The MED This Week newsletter provides expert analysis and informed comments on the MENA region’s most significant issues and trends. Today we focus on Israel, where the approval of a new two-year budget solidifies the ruling coalition’s agenda and clears the way for resuming the controversial reform of the judicial system that has plunged the country into a deep political crisis.

On May 24, the Israeli Knesset approved the 2023-2024 national budget. This step, which Prime Minister Benjamin Netanyahu depicts as his government’s victory, comes after weeks of tense negotiations that saw him bending to the demands of his ultra-Orthodox and ultranationalist partners. In fact, the new budget is expected to deepen Israel’s internal divisions. The bill has been strongly criticised for increasing the state’s spending in discretionary funds, including grants for the ultra-Orthodox Haredi community – whose leaders are critical allies in Netanyahu’s coalition – as well as for settlement projects in the occupied West Bank. More broadly, this measure demonstrates how the government’s agenda is gradually deepening the gap between the ultra-conservative and secular fringes of Israeli society. Adding fuel to the fire, the latest success at the Knesset could push Netanyahu’s allies to relaunch his plan to overhaul the country’s judicial system, temporarily halted following months of sustained mass protest. Similarly, allocating funds to hardliner pro-settler parties risks to further exacerbate the situation in the Palestinian territories. A return to instability in Israel could also undermine several actions on Netanyahu’s international agenda – starting with the ongoing normalisation process with Saudi Arabia.

The experts of the ISPI MED network react to the approval of the new budget in Israel and its socio-political consequences.

The socioeconomic costs of a political crisis

“It is self-evident that Israel will no longer be able to rank itself among the world’s developed economies‘. This is the conclusion of 120 former senior economists in the government after reading the allocations of the 2023/24 State Budget. The account is the consistent economic summary of the political conduct of modern Israel’s most religious and extremist government. The budget allocates a huge number of resources to yeshivas (religious schools), national-religious political organizations, and allies of Prime Minister Netanyahu. ‘With eyes wide open, Israel marches toward economic stagnation’, states a paper of the INSS, the country’s leading think-tank. Without overhauling the ultra-orthodox education system, Israel’s GDP will shrink by 5 per cent in a decade and 10 by 2050. Conversely, the budget increases the funding of the yeshivas.”

Ugo Tramballi, Senior Advisor, ISPI

Reliance on Ben-Gvir forces Bibi to close more than one eye on Palestine

“The Knesset approved the state budget, ending months of coalition bickering over funding priorities that threatened to upend Benjamin Netanyahu’s government. In the end, the nearly NIS 998 billion ($270 billion) budget was passed, including billions in funding for the sectoral interests of his coalition allies: the Haredi parties and the ultra-nationalist right. The manner in which the budget was allocated shows, once again, the persistence of the same political consideration that shaped the ambiguous responses adopted by the government to the Aqaba Joint Communique, to Ben-Gvir’s visits to Temple Mount, the tensions in West Bank and the last round of confrontation with Gaza: Netanyahu is totally dependent upon Itamar Ben-Gvir’s Otzma Yehudit party for his majority in the Knesset. This is the element tipping the balance and influencing the prime minister’s decision-making in matters of security, regional cooperation, and relations with the Palestinians.”

Anna Maria Bagaini, Research Fellow, Hebrew University

After the budget, Bibi seems ready to resume his judicial reform

“It has been two months since Netanyahu declared a halt in his judicial reform legislation, Negotiations between the coalition and opposition are taking place, albeit at a slow pace; the protest movement is seeking to maintain its momentum and bring people to the streets while broadening its agenda. Meanwhile Netanyahu is trying to bounce back from the domestic, regional and international decline he and Israel have suffered due to his recent conduct; and initiatives for political renewal within the Israeli democratic camp are beginning to take shape. Domestic turmoil is easing during this period, but this can be temporary. Netanyahu and his ministers highlight their commitment to advancing judicial reform, further fuelling and energising the protest against them. Should they decide to push legislation forward, even in a gradual and seemingly less dramatic manner, they will face fierce public opposition. Pro-democracy Israelis have risen to the occasion recently, showcasing extraordinary determination and a capacity to achieve meaningful political wins. The struggle to safeguard Israeli democracy is not going away and will continue, even if it is prolonged and uphill.”

Nimrod Goren, President, Israeli Institute for Regional Foreign Policies (Mitvim); and Co-Founder, Diplomeds – The Council for Mediterranean Diplomacy

For Riyadh, normalization goes through the Palestinians (and Washington’s safeguards)

“Recently, Prime Minister Netanyahu had talked twice with Saudi Crown Prince Muhammed bin Salman (MBS). It may seem counterintuitive that active US efforts to facilitate normalisation between Israel and Saudi Arabia are occurring against the backdrop of the most hardline and fundamentalist government in Israel’s history and in the face of the Netanyahu Government’s efforts to permanently annex the West Bank in everything but name. But what’s clear from the Saudi perspective is the policies of the Biden Administration are at least as important, if not more, than what Netanyahu’s Government is or isn’t doing with the Palestinians. The Crown Prince has laid out several deliverables he needs before Saudi Arabia would consider normalisation – including a US security guarantee, access to US weapons systems and assistance with a Saudi civilian nuclear program. Riyadh maintains that normalisation won’t happen unless Israel commits to establishing a Palestinian state with a capital in East Jerusalem. The key dynamic is what Saudi Arabia will demand on the Palestinian issue to cover its normalisation with Israel if the US is prepared to meet MBS’s requirements. It’s hard to say to say, but maybe not all that much.”

Aaron David Miller, Senior Fellow, Carnegie Endowment for International Peace