints at various locations in the Strip to stop aid trucks and collect taxes on goods. Due to IDF forces' withdrawal from the Strip, there's no one to prevent Hamas from doing this.

"The average payment per truck is about 30,000 shekels, and it can reach 50,000," Eyal Ofer, a Hamas economy expert, tells us. "If you multiply that by 70,000 trucks that have entered since the war began, you reach about 2 billion shekels. Add to that the goods that reached them, and those they sold at high prices – and we're talking about 4 billion shekels accumulated in the past year."

"There's a vicious cycle here," says Dr. Ehud (Udi) Levy – former head of the Mossad's Economic Warfare Unit ("Tziltzal"), and currently a senior researcher at the Jerusalem Institute for Strategy and Security. "The world sends humanitarian aid to Gaza, Hamas seizes it and takes it for free, then sells it for money, with this money it pays salaries, and these salaries return to it because they're also used to buy humanitarian aid supplies. That's why since the war began, Hamas' money amounts only keep growing. We shouldn't be surprised when we see their grand shows. If we continue with the current policy, Hamas will succeed in recruiting people, rehabilitating the Strip, and bringing the population closer to it. This way, the Gaza story will become even more complex."

"There's no functioning economic system in Gaza today, but Hamas manages to pay its people," says Dr. Michael Milshtein, head of the Palestinian Studies Forum at the Dayan Center at Tel Aviv University, and former head of the Palestinian arena in Military Intelligence. "Humanitarian aid is deeply exploited by the organization. The salary from Hamas sometimes comes in the form of a product basket or medicines. Those connected to the organization get what they need. From everyone else, Hamas collects taxes. Internal taxation was a major source of income for it even before October 7, and all business activity in the Strip involved paying tax. With the start of the ground maneuver in Gaza, it became clear that the entire civilian space is actually scenery for the jihad project. There wasn't a single kindergarten, mosque, grocery store, or charity organization – that didn't have something from the military wing's infrastructure. A complete fusion of military and civilian."

Money from Iran, trader from Israel, impersonator from Gaza

The ground entry into Rafah, which began on May 6 last year, was preceded by a prolonged dispute both within Israel and with international actors. The United States and European countries opposed Israel's takeover of the city in the southern Strip, as it meant closing the Rafah crossing to humanitarian aid coming from Egypt. In light of the criticism, the defense establishment decided to allow goods into Gaza not only through international aid organizations but also through the private market. Israeli traders were permitted to sell various products and materials to Gazan traders, after they received special approval from the IDF and underwent Shin Bet screening.

The COGAT initiated this move, ostensibly to create a Hamas-bypassing supply route, thus giving residents the ability to purchase basic equipment and needed supplies without contacting the terror organization. But information that reached us points to another reason: an attempt to encourage other, non-Hamas elements in the Strip to take control. Local clans identified as having potential to push out Hamas received special permits to import goods themselves, including products and materials not appearing on the restricted humanitarian aid list. These goods arrived through Egypt, underwent inspection at the Nitzana crossing, and from there were transported to Gaza through Rafah, with Israel providing air escort.

In practice, this move led to several problems and yielded Hamas tens of millions more dollars. First, the organization collects "protection money" on every truck entering the Strip, including those coming through private market traders. The bypass route for transferring goods didn't prevent it from profiting this way. When clans tried to take control of certain areas and collect protection money themselves, Hamas fought them: it didn't want competition. To tighten its grip on the Strip's economy, the organization operated a kind of police force whose duties included supervising market prices. Lists distributed to merchants detailed maximum prices for various goods, and Hamas announced that anyone exceeding the stated amount – their stock would be confiscated and distributed for free. Merchants who tried to violate the instructions were beaten or shot.

Another problem with opening private routes for goods entry was increased smuggling. Goods originating in Israel pass through fewer control points compared to goods arriving from abroad, and smugglers know how to exploit this in various sophisticated ways, such as hiding prohibited items in special containers. Cash and weapons were likely sent this way to the Gaza Strip as well. And for every illegal shipment caught, there are likely many that successfully reach their destination.

