Israel Background:
Following World War II, the British withdrew from their mandate of Palestine, and the UN partitioned the area into Arab and Jewish states, an arrangement rejected by the Arabs. Subsequently, the Israelis defeated the Arabs in a series of wars without ending the deep tensions between the two sides. The territories occupied by Israel since the 1967 war are not included in the Israel country profile, unless otherwise noted. On 25 April 1982, Israel withdrew from the Sinai pursuant to the 1979 Israel-Egypt Peace Treaty. Israel and Palestinian officials signed on 13 September 1993 a Declaration of Principles (also known as the "Oslo accords") guiding an interim period of Palestinian self-rule. Outstanding territorial and other disputes with Jordan were resolved in the 26 October 1994 Israel-Jordan Treaty of Peace. In addition, on 25 May 2000, Israel withdrew unilaterally from southern Lebanon, which it had occupied since 1982. In keeping with the framework established at the Madrid Conference in October 1991, bilateral negotiations were conducted between Israel and Palestinian representatives and Syria to achieve a permanent settlement. On 24 June 2002, US President BUSH laid out a "road map" for resolving the Israeli-Palestinian conflict, which envisions a two-state solution. However, progress toward a permanent status agreement has been undermined by Palestinian-Israeli violence ongoing since September 2000. The conflict may have reached a turning point with the election in January 2005 of Mahmud ABBAS as the new Palestinian leader following the November 2004 death of Yasir ARAFAT.

Israel Economy Overview:
Israel has a technologically advanced market economy with substantial government participation. It depends on imports of crude oil, grains, raw materials, and military equipment. Despite limited natural resources, Israel has intensively developed its agricultural and industrial sectors over the past 20 years. Israel imports substantial quantities of grain but is largely self-sufficient in other agricultural products. Cut diamonds, high-technology equipment, and agricultural products (fruits and vegetables) are the leading exports. Israel usually posts sizable current account deficits, which are covered by large transfer payments from abroad and by foreign loans. Roughly half of the government's external debt is owed to the US, which is its major source of economic and military aid. The bitter Israeli-Palestinian conflict; difficulties in the high-technology, construction, and tourist sectors; and fiscal austerity in the face of growing inflation led to small declines in GDP in 2001 and 2002. The economy grew at 1% in 2003, with improvements in tourism and foreign direct investment. In 2004, rising business and consumer confidence - as well as higher demand for Israeli exports - boosted GDP by 2.7%.

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