The Missing Peace: The Inside Story of the Fight for Middle East Peace

Introduction

JOANNE MYERS: Good morning. I'm Joanne Myers, Director of Merrill House Programs, and on behalf of the Carnegie Council I would like to say how gratifying it is to see so many familiar faces and to welcome our new members and guests.

This morning, to launch our 2004-2005 series, we are delighted to have as our guest Dennis Ross, who will be discussing his recently published book, The Missing Peace: The Inside Story of the Fight for Middle East Peace, and his book will be available for you to purchase at the end of the program this morning.

Perhaps no region of the world has ever so dominated foreign policy discourse as has the Middle East. Over the past four years, the confrontation between Arabs and Israelis has taken on a particularly virulent and intractable form, fueled by suspicion, distrust, and hatred. It is, therefore, an easy matter to forget that just over a dozen years ago both Israelis and Palestinians had met and agreed to recognize each other's national rights and to separate peacefully. But those accords failed to accomplish what they set out to do, which was to bring and end to the occupation of the West Bank and Gaza in return for peace.

In recent years, explaining the collapse of Middle East peace efforts has become a burgeoning industry for pundits and publishing industry alike, but there is no one who has as broad a perspective as our guest this morning. No single outsider was more deeply involved in the process, and few know more about the complexities and challenges involved in bringing the Arabs and Israelis together than Dennis Ross.

For more than twelve years, Ambassador Ross played a leading role in shaping U.S. involvement in the Middle East and in dealing directly with the parties in negotiations. He was America's point man in the peace process in both the George H.W. Bush and Bill Clinton administrations. As a highly skilled diplomat, he was valued for an intuitive understanding of not just how the region's leaders ticked, but for what their cultures also brought to the table. He was instrumental in assisting Israelis and Palestinians in reaching the 1995 Interim Agreement and also successfully brokered the Hebron Accord in 1997. He facilitated the 1994 Israel-Jordan Peace Treaty and intensely worked to bring Israel and Syria together.

The Missing Peace is not only a work of historical significance, but explains, as no other has, why Middle East peace is so difficult to achieve.

Since leaving the government in January 2001, Ambassador Ross has been Counselor and Ziegler Distinguished Fellow at the Washington Institute for Near East Policy. Prior to his service as Special Middle East Coordinator under President Clinton, Ambassador Ross served as Director of the State Department's Policy Planning Office for President George H.W. Bush's administration. In that position he played a prominent role in developing U.S. policy toward the former Soviet Union, the unification of Germany and its integration into NATO, arms control negotiations, and the development of the 1991 Gulf War Coalition. During the Reagan Administration he served as Director of Near East and South Asian Affairs on the National Security Council staff and as Deputy Director of the Pentagon's Office of Net Assessment.

President Clinton awarded Ambassador Ross the Presidential Metal for Distinguished Federal Civilian Service, and Secretaries Baker and Albright presented him with the State Department's highest award.

Please join me in welcoming one of the very few people who probably knows more about the attempts to resolve one of the seminal geopolitical conflicts of our time than anybody else on earth, Ambassador Dennis Ross.

Remarks

DENNIS ROSS: Thank you.

Why did I write the book? Did I write the book because I wanted to present a portrait of every leader; to understand why Rabin operated the way he did, or Arafat, Assad, Mubarak, or Netanyahu? When you read the book you will find a clear picture of each of them. You'll see what kinds of pressures they were under, what they feared, what they sought to achieve, how they operated. But that's not why I wrote the book.

Did I write the book because I wanted the reader to ride the emotional roller coaster that was the peace process over all those years, the devastations, the assassination of Rabin; the moments of incredible poignancy and drama at Camp David and in the summits? Is that why I wrote it? No.

Did I write the book because I want the reader to be able to understand all the core issues, what separated the parties, why they view the issues they way they do, why they look at Jerusalem the way they do, why they look at borders the way they do, why they look at refugees the way they do; or on the Golan Heights why water is so critical to the Israelis, why security and water are more important from the Israeli standpoint as it relates to the Golan than the actual content of peace? The book discusses not only all of that, but also the ways in which we tried to bridge the differences on each of the issues. Is that the reason I wrote the book? No.