Third, private trade gave Hamas access to funds from abroad. Since the war began, organization senior officials in Gaza struggled to receive money held in investments and various accounts, or amounts that Iran, for example, wanted to transfer to them. The goods passage enabled an offsetting move: Iran purchases goods needed by Hamas, or it purchases them remotely, using funds located abroad; a local merchant allegedly stands at the transaction's front to give it legitimacy; and thus ultimately Hamas manages to transfer monetary value into the Strip, even without bringing in cash.

The security establishment identified interactions between Hamas and Gazan merchants, and understood that the organization was exploiting the mechanism of transferring goods through the private sector for its purposes. This route was closed, but the damage was already done.

Cigarettes inside sewage pipes

Humanitarian aid to the Gaza Strip comes from various international organizations – private non-profit organizations like World Kitchen, UN agencies, and more. Many countries, including the UAE, Egypt, and Jordan, also send their contributions. The COGAT gives approvals to various international entities to transfer goods to the Strip and determines what is permitted and what is prohibited. Any organization wishing to participate in this process must register with the Foreign Ministry and undergo screening by Israeli security bodies. Qatar, Turkey, and Iran cannot transfer aid directly to the Strip but do so through a back door: they donate money to international NGOs and UN agencies, which then purchase aid products and transfer them to the Strip. This is, by the way, a known method that was used long before the current war.

Until a few weeks ago, UNRWA, the UN agency for refugee affairs, held permission to transfer goods to Gaza – although it was clear that within the Strip, Hamas and this organization were one and the same. This permission was canceled at the end of January this year, after the "Law to Stop UNRWA Activity in Israeli Territory" was passed. The IDF emphasizes that they haven't worked with the agency since its employees' involvement in the October 7 massacre was discovered. However, in practice, the UN continues to work in the Strip through UNRWA mechanisms, even when it's known that goods reaching the workers and agency facility grounds effectively fall into Hamas' hands.

Aid arrives from around the world and funnels into Israel through Ashdod port or border crossings with Egypt and Jordan. Then it enters the Strip through four crossings. Until the war began, goods were transferred from Israel to the Strip only at Kerem Shalom, but now there are active crossings in the Kisufim area, at Erez (a crossing that before the war was used only for people's entry and exit) and at Zikim.

Currently, only five types of goods are allowed into the Strip: food, water, medical equipment, medicines, and shelter (tents and the like). In practice, aid trucks also smuggle large quantities of prohibited goods to Hamas. These are sold in the Strip at high prices, further enriching the terror organization's coffers.

Many of the smuggling operations involve tobacco and cigarettes. In one humanitarian aid shipment, a thousand packs of Karelia cigarettes were caught on six UNICEF trucks, the UN International Children's Emergency Fund. The trucks' official cargo was sewage pipes, but an inspection of the wooden pallets on which the pipes were loaded revealed the smuggling attempt. The price of a pack of cigarettes in the Strip rose during the war and reached 170 shekels or more, meaning this goods' value, for whoever sells it, is about 1.7 million shekels – all from just one smuggling operation.

The customs administration in the Tax Authority is responsible for checking goods entering Gaza – the body in charge of all Israel's border crossings, both in terms of security screening and preventing money laundering and drug smuggling. According to its data, during 2024, 270 tons of tobacco and over 70,000 cigarette packs were caught at Gaza crossings. Here too, for every shipment caught, there are likely several that successfully passed inspection. As Israel allows more and more aid trucks into Gaza with permission, one can assume the scope of smuggling is also growing.

Recently, drug smuggling into the Strip was also discovered, including hashish and Captagon – the drug used by Nukhba operatives on October 7. Sources familiar with the matter told us that cash and weapons were also smuggled into the Strip throughout the war, whether under cover of humanitarian aid or through other means. Israel on its part isn't making many efforts to prevent this: a security source we spoke with told us that at the Erez crossing, there is currently no X-ray scanning of trucks. While they undergo security screening when entering the country at the Nitzana crossing, on the way from there to the Erez crossing, before entering the Strip, one can replace the cargo on the truck, hide prohibited goods within it – and cross the border into Gaza without scanning.

There are several possible avenues for dealing with the smuggling plague. The first is, of course, criminal enforcement against all those involved – the goods supplier, the transport company moving it, warehouse owners, and truck drivers. However, when we approached law enforcement authorities trying to clarify who handles these cases and how, we received evasive and vague answers that raised questions about the will to deal with the phenomenon. The state attorney's office told us that "The issue is not familiar to us, perhaps it's handled by the military prosecution." Security sources reported that arrests were made, and the matter is being handled by Israel police. When we approached the Israel police, we were told they are not familiar with such cases.

