Israel conflict: Who will pay for Gaza reconstruction?

Even as the fighting, dying and destruction continue, the arguments about money have started.

The human toll of the conflict in Gaza is incalculable. But the costs of rebuilding what has been destroyed through the Israeli bombardment of Gaza are not. Early estimates suggest they may be as high as $50 billion (€46.4 billion).

This week, Israeli media reported that the country's leader Benjamin Netanyahu had told his Foreign Affairs and Defense Committee that the Saudis and the UAE would be willing to pay the bill for Gaza's reconstruction. This is despite the fact that Israel has not yet laid out a plan for who will govern Gaza if it succeeds in its goal of destroying Hamas.

It has also been suggested that Europeans will pay: The EU, and Germany in particular, have been major, long-term donors of humanitarian aid for the occupied Palestinian territories. The US is another of the biggest donors and likely to be called upon to fund reconstruction.

But in both the US and Europe, insiders report that, behind the scenes, decision-makers are already asking why they should once more pay millions in taxpayer money to rebuild infrastructure likely to be bombed again in the near future.

"I have heard senior EU officials say unequivocally that Europe will not pay for the reconstruction of Gaza. (The sums of money required by Ukraine are already mind-boggling)," Gideon Rachman, chief foreign affairs commentator at the UK's Financial Times, wrote this week. "The US Congress [also] seems to be turning against all forms of foreign assistance." 

Would Israel pay?

There have also been calls for Israel to pay for the damage it has inflicted during its current campaign in Gaza, with some arguing that because it is considered by the UN, the EU and other international organizations to be an occupying power there, it should shoulder rebuilding responsibilities.

In 2010, Israel did agree to compensate the main United Nations' agency working in Gaza — the UN Relief Works Agency for Palestinian Refugees in the Near East, commonly known as UNRWA — $10.5 million for buildings destroyed during its far smaller 2009 operation in the enclave.

This was controversial both with some Israelis, who asked whether the payment meant they were admitting guilt, and human rights organizations, who said more should have been paid to victims. However, that appears to be the rare instance when Israel did agree to compensation.

Since the militant Hamas group attacked Israel on October 7, Israel has been bombing the Gaza Strip, home to more than 2 million Palestinians. Hamas is classified as a terrorist organization by Germany, the European Union, the US and others. Israel has also launched a ground offensive into the Gaza Strip and is blocking the delivery of food, water, power and most aid into the enclave. Fighting is ongoing.

As a result, over half of all of Gaza's housing has been destroyed — up to 50,000 housing units, with over 200,000 more damaged. Additionally, dozens of hospitals, and hundreds of schools and government buildings have been destroyed, as have agricultural facilities. Many were built with funding from international donors. 

During Israel's last offensive in Gaza in 2021, around 1,000 housing and commercial units were destroyed and a further 16,257 damaged, along with 60 schools. The cost of reconstruction then was estimated at around $8 billion (€7.4 billion).

"The level of structural damage and destruction is unprecedented," Marta Lorenzo, director of the UNRWA Representative Office for Europe said of the current conflict. "It's not comparable to any other war in Gaza."

"So right now, it's very difficult to know how much will it cost, but it won't be the responsibility of just one donor," Lorenzo said.

She told DW that what is most likely to happen when violence abates, is that there might be a pledging conference, "during which we expect the international community to share responsibility."

Gaza funding a political football

So who is most likely to foot the huge — and still growing — bill for all this? 

The answer is difficult because funding for aid and reconstruction in Gaza, as well as for the occupied Palestinian territories and other Palestinian-related projects, has been politically fraught for decades. The fact that Hamas has been ruling the enclave since 2007 has been problematic for donors, who have questioned how to get aid and money to those who need it, without also financing Hamas' military activities. 

A 16-year blockade of Gaza by Israel and Egypt, as well as years of neglect by the enclave's rulers, Hamas, has led to the degradation of the Gaza economy. In 2022, an estimated 80% of people in Gaza were dependent on aid, the UN has said.

UNRWA provided much of that aid before the current crisis, including social welfare services, schools and health clinics; it is Gaza's second-largest employer. It has also regularly had to fend off accusations of bias.

Senior ministers in the Israeli government have said they want to get rid of UNRWA altogether, while moderate politicians in donor countries believe the organization is essential.

Another example of the kind of controversies around reconstruction is the so-called Gaza Reconstruction Mechanism, or GRM. Created in 2014 as a temporary measure to prevent Hamas getting its hands on "dual use" building materials with which they could, for instance, build tunnels, it ended up becoming a complex, overly bureaucratic system , one that led to significant delays in getting building materials into Gaza. It also increased building costs by up to 20%, leading to charges that Israeli contractors were gaming the system for profit. Gaza builders even boycotted GRM-approved materials at one stage.

No solution in sight

These controversies are not about to go away simply because of the greater need and exceptional destruction, predicts Nathan Brown, a senior fellow with the Carnegie Endowment's Middle East program. In fact, it's going to get worse, he noted.

"Funding is not going to be the issue, politics is," Brown told DW. "If tomorrow, all the actors — Israel, the Palestinians, regional actors, Western actors — said 'here is the future, it will look like this,' whether that was a two-state solution or a one-state solution or whatever, then money wouldn't be a problem."

Plenty of donors would be willing to give if it looked like the problem was on its way to being permanently resolved, Brown noted.

Over the past few days, there have been several reports that the UAE would indeed pay to rebuild in Gaza, but only if a two-state solution were guaranteed. "Otherwise they're essentially financing what, to their own population, looks like an Israeli re-occupation of Gaza," Brown said.

Unfortunately, as Brown observed, a lasting solution seems unlikely for now. "I don't see anything happening other than a series of makeshift arrangements that allows most major actors to simply find ways to make the consequences of this campaign manageable … to get it off the front page, if you like," he said.

Right now, there are too many unanswered questions, added Yara Asi, a non-resident fellow at the Arab Center Washington DC. "If there's no legitimate governance in Gaza, will donors be comfortable sending tens of millions of dollars?" Asi asked. "I would imagine they would want some guarantee of a different kind of political future before they send all this money, all over again."

On the other hand, she pointed out that if Europeans and Americans are genuinely unhappy that the greenhouses, schools and hospitals they help build are subject to repeated cycles of violence, then they should be making more determined attempts to help solve the problem.

"I think if they're tired of seeing this level of destruction, they can't just complain about the cost of the cleanup," she argued. "They should be taking active measures to prevent it. Just imagine saying, well, it [reconstruction] comes with the presupposition that Israel will bomb Gaza again. Israel can really only do that with the support of these countries. So it's puzzling to me why they're not doing more about the problem." 

Edited by: A. Thomas