Did I write the book because I wanted to present the narratives of each side? In the last year of the negotiations, we would begin to talk about refugees, and the Israelis would say, "That's not my narrative," and the Palestinians would say, "That's not my narrative." There's a chapter in the book on their narratives, because somebody had to write their stories. Is that the reason I wrote the book? Partially.

I wrote the book because there is no region in the world that is more consumed by mythologies than the Middle East. I wrote the book to shatter the myths. I wrote the book to require everybody to face up to reality: you make peace on the basis of reconciling needs, and not on the basis of perpetuating mythologies. I wrote the book to reveal some of the myths, to talk about the realities, and to focus on what each side will have to do to adjust to reality.

What are some of the myths?

1) The Palestinian negotiations didn't make any concessions or compromises. They did. It is true that we didn't hear any of these from Arafat, but it is not true that they made no concessions.

There were three very important concessions that they made at Camp David. First, that there would be three Israeli settlement blocks in the West Bank accommodating 80 percent of the settlers. They didn't agree on the geographic size of those blocks, but they agreed on the principle. Second, they agreed that all the Jewish neighborhoods of East Jerusalem would be part of Israel. And third, they agreed that there could be a limited Israeli security presence in the West Bank.

Why is it important to expose the myth that they made no concessions? It's important for Israelis to know that there were Palestinians who were prepared to make significant steps and who are real partners. Maybe we didn't hear any concessions from Arafat on the permanent status issues, but only on the limited deals. Arafat never made a concession that could be irrevocable, but his negotiators were prepared to take significant steps. It's even more important for Palestinians to know that, because they need to understand that it is okay to compromise and concede, and that they had negotiators who were prepared to do so. That's the first myth that is exposed.

2) One of the most important mythologies and one of the revisionisms that has emerged is that in the end what was offered to the Palestinians was something that no Palestinian could have accepted. A mythology developed that the Palestinians were offered a state that couldn't have been viable, territories that were totally divided and surrounded, settlements interspersed throughout the Palestinian territories, no independent border with Jordan as an example in the West Bank, and something that by definition no Palestinian could accept.

For the first time, I present maps that compare what the Palestinians were offered with what Arafat says he was offered.

Arafat says he was offered cantons, small, isolated Palestinian islands, completely divided up by Israeli roads and settlements and surrounded by the Israelis — completely untrue. He says he wasn’t even offered 90 percent of the West Bank — completely untrue.

In the Clinton ideas, which are also presented in the book, the Palestinians were offered the following: 100 percent of Gaza, roughly 97 percent of the West Bank. The principles that guided the way the borders should be drawn and determined by the two sides, based on the percentages were:

• • Contiguity of territory for the Palestinians, non-absorption of Palestinians into Israel.
  • All the Arab neighborhoods of East Jerusalem would have become Palestinian, and it would have been the capital for the Palestinian state.
  • An international presence to provide security for the Palestinians, and deterrence, and to oversee the implementation of the agreement.
  • A right of return for Palestinian refugees to their state, not to Israel. In a two-state solution, it’s a right of return to their state that makes perfect sense. If you want a two-state solution, a right of return to Israel means you want a one-state solution. There will not be a Jewish state of Israel if there is an unlimited right of return for Palestinians to Israel.
  • We also offered a $30 billion fund for the Palestinian refugees for compensation, on the one hand; and for resettlement/relocation/ rehabilitation purposes, on the other.

That's not the mythology that Arafat has presented about what he was offered. If what we offered was so obviously unacceptable, then why not just present it as we did? Why lie about it? Why say he was offered cantons when he wasn't? Why say he wasn't offered East Jerusalem when he was offered all of Arab East Jerusalem? Why say the security arrangements were unacceptable when there was an international presence, which has been the litmus test for Palestinians?

There's another myth, that had he accepted it, he would not have lived a day. If he really believed that, he could simply have presented what we offered instead of totally misrepresenting it. So it's important to expose that as well.

