Impact of events in Egypt on Israel

For Israel, the 1979 peace treaty with Egypt has been both a crucial benefit as well as a big disappointment. Both of these contrasting aspects have been thrown into sharp relief, as the turmoil in Egypt puts the treaty's future in doubt.

The agreement was Israel's first with an Arab state and, as such, was widely expected to usher in a new era of Arab acceptance of the Jewish state. In fact, the reverse happened. The Egyptian regime was discredited for many years and lost its place as the undisputed leader of the Arab world. Israel only began to win very limited acceptance in the 1990s with the Madrid and Oslo peace processes that led to agreements with the Palestinians and with Jordan.

Nor has 32 years of formal peace with Egypt gone much beyond official (government-to-government) relations. Israel remains subject to unofficial boycotts by Egyptian intellectuals and business. It is regularly vilified in the Egyptian media. Egyptian tourists do not visit Israel and, although Israelis visit Egypt's Sinai Peninsula beaches whenever their government is not warning them of imminent terrorist attacks, few travel to Cairo, Luxor or Aswan in the heart of the country. Excepting a big natural gas contract and some Israeli textile operations in Egypt, there is little bilateral trade.

However, Israel does benefit from the treaty in two critical ways. First, Egypt-the largest and most powerful of Israel's direct neighbours-is no longer a strategic threat to Israel. In fact, it often quietly fulfils the role of strategic partner. It has co-operated with Israel in containing the Hamas regime in Gaza and has been active in US-led efforts to restrain Iranian ambitions in the region. Without Egypt, Syria-the only country that constitutes a threat to Israel in conventional military terms-stands no chance in a direct confrontation.

The second important benefit is Egypt's emergence in recent years as a supplier of natural gas. Although this role is set to fade as Israel develops its own offshore gas discoveries, Egypt currently supplies 40% of Israel's rapidly growing needs. Israel's newest and biggest fields will not come on stream until 2013 at the earliest. Consequently, Egyptian gas is critical for Israel in the meantime (although it should be noted that there is a risk that the continued supply of gas could be adversely affected by probable legal action within Egypt against the Egyptian company concerned).

Both these benefits are mutual-and, arguably, no less valuable to Egypt than to Israel. Thus, whether and to what extent the treaty is at risk depends on the kind of regime that finally emerges in Egypt. Israel had previously made it quite clear that its own preference was for Hosni Mubarak to remain in office, as a long-standing ally and known quantity. Following the Egyptian president's departure, Israel may derive some short-term comfort from the fact that an army-led regime, of the sort now in power, is unlikely to seek any major change in bilateral relations-particularly as the Egyptian army is closely tied to the US, owing to the US$1.3bn in annual aid that it receives. Looking further ahead, if a democratic, secular regime were to emerge in Egypt-of the kind apparently favoured by the majority of protesters in Tahrir Square in Cairo-it would also be unlikely to rescind the treaty.

Nonetheless, some cooling in bilateral relations appears to be almost inevitable. Egypt's determination to stand up to Iran could also weaken, if only because it will become more inwardly focused. Egypt's decision to allow two Iranian naval vessels to transit the Suez Canal has already been greeted with considerable disquiet in Israel. Meanwhile, the worst-case scenario, and Israel's greatest fear, is that Islamists eventually take over in Egypt, either through elections or by exploiting the chaos. The Muslim Brotherhood, which publicly supports democracy, makes no effort to hide its antipathy to the Jewish state and some of its leaders have called for both the gas deal and the peace treaty to be revoked. An Islamist Egypt would lose US backing-both financial and military-but it would take the entire region into unexplored and dangerous territory.

Israel is also monitoring closely developments in its eastern neighbour, Jordan-the only other country in the Arab world with which it has signed a formal peace treaty. The new government appointed by King Abdullah II has announced a series of reforms. However, popular protests are continuing, with the largest opposition group- the Muslim Brotherhood-playing a prominent role.

Direct peace talks between Israel and the Palestinians ground to a halt last September after just three weeks. The Palestinians-frustrated with what they perceive to be Israeli intransigence-seem determined to press ahead with their efforts to secure a UN resolution that recognises Palestine as an independent state. The aim is to use UN backing as a means to apply increased pressure on Israel for a negotiated settlement. Mahmoud Abbas, the president of the Palestinian Authority, recently ruled out a unilateral declaration of an independent Palestinian state, saying that it would be unworkable without Israel's collaboration. The resumption of direct talks therefore remains the essential, but elusive, first step along this road.

Israel will remain focused on the strategic threat from a potentially nuclear-armed Iran but is not expected to attack Iran's nuclear installations unless it has the support of the US. This support is unlikely to be forthcoming. Meanwhile, tensions between Israel and Hizbullah, a Lebanese Shia group, will remain high. Following the collapse last January of the national unity government in Lebanon, a new prime minister-designate-Najib Mikati-has been appointed. Although Mr Mikati is a Sunni, his appointment was orchestrated by Hizbullah. There are concerns in Israel that this could pave the way to a much more confrontational stance than was the case with the previous, pro-Western, government of Saad Hariri. There has also been a renewed upsurge in tensions over Gaza. Israeli air strikes on the Hamas-controlled territory have been accompanied by rocket fire from Gaza aimed at neighbouring Israeli towns.