The picture emerging from our investigation shows that no entity is trying to address smuggling, even when it's caught on the Israeli side – in trucks of Israeli transport companies, or within goods of international organizations that Israel permits to operate. Although bringing prohibited goods into Gaza amounts to aiding the enemy during wartime, there is effectively no criminal enforcement against such violations. Drivers involved in smuggling are banned from entering crossings again, but beyond that, there is no punishment that would include a deterrent element.

The only sanction currently operating against smuggling comes from the Bureau of Counter Terror Financing (BCTF) at the Ministry of Defense. BCTF officials confiscate both the goods and the truck – and to release the vehicle, a fine must be paid that increases if it's a second or third violation. "The Israeli sanctions and enforcement activities led by BCTF have proven their effectiveness. We need to increase the use of these tools," Attorney Paul Landes, who also previously headed the Mossad's "Tziltzal" unit, tells us.
Nevertheless, in the absence of criminal sanctions, this process's effectiveness is questionable. If some reach a second and third violation – probably the smuggling benefit outweighs the risk. Goods confiscation isn't particularly deterrent either, since these were initially purchased with Hamas, Iran, or other hostile entities' money.

Bills getting worn out

Another Hamas revenue source was revealed to Gaza residents in the form of a powerful explosion that rocked the Rimal neighborhood on April 17, 2024. This wasn't an air bomb, nor a shell fired from an Israeli tank: the noise source was inside the Bank of Palestine. As a result of the blast, banknotes were seen flying in the air, and when the smoke and paper pieces settled, what happened became clear. Not long before, concerns arose at the bank that economic distress in the Strip would lead to theft attempts, so it was decided to pour another concrete shell around the central vault. This didn't help. Hamas operatives blew up the vault with its surrounding concrete and fled with about 100 million shekels. The next day, several armed men came to the bank and forced employees to open other vaults. Thus, the Bank of Palestine lost another 100 million shekels.

These cases, and another series of vault and ATM robberies of smaller amounts, were revealed in a Financial Times investigation. According to estimates, Hamas enriched its wallet this way by about 400 million shekels in cash, within just two months. IDF Arabic Spokesman Lieutenant Colonel Avichay Adraee presented a Hamas document showing that the robberies were planned and executed by organization operatives. "Hamas acts cruelly toward civilians, from whom it shamelessly steals for its survival," Adraee said. "Through these funds, it finances its terror operations on residents' backs, thereby harming not only the Strip's security but also its economy."

Udi Levy isn't impressed by images published throughout the war showing thick bundles of bills confiscated by the IDF: "Hamas kept nice reserves of money for campaign days," he says. "There was a lot of money inside the tunnels, and it remained in the organization's possession. The IDF also didn't remove from Gaza the shekels that were in Palestinian banks, and during the past year Hamas simply emptied the vaults there."

Even in routine days, Gaza's economy isn't particularly advanced, and trade is conducted mainly in cash. Since the war began, most economic activity in the Strip stopped, and what remains exists in small and local scales – limited market trade, or providing simple services for small payment. New Israeli bills aren't entering the Strip, and the cash reserve remains more or less constant, only changing hands. A significant portion of this cash found its way over the last 16 months to Hamas.

"Hamas earns much more money than it spends on salaries. A mountain of cash has accumulated," says Ofer. "Now the organization will look for ways to launder this money and get it into the banking system. It needs this also to get new bills, because the bills in the Strip are very worn out. That's why they're now offering to return the money they stole back to the banks."

Meanwhile, other entities continue to stream money into the Strip through bank transfers. Ofer says the Palestinian Authority transfers salaries to its employees still operating there and support to residents. Additionally, tens of thousands of people in the Strip receive grants from various international organizations through PalPay, a payment application operating in Gaza.