I won't go through all the other myths, but I will say that all parties must adjust to a series of areas. Why go through this whole history if nobody learns any lessons? How will you reshape the possibility for the future unless you know what went wrong in the past? What went wrong must be understood as it was, and not through the mythologies that emerged afterwards.

Where do we need to see adjustments?

On the Arab side we need to see a basic adjustment. Arab leaders, apart from playing a more active role than ever before, need to be prepared to accept that Israel has a right to exist as a Jewish state, and be open about it. There isn't a single Arab leader I dealt with who didn't accept the fact of Israel and who wasn't prepared to make peace with the idea of Israel. You will never justify compromise on the Arab side or the Palestinian side with Israel if Israel doesn't have a right to be there. When we went to Geneva in March of 2000, the issue was not whether Israel was getting off the Golan Heights. Israel was committed to getting off the Golan Heights and we drew a border accordingly.

The Sea of Galilee is Israel's only fresh-water reservoir. What Barak wanted at that time was a strip around the lake to prove to the Israeli public that the lake and water would be theirs. The only place that was at issue was one small bit, because the June 4, 1967 line only came close to the water in the northeast corner of the lake.

During the Barak period, when Barak was ready Assad wasn't; when Assad was ready Barak wasn't; when Barak was ready again, Assad was focused on succession, and then he died. This had especially tragic consequences for the region because everything might have been different had we been able to get them in sync at the same time on this question.

When we presented to the Arab leaders what Barak had been prepared to do, when we showed them the map, no one was prepared to say, "It is significant that Israel was prepared to get off the Golan Heights. Maybe it wasn't good enough for Assad, but Israel was prepared to do it." This is important, if for no other reason than to encourage the Israelis that what they were doing was acknowledged as a significant step.

So long as Israel is not seen as having a right to be there but is being grudgingly acknowledged for being there, you won't look at the issue of compromise, you won't look at Israel's needs and say, "Maybe this is hard for Israel to do. Maybe this will create great upheaval within Israel. Maybe we should find ways to encourage the Israelis as they contemplate far-reaching concessions or compromises."

There are broad formulae for compromise that are always cast in the generalist sense, "land for peace." What you will never hear is "both sides have to compromise." You'll hear "the Israelis have to do it." Well, guess what? The Israelis do have to do it, but so do the Palestinians and so do Arab leaders, so does Syria.

Israel needs to be accepted as a country that has a right to be there by Arab leaders, both to justify the concept of compromise and also to de-legitimize terror. To this day, we have not heard a single Arab leader condemn the groups that carry out terror. They'll condemn the acts, but never the groups, even when they claim credit for the acts.

The day that the Arab League adopted the Crown Prince Abdullah Plan was the same day as the Park Hotel bombing in Israel, the sixth suicide bombing in six days, on the first night of Passover. Hamas took credit for this bombing in Beirut where the Arab League was meeting. Hamas never takes credit for bombings in Beirut, but they did this in response to the Arab League. Not a single delegate, not a foreign minister, not a leader, condemned the act or the group. The message was that somehow this is acceptable.

As long as Israel is acknowledged as a fact but not acknowledged as a country that has a right to be there, you will see neither compromise justified nor terror discredited.

The Israelis, for their part, must adjust in a fairly direct, simple way. They have to give up control of Palestinian lives. So long as the Palestinians are controlled by the Israelis, so long as the Palestinians feel that they are under an occupation, they will be angry and resentful, and alienated. The Israelis can succeed in killing every Hamas leader, and there will be a pool of anger and resentment that can be exploited to create the next generation of Hamas leaders.

One might ask, "How can Israel afford to give up control, because if they do, you will end up with dead Israelis?" This is a legitimate question. Throughout the Oslo period, even when there weren't acts of terror, the Israeli habit of control, even when there had been a psychological transformation in word and rhetoric by Israeli leaders, was not translated day to day in terms of those who deal with the Palestinians.

