Netanyahu endorses Palestinian state

Israeli Prime Minister Benjamin Netanyahu on Sunday endorsed for the first time the creation of a Palestinian state, provided it was demilitarised, after weeks of pressure from Washington.

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But he also said the Palestinians must recognise the Jewish character of Israel, a condition Palestinian president Mahmud Abbas has long rejected, and ruled out a halt to all settlement activity as demanded by the United States.

"If the Palestinians recognise Israel as the state of the Jewish people, then we arrive at a solution based on a demilitarised Palestinian state alongside Israel," Netanyahu said.

"The Palestinian territory will be without arms, will not control air space, will not be able to have arms enter, without the possibility of striking alliances with Iran or (the Lebanese Shiite militia) Hezbollah."
Netanyahu also ruled out a complete stop to settlement activity in the occupied West Bank - which the Palestinians have said is a condition for relaunching negotiations - and said Palestinian refugees would not be resettled inside Israel's borders.

"The heart of the (Middle East) conflict has always been the Arabs' refusal to accept the existence of the Jewish state," Netanyahu said. "The withdrawals that Israel has carried out in the past have not changed this reality."

The Palestinians recognised Israel as a state in 1993 as part of the Oslo accords but have refused to recognise it as "Jewish" as doing so would effectively mean giving up the right of return for Palestinian refugees, a key Palestinian demand since Israel was created in 1948.

The Palestinians slammed the speech, saying it was aimed at sabotaging peace efforts.

"This speech torpedoes all peace initiatives in the region," Abbas spokesman Nabil Abu Rudeina told AFP.

"It hobbles all efforts to save the peace process, in a clear defiance of the US administration."

The speech was billed as a response to Obama's address to the Muslim world 10 days ago in which he reiterated Washington's "unbreakable" bond with Israel but also said the Palestinian situation was "intolerable."

Obama has vowed to aggressively pursue a two-state solution and in recent weeks Washington had ramped up pressure on Israel's new government to endorse the idea of a Palestinian state and halt all settlement activity.

The blunt words to Israel from Obama's administration have raised fears in the Jewish state that main ally Washington may ease its support as it tries to improve its relations with the Muslim world.

It has also put Netanyahu in a difficult position, as his heavily right-wing 10-week-old government could collapse if he gives in to too many of Washington's demands.

"It was a brilliant speech but it had one miserable phrase that laid the cornerstone for the creation of a state of Palestine," Likud MP Danny Danon said following the address.

"I will do everything in my power in parliament to prevent this from happening."

Former US president Jimmy Carter told the Israeli Haaretz daily on Sunday that Israel risked a head-on collision with Washington over the settlements.

But a Western diplomat who spoke on condition of anonymity said the speech "is certainly encouraging and gives us a lot of work with."

"I think everyone understands Israel's concerns and the demand for a demilitarised (Palestinian) state has always been part of the agenda."

Washington provides Israel with 2.4 billion dollars of annual military aid as well as diplomatic support, making the United States its most important ally.

Israel and the Palestinians relaunched their negotiations at a US conference in November 2007, but the talks made little progress and were suspended during Israel's blistering war on Gaza in December and January.

Netanyahu also responded to the elections in Iran, saying the "biggest threat to Israel, the Middle East and the entire world is the crossing of a nuclear weapon with radical Islam."

"During my next trips, I will work in particular toward an international coalition against the nuclear arming of Iran," he said.

Israel, the region's sole if undeclared nuclear power, has accused Iran of racing to develop atomic weapons under the guise of a civilian nuclear programme, allegations vehemently denied by Tehran.
Source : AFP

RPT-UK government rules out Islamic debt - Chancellor

LONDON Nov 24 (Reuters) - The UK government has ruled out issuing Islamic compliant debt, or Sukuk, but said it will legislate to help develop Islamic corporate debt.

The pre-budget report delivered on Monday by Chancellor Alistair Darling put an end to the prospect of achieve the issuance. [ID:nLO6260]

The government was expected in Islamic finance circles to eventually approve Britain's first Islamic debt instrument.

The Sukuk market has reached $111.9 billion in the eight years to 2008 and a further $69 billion is expected to be issued in 2008/2009, the International Islamic Financial Market said.

Western countries represent 50 percent of the Sukuk market the IIFM estimated.

Sukuk issuance including sovereign and corporate issues avoids the payment and receipt of interest.

"We have decided that at this time it would not be viable to do it. It would not offer value for money at the present but we will keep the situation under review," a spokesman for the Treasury told Reuters.

So far only the German state of Saxony-Anhalt in Europe has issued a sovereign Sukuk in 2004, launching a 100 million euros ($125.9 million) debt programme.

The UK government had mentioned the possibility of issuing sovereign Sukuk in the pre-budget report 2007, launching a consultation afterwards.

In response to that consultation, it said in June that about 2 billion pounds ($2.98 billion) of Sukuk debt would be achievable over time. It had intimated a preference for Sukuk treasury bills rather than bonds.

The scheme was part of government plans to make London an international Islamic finance centre.

Five Islamic banks and one insurance company have been established with authorisation by the Financial Services Authority (FSA).

While not issuing Sukuks itself, the government will support corporate their issuance in the Finance Act 2009, the Treasury spokesman told Reuters.

"We will legislate to remove stamp duty land tax barriers on Sukuks," the spokesman said.

This move would change the tax structure applied to Sukuk issuance backed by UK properties.

Currently a company issues a Sukuk by selling the building to a special purpose vehicle, leasing the property for the maturity of the bond and buying it back.

Under this structure the company issuing Sukuks is liable to tax when it sells the property and when it buys it back.

Mohammed Amin, partner and Islamic finance head at PricewaterhouseCoopers, called Monday's move "disappointing".

"This decision could make it easier for other western countries to catch up with the UK as centres for Islamic finance, attracting banks that might otherwise have set up in the UK," he said. (Reporting by Cecilia Valente; Editing by Andrew Macdonald)