Another money route is fundraising through charity organizations and crowdfunding campaigns. Thousands of such campaigns went up on social networks throughout the war, successfully raising huge sums from private individuals in the US, European countries, and East Asia. Most donate innocently out of desire to help displaced persons and those in need, without knowing that some money goes directly to Hamas. The Bureau of Counter Terror Financing works with the intelligence community to monitor fundraising, and when a specific campaign is identified as Hamas-linked, they issue sanctions against it. Financial bodies usually honor this, and when necessary ensure disconnecting the campaign from payment channels and removing it from internet servers. So far, about sixty fundraising operations have been blocked this way, including one collecting money for Hezbollah members who lost fingers in the beeper attack. But even in this arena, the fight against terror financing is a Sisyphean task: for every campaign closed, a new one opens.

Lost islands

The security establishment is well aware that some humanitarian aid reaches Hamas, but they claim they have no effective way to monitor what happens with truck contents after entering the Strip. The truck drivers are Gazans who received IDF and Shin Bet approval, but when Hamas gunmen want to take over the vehicle and shipment, none of these drivers resist.

The IDF aspires to find an alternative to Hamas as the Strip's controlling entity, but after 16 months of fighting it's already clear that no civilian entity will want to take this role before Hamas is removed. And again, Israel imprisons itself in the same vicious cycle, because Hamas cannot be destroyed while continuing to stream resources and equipment that keep it alive. As long as it continues bringing aid in enormous volumes into enemy-controlled territory, it feeds the beast and prevents its elimination. This aid, everyone knows, has long since stopped being a humanitarian tool and become an instrument for maintaining Hamas rule. Perhaps in the Trump era, which seeks to resettle Strip residents and threatens to open "hell's gates" on it, the US will be open to completely different arrangements regarding humanitarian aid.

Many in the political system demand the IDF take responsibility f\or aid distribution, but IDF Chief of Staff Herzi Halevi firmly opposes this, fearing it would lead to military rule in the Strip. At COGAT, they've meanwhile developed a plan talking about "humanitarian islands" – civilian spaces that the IDF will clear of Hamas, after which civilian population that undergoes screening and filtering will enter. In these islands, the IDF would still control the security aspect, but humanitarian aid distribution would be done by an American company. But even this idea was opposed by the current general staff, and it wasn't implemented. There are apparently ways to hit the cash stockpiles Hamas holds, and whoever knows how to find operatives can also find money, but the State of Israel isn't acting decisively in this direction.

"The army hasn't dealt with civilian matters at all," Finance Minister Bezalel Smotrich tells us. "We should have managed humanitarian aid to prevent it from reaching Hamas. Unfortunately, there's resistance in the army to engaging in this area, even if an international company would be responsible for actual aid distribution. Toward the deal's end and return to fighting, we need to create a system that knows how to bring in aid without it reaching Hamas."

The defense establishment responded to us saying that "Security bodies monitor all aspects of the Hamas terror organization's activity, both military and political-governmental. As part of this, close intelligence monitoring is conducted on the terror organization's economic behavior, and relevant information is shared with relevant bodies through accepted channels. The defense establishment acts against the Hamas terror organization and to diminish its capabilities according to war objectives and subject to political echelon directives, and will continue to do so as required. Due to information security limitations, exact intelligence information cannot be detailed."

"Israel, even after October 7, hasn't managed to understand that economic warfare is a significant part of the campaign," Udi Levy concludes. "As long as we only engage in military effort, we won't collapse any organization. If it has money, and money flows to it – it will strengthen again. Hamas without money would be a completely different story. Trump's plan can't be implemented while Hamas is strengthening."

And while the Gaza issue remains unresolved, Levy already marks the next problem: "Enormous amounts of money are now flowing to Judea and Samaria. Both the army and Shin Bet know this. Money coming mostly from Iran and Turkey, entering through smuggling from Jordan, through money changers in the West Bank, through crypto. Most passes through crime organizations and drug smuggling. Even within the military operation they're doing now in the West Bank, I don't see this being addressed. Why isn't there a cross-organizational task force, with participation from Israel Police, Border Police, Shin Bet, army, and Mossad, focusing on this issue? Why isn't the State of Israel stopping all money changers in Judea and Samaria? Why aren't all bank managers in the West Bank being called in and warned that if one penny for terror passes through them, all their assets will be confiscated? Why isn't there a wave of arrests of all Hamas financial officers in Judea and Samaria?"