I used to have to contend with control of Israeli steps designed to prevent the Palestinians from developing an independent economic capability. The idea that Palestinians exporting cut flowers to Europe was a threat somehow to Israel's economic well-being is a slight stretch. The idea that a $100 billion economy is being threatened by a $4 billion economy puts in perspective where we are. Did the Israelis do this because they were trying to punish Palestinians? No. They did it because there was a habit of operating in a certain way.

That the Prime Minister of Israel has made a decision to get out of Gaza may be an indication of a recognition that this has to change. The disengagement plan for the West Bank could also be an indication. But it must be done in practice, it has to be seen. Palestinians must be free of Israeli control or very little will change. What about the Palestinians?

How do they have to change? Arafat has two legacies:

1) Yasser Arafat renounced terror on October 9, 1993. But even throughout the Oslo process he never discredited terror as a tool. Suicide bombers even during the Oslo process were glorified. They were called martyrs. These were models.

When Arafat cracked down on Hamas, he never did it saying, "What they did is wrong, what they did is against the Palestinian interests, it is wrong to kill Israelis. We made a strategic decision to negotiate peace with the Israelis and we will stick to that decision."

He never discredited them, and when he arrested them he left the impression that he was under pressure from the U.S. or from the Israelis. He wasn't doing it because Palestinian interests required it, or because they were threatening the Palestinian cause. He always had his explanation, and it had nothing to do with terror being wrong, because Arafat is someone who never closes a door and never forecloses an option.

This legacy of terror being a legitimate instrument has to be rejected, it has to be overcome, and for the first time we have to see on the Palestinian side the creation of a positive political framework, what they stand for, not just what they stand against, and what are the legitimate ways to pursue this positive political framework.

2) A second legacy that must be overcome is the legacy of victimhood. Yasser Arafat made being a victim a strategy not just a condition. But when your strategy is to be a victim, your only guarantee is that you'll always be a victim. When you're a victim you're entitled. When you're a victim you're never responsible. When you're a victim every defeat is a victory as long as you survive. When you're a victim you never made a mistake; it's always up to somebody else. How can you learn from the past, because it's always up to somebody else?

The good news in the current situation is that there is a Palestinian reform movement with the watchword of accountability. You can't make peace with those who are never accountable. You can make peace with those who are.

And they are more assertive than ever before for a simple reason. The decision by Sharon to get out of Gaza is causing a lot of turmoil in Israel, but it's causing even more turmoil among Palestinians. Why? Because when Israel is out of Gaza, who governs the Palestinians, who controls the Palestinians, who's responsible?

Palestinians understand that this is both a challenge and an opportunity — a challenge because they have to prove that they can govern themselves; an opportunity because if they do, they can establish this as a model that relates not only to Gaza but to the West Bank and that the whole world, including the Israelis, see.

The bad news is that the Palestinians are factionalized as always, and that Yasser Arafat is a master of manipulation. He may not be a master of government, he may not even be a master of a national liberation movement, he is certainly not a master as a leader, but has no peer as a manipulator.

They can't do it on their own. They will need help. This leads to where we, the U.S. have to adjust. If there is one overriding lesson I learned about us it is that we play an indispensable role. If you don't believe that, look at the last three and a half years when what we have is a war between Israelis and Palestinians.

Every time I'm asked the question, "Will this step or that step hurt the peace process?", I say, "What peace process? Is something going on that I missed?" Since 2001, except for the period when Abu Mazin was Prime Minister, there has been no peace process.

What is a peace process? A peace process is when the two sides are talking to each other. They haven't talked since 2001. They've been shooting at each other. We have a dialogue of violence, not of words. Our role is critical when they can't talk to each other. Our role is critical when the only bridge that could exist is the bridge we create.

It's especially important now because Israel will withdraw from Gaza. If the current situation continues as it is and Israel gets out of Gaza, does anybody believe that the situation will improve? What will happen if there is no coordination between the two sides? You have a number of factions — Dahlan, parts of the Fatah group in Gaza that are not with Dahlan, Hamas, and Arafat, who will line up with the other groups to oppose Dahlan.

The probability is high that both Hamas and Arafat will want the Israeli withdrawal to take place under fire, as a way of creating the impression that they forced the Israelis out. But if there is fire, the response from Ariel Sharon will be unprecedented. It will be withering. Israel will get no credit for withdrawing because the whole world will watch what they've done in response to the Palestinian fire.

The Palestinian reformers, who are trying to reorganize the security forces and create a rule of law, not only for Palestinians but also to ensure that Palestinians aren't attacking Israelis, would be completely overwhelmed.

Israel withdrawing from Gaza is an opening. We have had three and a half years of war, a situation completely frozen, a situation replete with incredible costs — and not just physical and economic costs, but also psychological costs. Anybody who believes that sitting back and waiting for the two sides to be exhausted is dreaming if they think the situation will get better. First, the capacity for their exhaustion exceeds anything that any of us have assumed. And secondly, in addition to the terrible human costs that have been paid, the psychological costs have been overwhelming. Both sides disbelieve that there is a partner for peace.

So the longer you sit on the sidelines, the more you can guarantee that the psychological costs will go up. The socialization of attitudes that make peace impossible will deepen. The next generation of Palestinians are being schooled today in a psychology of al-Qaeda. The leading members of Fatah who are trying to do something differently are motivated as much by that as anything else.

It doesn't have to be hopeless if we coordinate between the two sides, if we go to the Israelis and ask, "What do you need from the Palestinians to coordinate your withdrawal?" and we go to the Palestinians and say, "Tell us what you can do. Tell us what you need to be able to do it. Here's what we're prepared to do, but then you have to do it."

And we go to the Arabs and the Europeans and we say, "We need you to establish a public mantra, not private." They're both very good at going to Arafat in private, which means absolutely nothing to him.

Once I brought a message from Mubarak to back up something I was asking Arafat for — big mistake. He said, "As soon as Mubarak says it in public to his own public and in Arabic, I'll know it's serious." No one ever says anything to him in public.

We can't today because, first of all, we have no credibility among the Palestinian population. But if the Europeans and Arab leaders were collectively to say, "We will meet and support the Palestinian needs, but these are the steps that have to be taken — a reorganization of security forces, which has not taken place even though Arafat said he did it, and no fire as the Israelis withdraw — and if we see no reform and fire as the Israelis withdraw, we'll stop the support." Arafat is nothing if not a creature of the street.

There are a lot of lessons to be learned. After you've read the book, I'll come back and we'll have a quiz.

JOANNE MYERS: I'd like to open the floor to questions.

Questions and Answers

QUESTION: We are in a paradoxical position where in the shape of the two-state solution endorsed by the Security Council, and the maps in your book, we have the light at the end of the tunnel, but we have no tunnel.

There is no process. I don't know any leader who believes in the Roadmap, though we continue to genuflect before it as the only plan we've got.

What are the prospects of reviving a viable solution, but more important now, persuading the Israelis to offer it again in the current climate?

DENNIS ROSS: First, we have to stop the war. This is what I meant about the psychic cost. Both sides are at the point of complete disbelief. If you were to present the Israelis or the Palestinians with this again today, they wouldn't accept it.

The Geneva Accords were an outgrowth of the Clinton ideas, with just a few changes. You wouldn't get support in either place today for it. There are those who would like to say, "Why don't we just publicly endorse it and call for a referendum?" We'd lose the referendum. The reason we'd lose it is not only because of disbelief, but the disbelief extends to the notion that anything that looks like it could be a possible outcome, no one believes it will happen. And since they don't believe it will actually happen, why should you express yourself for it? That's the psychology on both sides today.

Can we get back to where we were? I believe we can, but the only way to do so is by stopping the war. We need to create two freedoms: the Israelis have to have freedom from the fear of terror, and the Palestinians have to have freedom from Israeli control.

If you can build on the Gaza withdrawal, you can begin to create a transformation. You will produce a real cease-fire at the time of the Gaza withdrawal. Palestinians then begin to fulfill their responsibilities, Israelis see that, and the psychology can begin to change. But they've got to see it. It won't happen because we say it.

QUESTION: You didn't mention Iraq, and there wasn't much reason to looking back, but looking forward could you tell us how you see the situation in Iraq affecting the Israeli-Palestinian theater?