"When thinking is purely military, they don't understand what's happening here. We're abandoning economic, legal, and consciousness warfare. Hamas, on the other hand, maintains consciousness warfare against us, even in hostage releases. It broadcasts that it's a strong entity standing on its feet, and it manages to show this to the whole world, because it has money."

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The Houthis created significant concerns in Israel's economic system. Their control over the Gulf of Aden and the Bab el-Mandeb Strait threatened one of Israel's main shipping routes through the Red Sea and Suez Canal. Houthi attacks on merchant vessels led to the diversion of international shipping to a longer route, circumnavigating Africa via the Cape of Good Hope. In Israel, there were fears of dramatic effects on our global trade that would lead to price increases for many products.

This concern was certainly well-founded. Rising shipping costs during the COVID-19 crisis were a major factor in the global increase in consumer product prices. The blocking of the Suez Canal between 1967 and 1975 also caused significant damage to Israel's international trade and economic growth.

However, a new study by the Bank of Israel, conducted by Haggay Etkes and Nitzan Feldman, shows that the Houthis' impact was relatively limited. From the start, only about 5% of Israeli exports are shipped by sea to Asia and Oceania, and about 20% of civilian imports to Israel. The analysis revealed that total Israeli imports from Asia and Oceania did not decline unusually following the Houthi attacks. Import prices to Israel also did not rise significantly, partly because maritime shipping costs are a small portion of the merchandise price, so their impact on the final price is minimal.

The Houthi attacks in the Red Sea didn't only affect Israeli vessels or those bound for Israel but impacted global maritime transport worldwide. Other Mediterranean countries actually felt the impact of these attacks more strongly. Imports in countries like Greece, Turkey, Italy, France, and Spain declined for six months due to Houthi attacks but managed to recover by the spring of 2024. The diversion of shipping routes initially raised transport costs, but this increase moderated within several months. Ironically, Israel, which was the declared target of Houthi attacks, showed reduced impact compared to other Mediterranean coastal nations.

It's no wonder the Houthis themselves are beginning to worry. The Shiite axis is crumbling across the Middle East, and their harmful influence on a major maritime trade route is weakening as the world finds alternative solutions and demonstrates flexibility in shipping routes. The Houthis remain alone in the broader Iranian campaign, where they weren't the strongest player to begin with. This week, the US and Britain attacked a Houthi facility in Sanaa, and later, Israel also struck several targets in Yemen, while the emerging Trump administration is not expected to treat them favorably.

The post How Israel's trade defied Houthi threats in the Red Sea appeared first on www.israelhayom.com.

The Finance Ministry anticipates a third revision of the 2024 state budget, as US aid promised to Israel is not expected to arrive in time for use in the current fiscal year. Additionally, the expansion of military operations in the north and the commencement of ground maneuvers in Lebanon will necessitate an increase in the defense budget, requiring additional funds.

The budgetary expenditure is expected to grow by approximately $5.4 billion to $6.2 billion. The Finance Ministry had initially relied on about $4.9 billion in anticipated US aid, but these funds have been significantly delayed and are not expected to arrive soon. Furthermore, the US is imposing various restrictions on the use of these funds, which are currently under discussion between the two nations.

The implications of this delay mean that the budget deficit is likely to exceed initial projections. The planned deficit for 2024 was originally set at about 0.8%. With the outbreak of war and the sharp increase in expenses, it was inevitably raised to approximately 6.6%. In recent months, state revenues have grown beyond forecasts, allowing the government to meet its revised deficit target despite increased war-related expenses. However, the current budget gap, primarily due to the delay in receiving US funds, will necessitate further increasing the deficit, potentially reaching 7.7-8% of GDP.

The opening of an additional front in Lebanon means an immediate and extensive addition to the defense budget. The IDF has deployed four divisions to the north and is increasing the number of reserve soldiers daily. Each reservist represents a significant expense, not only in terms of reserve duty pay but also in logistics such as transportation, food, and other maintenance costs. These expenses are immediate, requiring the identification of budgetary sources right away.

Currently, there is no clear estimate of the number of reservists required for combat in Lebanon or the duration of operations on this front. It is unknown whether it will conclude soon or extend into the next year, and consequently, what additional budget will be required. The Finance Ministry estimates that the expected cost for mobilizing reserves will range between $544 million and $1.36 billion, which was not originally planned in the 2024 budget.