DENNIS ROSS: I've never been a big fan of linkage. The Israeli-Palestinian conflict is a conflict of two national movements competing for the same space. It existed before Saddam Hussein was on the scene and it continues to exist.

I would, however, agree that if tomorrow Iraq were in a much better position than it is today, it would affect the climate in the region as a whole. Would it suddenly make the basic issues more tractable? No. But it would create a sense that even the biggest problems can be tackled. From that standpoint, psychologically it would be very important. You'd be in a totally different environment than we are today.

And the flip side is true. To those who think we could solve Iraq if the Israeli-Palestinian situation went away, I assure you that in the Sunni Triangle what's going on in Fallujah or Alramadi has nothing to do with what's happening between Israelis and Palestinians. The Muqata is not motivated by what's going on in Jerusalem and Ramallah. The notion that somehow the two are connected was always an illusion.

But there is a psychological reality which convinces this part of the world in particular that if hard problems are somehow being solved, then why can't you solve other ones. There's a value from a humanitarian standpoint, if nothing else. You want to see things change within Iraq, but we shouldn't make the effort in Iraq because this will help the Israelis and the Palestinians, or we shouldn't make the effort on the Israelis and Palestinians because this will help us in Iraq. We should get Iraq right because Iraq needs to be gotten right. We should solve this conflict because it needs to be solved.

QUESTION: You mentioned the role of the broad international community. Would you comment on the future role of the quartet in the present situation?

DENNIS ROSS: I have been able to restrain my enthusiasm not for the Roadmap per se but for the diplomacy behind the Roadmap. It was negotiated with parties who don't have to carry it out, which would have been fine if we had then gone to the Israelis and the Palestinians and negotiated what the implementation would be.

If you are not prepared to do that, then you have to do something else. Having established the mutual obligations in the Roadmap, what you then had to do is at a minimum establish what would constitute performance. No set of performance standards were ever created. The Israelis interpret all the Palestinian obligations maximally and their own obligations minimally, and the Palestinians interpret all of the Israeli obligations maximally and their own minimally. There was no relationship whatsoever in their own eyes as to what they were supposed to do, and nobody ever established what constituted performance.

What a surprise that the Roadmap has been stillborn. I'm always asked the question, "Is it dead?" I respond, "How can it be dead when it hasn't been born?"

The quartet could be useful, but nothing has prevented anybody from going in and playing a role during the life of the Bush Administration. The Bush Administration disengaged.

If others were prepared or capable of playing a role, they had every opportunity to do it. It didn't happen. I was accused of "keeping the Europeans out." I used to say, "I'm not keeping them out. If I want them in and the Israelis and Palestinians want them out, they're out. If I want them out and the Israelis and Palestinians want them in, they're in." You can establish whether you will do something by proving that you can be effective.

Does it mean that there is no role for others? No. If this Administration says publicly to the Palestinians, "We will help if you do the following and we will not help if you don't," no one will listen. But if the Europeans say that publicly, it makes a difference because they are seen as instinctively sympathetic to the Palestinian cause.

This means that the Europeans and the Arab leaders have leverage, but they have to be prepared to use it, and that, for our part, we should be working with the others to orchestrate this.

We have learned one lesson, that if you start working on the day after the day after, it's too late. If we start working on the day after the Gaza withdrawal, it's too late. This withdrawal will come no later than March, and probably by February.

Now is the time to work together. The World Bank is the only party creating an indirect discussion between Palestinians and Israelis. The World Bank as a mediator? That suggests that they have developed new capabilities.

QUESTION: Would you touch on the subject of the allegations of corruption within the Palestine authority and the allegations that Arafat himself may have huge figures—$100 million, $200 million—in Swiss banks? Where does that fit into the necessity of maintaining the status quo to avoid the consequences of a settled Palestine?

DENNIS ROSS: The Palestinians have rejected corruption across the board. Every poll on the Palestinian side shows that 90 percent of the Palestinians want to see an end to corruption, number one.