Other costs associated with the northern front, such as ammunition, missiles, and Iron Dome interceptors, are not expected to impact this year's budget but will affect next year's. Naturally, the ammunition being used today has already been purchased and paid for, as the IDF prepared in advance for operations in Lebanon and maintained sufficient inventory. When the need arises for restocking and replenishing supplies, the cost will be factored into future budgets, typically spread over several years. In this sense, Finance Ministry officials say the problem is primarily cash flow-related, as the money from the United States will eventually arrive and will be used to replenish the required inventory.

When planning the revised budget, the Finance and Defense ministries relied on the aid package promised by US President Joe Biden last October. However, in practice, considerable time passed before the aid package for Israel was approved by Congress in April 2024.

The United States was supposed to transfer about $8.7 billion to Israel as part of an aid program with various components; approximately $3.5 billion is a flexible budget that Israel can use for procurement according to its needs. Even this amount was delayed but finally reached Israel about a week ago.

The remainder, about $5.2 billion, comes with various conditions and is earmarked for specific needs; approximately $4 billion is designated for air defense, namely for various types of interceptors such as Iron Dome, Arrow system, and David's Sling, and another $1.2 billion for financing the laser interception system. These amounts are still delayed, and the Finance Ministry assumes they will not be transferred to Israel in the current fiscal year. The defense establishment has already purchased and used large quantities of interceptors, but the budgetary source intended for them has not arrived.

In recent months, disagreements have arisen with the Americans over how Israel can use the amount in question, at what stage the administration will transfer the money, and around questions such as whether it can be used to finance interceptors already purchased or only future purchases. It is not inconceivable that part of the delay or insistence on American requirements, if any, is also related to political difficulties with the current US administration in light of the expanding war. The issue of aid and its modes of use are under discussion at the political level but have not yet been finalized.

The 2024 budget has already been amended twice. The first time was in March, and the second time about a month ago when the need to increase the budget by about $925 million for payments to evacuees from the north and south became apparent.

The Finance Ministry prepared the revised budget based on the assumption that the war would last about six months, and estimating that the number of reserve soldiers at this stage would be significantly lower. Meanwhile, the war is extending beyond expectations and expanding to additional fronts, and reserve soldiers are already beginning their third and fourth rotations this year.

However, neither the scenario of war on the northern front nor the delay in US aid funds surprised anyone in Jerusalem; for many months, the Finance Ministry has been concerned about delays in American aid funds and especially about certain conditions that might be imposed on them, and they have already begun to prepare for such a possibility. Nevertheless, one must wonder why they made a budget amendment only a month ago when they already estimated that the aid funds would not arrive on time and that another budget update would be needed. Ultimately, the Finance Ministry preferred to deal with urgent payments to evacuees and postpone concerns about other amounts for later.

Reopening the budget just weeks after its amendment is an unusual step and sends a problematic message. Its meaning, beyond exceeding the deficit target, is damaging Israel's credibility with credit rating agencies and investors. If Israel fails to meet the budget constraints it has set for itself, it's a troubling signal about its ability to regulate expenses and meet its commitments. Naturally, the war necessitated a budget correction to address the unexpected increase in expenses, but opening it for a second and third time may signal a loss of control over expenses.

Two credit rating agencies, Moody's and S&P, have already lowered Israel's credit rating this month due to security developments in Lebanon and with Iran. Moody's also negatively noted the government's economic policy and expressed a lack of confidence in its ability to promote significant changes that would bring the budget to a convergence trend. The Governor of the Bank of Israel also referred to this in the interest rate decision this week. It's important to listen and take seriously the assessments of the rating companies, said Prof. Amir Yaron. They reflect the challenges and risks facing the Israeli economy as the world sees it. The rating agencies emphasize the impact of the geopolitical reality but also reflect the impact of fiscal policy management, emphasizing the importance of the future policy outline, he said.

The governor also referred to the possibility of opening the budget due to increased expenses and said, The rule is that there is a budget framework. It's clear that breaking it negates the whole idea of a binding budget framework. However, we are in a period where the war has been prolonged. There is a need to finance the evacuees, there is an increase in war expenses in the north that was unexpected, and in addition, there was a cash flow diversion from the special American aid. All these combined. I would have preferred everything to be done at once, along with the execution of the 2025 budget, it would have strengthened confidence.