The proof is that the Al-Aqsa Martyrs Brigade, which was created only to kill Israelis, has now made anti-corruption one of its platforms. It humiliates the people that Arafat has appointed, burns their offices down, as a statement against corruption. This shows that the Palestinians have had it. Palestinian reformers are very assertive because they know the Israelis are getting out, but it also reflects an understanding that the public as a whole has had it. They say, "It's not against Arafat," but then they try to humiliate everyone who is closely associated with him.

Does he have a lot of money squirreled away? Probably. At times, we would go to our intelligence agencies and ask them to find out what were his real resources, especially at a time when we were leading the donor effort. I was once told, "We've narrowed it down to a range of between $50 million and $1 billion." I said, "Well, that helps." He had some very good businessmen around him who appear to have made wonderful investments.

Was there a lot of corruption that went into a slush fund for him? Yes. But you have to understand Arafat. He lives an austere existence. You can tell I'm not exactly an Arafat fan, but he is not someone who is personally corrupt for the purpose of living a lavish lifestyle. He's corrupt because he wants a slush fund to dispense favors, to buy loyalties, to manipulate those around him.

I was once given a set of talking points to talk to him about how we needed transparency and accountability. The Treasury Department had written these points for me, "You will not survive unless you create transparency and budgetary accountability."

So I dutifully said, "The Treasury Department has asked me to convey this to you because they're the ones responsible for raising money for you."

I saw him look at me, and every ounce of his body language was saying, "What the hell do you know about survival?" I caught myself mid-sentence. I said, "I can't teach you anything about surviving. You're the master of that. But I can tell you this: you get no money from the outside if there isn't transparency. If you think you can do business the way you've always done business, you'll get nothing from the outside, or whatever you're getting now you'll lose."

He didn't change his behavior in some important respects until the EU said, "We're cutting you off." He has a Finance Minister now who comes out of the IMF, Salam Fayyad, an absolutely wonderful person, determined to create a new reality for Palestinians financially. He gets high marks for everything he has done.

Does that mean we have control over all the money that's going to Arafat? No way. Arafat created monopolies. He had a petroleum monopoly, he had a cement monopoly, and everything that went into the territories in those areas was controlled by him and he took a cut off the top for his own money. He still has access to money. Money talks, and that's why there's leverage that can be applied.

QUESTION: You spoke about the reform movement among Palestinians. There is also a reform movement in Israel. Do you see reason for optimism as you look beyond the current generation of leadership, that something might change in the psychology which will make a lasting difference?

DENNIS ROSS: On the Palestinian side I see a mixed picture. The generation between thirty-five and forty-five realizes that their own salvation depends on ending this war. They talk about what scares them, and what scares them is not the Israelis. What scares them are the Palestinian kids in school right now, who have lost all perspective, who see violence as the only answer, who are completely consumed by a self-destructive impulse.

They are motivated by a fear of what the future could be if they don't end the war. That's a good news/bad news situation. It also means "I don't think we have a lot of time to stop the war and get back to peace-making."

On the Israeli side, if you look at the younger generation the attitudes are hardening. Before the Beersheba bombing, all of the Palestinian activity, the unprecedented challenges to Arafat, you suddenly saw it begin to be reflected in Israel. They were saying, "That's good. We actually do have a partner there."

Nobody wants to live this way. The polls on each side show mirror images of the kind of schizophrenia that exists. You get 75-to-80 percent of Israelis who say, "Let's get out of all the settlements, not just Gaza," and the same people who say, "But we've got to be tougher on the Palestinians," because they don't want to live this way but they're angry.

You look at the Palestinians, and 75-to-80 percent will say, "We want a two-state solution, we want an end to the violence," and the same percentage will say, "We support suicide bombing against Israelis." They want an end to the situation but they're angry.

It's not the cycle of violence you have to break, but the cycle of anger. If you break the cycle of anger, you will find that the next generation does what is necessary. If you don't change the environment, you will see the next generation affected in the wrong way because they're socialized by the anger.

QUESTION: The security fence is a big fact on the ground that didn't exist in 2001. The only debate inside Israel is not fence/no-fence but fence along the 1967 borders or fence that takes Palestinian territory.

Is the fence so inherently embittering to Palestinians that the security it offers to Israel is not worth the harm it causes to the peace process, or can one envision a viable two-state solution with Israel enclosed by a fence?

DENNIS ROSS: Let's first ask: why is there a fence?

First, the Palestinians stopped doing anything to prevent bombers from going from their territories into Israel. That left Israel two choices: maintain a siege in the territories, which is a disaster for both; or do something that's more passive. They didn't have much choice.

Second, who was the author of the fence? Rabin. Rabin in 1995 commissioned Moshe Shahal, who was then his Energy Minister, to design the fence. His attitude was: "We don't have a choice. If we're going to be Jewish and democratic, given the demographics, we will have to have partition of the territories. The preferable way to have partition is negotiations and agreement, but if we don't have that, then we will have separation and a fence." So the fence guarantees that Israel can remain a Jewish democratic state and not be overwhelmed demographically.

Can you build this in a way that contributes to helping us move forward? Yes. You can build it in a way that contributes to the two freedoms. Where it has been built there were no attacks. Natanya was a constant, unfortunately, area of attack in 2002. Since the barrier has been built in the northern part of the West Bank, zero. It has had a stunning effect.

The Israeli Supreme Court has insisted that the fence be rerouted. It will probably be rerouted in a way, instead of occupying about 13 percent of the West Bank, now it looks like 8 or 9 percent. It's getting increasingly close to looking like the Clinton ideas, which would have been 5 percent of the West Bank with about a 2 percent swap. The very blocks that this will encompass will be larger, but not dramatically so.

To the west of the fence will be 77 percent of the Israeli settlers. The Clinton ideas called for 5 percent annexation for 80 percent of the settlers. Of those who live there today, 74 percent would have been accommodated. The rest would have been brought back from outside of it.

We may have to create a real disengagement. Build security for the Israelis, build freedom from Israeli control for the Palestinians, let each side breathe again and then we can go back to the ideas. If we don't have them breathing again, both sides will reject it.

A senior Palestinian and I were talking and he was bemoaning the wall.

I asked, "Can you stop the terror?"

He said, "No."

I said, "What are the Israelis supposed to do then?"

He replied, "I don't know."

So I said, "Let's say they build it on 10 percent. What if they built it on 10 percent and got out of the lives of Palestinians? Would you be better off than you are today?"

He said, "Of course."

If the barrier is part of a strategy that is all addition and no subtraction, it will embittering. If it's part of a strategy to disengage from Palestinians, it doesn't have to be.

QUESTION: I was part of Shimon Perez's polling team in 1996. At the start of that election, we said, "The only way he can lose this election is if it's about security," and several suicide bombings later it was. Under Bush, when the U.S. envoys arrived, there was so much violence that they began to be referred to as "the angels of death." And you just talked about how retreat under fire would be a disastrous outcome in Gaza.

How can one stop the spoilers whose specific strategic option is to prevent that from happening?

DENNIS ROSS: The Israelis have dealt Hamas a setback in the near term. So their own interest in being a spoiler still exists, but there's a context right now.

One of the reasons I talked about raising the public profile of the Europeans and the Arabs is to raise the cost also to Hamas. The concept of a fitna, meaning civil war, civil conflict is deeply inbred among all Palestinians. It's abhorred by everybody. If there's one animating belief more than anything else, it's that the Palestinians, as the weakest player, can't divide themselves further. It is interesting that every time Arafat cracked down on Hamas in the 1990s, they backed down.

So are there spoilers out there? You bet. Did we suffer because of them? Absolutely. Is there a way to affect even their calculus? Yes.

I used to say, "I don't want to give up because it means giving in to those who want only struggle and conflict."

We have assets available, but we have to be prepared to use them. What we haven't seen over the last few years is any effort. You can say that we didn't succeed, and the book is a story of how close we did come. We didn't succeed in making peace, but we did succeed in preventing a war. Disengagement produced a war. We have unmistakable proof that disengagement doesn't work.

JOANNE MYERS: I thank you very much for sharing your insights.