The Accountant General at the Finance Ministry Yali Rotenberg recently published the updated deficit data for the last twelve months. The cumulative budget deficit reached a level of 8.5% of GDP during this period, which is about $45.15 billion. The increase in the deficit is mainly due to high expenses in the defense system and civilian ministries due to the war. The estimate of war expenses since the beginning of the year stood at $21.33 billion, and since the outbreak of the war at $28.16 billion. The deficit target set by the government for the 2024 budget stands, as mentioned, at a level of 6.6% of GDP.

The Finance Ministry believes that the deficit has reached its peak and is expected to decrease in the coming months. Since the deficit is calculated for twelve months backward, the current deficit level includes the first three months of the war, during which there was a huge spike in defense expenses.

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In April, Israel braced itself for an Iranian drone attack. This week, the country once again found itself on edge, anticipating another assault from Tehran (which, at the time of writing, had not yet occurred). Airlines canceled flights, TV pundits offered predictions, and White House officials continued to issue warnings. Meanwhile, life in Israel carried on as usual. The same happened in April; immediately after the attack, life here returned to its normal course. Israel managed to repel the Iranian weapons with unprecedented success, using its air force, advanced defense systems, and a regional and international coalition. All of these factors blunted the impact of Iran's first-ever direct attack on Israel from its own territory.

Advanced defensive capabilities like those Israel displayed on the night of April 14 have many advantages, but also quite a few drawbacks. The potential damage from an attack like the one seen here could be enormous – to lives, property, infrastructure, and of course, the Israeli economy. If an impending attack causes airlines to suspend flights indefinitely, imagine what a successful attack would do to foreign investments, regular economic activity, businesses, and workers.

However, the addiction to defense technologies and advanced interception systems is part of what has brought us to this point. For many years, rockets were systematically fired from the Gaza Strip into Israeli territory – mainly toward communities bordering Gaza, but occasionally also toward central Israel and beyond. The only reason Israel managed to contain these attacks for so long is that defense systems, especially the Iron Dome, succeeded in preventing most of the damage these attacks were intended to inflict. The advanced defense systems created a false sense of calm and prevented a sense of urgency in addressing the root of the problem. In the end, this calm proved to be an illusion.

No matter how successful, these defense systems do not change the strategic balance but preserve it until the other side manages to penetrate them as well.

It's important to dwell for a moment on the dangerous precedent of normalizing an Iranian attack. We survived one almost unscathed, and now we sit patiently waiting for another. The world around us has changed, without us paying enough attention. Iran has transformed from a vague and distant threat operating in the shadows, which concerned us mainly due to its future nuclear potential, to a direct and daily threat. Its chokehold is tightening around us, through direct conventional attacks and via proxies, and we continue to arm ourselves with defense systems. As impressive and successful as they may be, these systems do not change the strategic balance but preserve it, until the other side manages to penetrate them as well.

Another major disadvantage is related to the budgetary aspect. The ability to maintain normal life even in the face of such attacks may be priceless, but it certainly comes with a price tag. The cost of Israel's defense on the night of the drone attack is estimated at between 2 billion and 5 billion shekels. The cost of the Iranian attack, on the other hand, is about a tenth of that price. The Iranians – and for that matter, Hamas, Hezbollah, and the Houthis – can force the entire state of Israel into shelters and cause the cancellation of flights, workdays, and kindergartens at any given moment, all at minimal cost to themselves. A one-time attack will not create a hole in the Israeli budget. But repeated attacks of this kind will become a budgetary burden as these costs continue.

This is similar to purchasing a sophisticated ceramic vest that can protect a soldier from a bullet fired directly at him. But each vest costs two thousand dollars, while the enemy pays one dollar for each bullet. They can fire thousands of bullets at you without denting their budget, while you'll need hundreds of thousands of dollars to protect a single brigade. Statistically, the hundredth bullet will eventually kill someone, with or without a ceramic vest.

This impossible economic equation is an important part of the advantage of Iran's strategic move. Iran may not be interested in an escalation that would spiral into all-out war, but it can continue to launch relatively cheap munitions at us, forcing us to defend ourselves beyond our capabilities, and create enormous implications for Israel's economy.

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