Foreign Assistance: U.S. Assistance to the West Bank and Gaza for
Fiscal Years 2005 and 2006 (05-MAR-07, GAO-07-443R).		 
                                                                 
For decades, the United States has worked toward the resolution  
of the Israeli-Palestinian conflict, most recently under the 2003
Roadmap for Peace, which calls for an independent Palestinian	 
state coexisting peacefully with the State of Israel. Since	 
fiscal year 1993, the United States has provided more than $2.2  
billion in assistance to the West Bank and Gaza to support the	 
Middle East peace process and encourage progress in reforming the
Palestinian Authority. In fiscal years 2005 and 2006 alone, the  
United States provided over $420 million in Economic Support	 
Funds for the West Bank and Gaza; this funding is primarily	 
administered by the U.S. Agency for International Development	 
(USAID). In the conference report accompanying the 2005 	 
supplemental appropriation legislation, the Congress directed	 
that the assistance be allocated to two broad development	 
categories--economic revitalization and infrastructure		 
development--each with five subcategories. In January 2006,	 
Hamas--designated a terrorist organization by the United States  
and others--won a majority of the seats in the Palestinian	 
parliament. On January 30, 2006, the United Nations (UN), the	 
United States, the European Union, and Russia--known as the	 
Quartet on the Middle East--stated that they would provide	 
support and assistance to the Hamas-led government only if it	 
agreed to nonviolence, to recognize the State of Israel, and to  
respect previous Israeli-Palestinian peace agreements. In June	 
2006, the Congress directed that the Department of State (State) 
submit a new assistance plan. For fiscal years 2005 and 2006, the
Congress mandated that the Comptroller General of the United	 
States report to the Congress on U.S. assistance to the West Bank
and Gaza. In response to this mandate, we reported in September  
2006 on the steps USAID had taken to help ensure that U.S.	 
assistance did not support terrorist activities in the West Bank 
and Gaza. In this report, also in response to the mandate, we	 
examine the status of (1) USAID's obligations and expenditure of 
the fiscal years 2005 and 2006 appropriations for the West Bank  
and Gaza and (2) the fiscal year 2005 supplemental appropriation 
in greater detail to determine whether USAID allocated the funds 
in accordance with congressional guidance.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-443R					        
    ACCNO:   A66455						        
  TITLE:     Foreign Assistance: U.S. Assistance to the West Bank and 
Gaza for Fiscal Years 2005 and 2006				 
     DATE:   03/05/2007 
  SUBJECT:   Allocation (Government accounting) 		 
	     Appropriated funds 				 
	     Budget obligations 				 
	     Economic development				 
	     Federal aid to foreign countries			 
	     Federal funds					 
	     Foreign aid programs				 
	     Foreign economic assistance			 
	     Funds management					 
	     International cooperation				 
	     International relations				 
	     Reporting requirements				 
	     Supplemental appropriations			 
	     Terrorism						 
	     Gaza						 
	     Israel						 
	     Middle East					 
	     Palestine						 
	     West Bank						 

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GAO-07-443R

   

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March 5, 2007

The Honorable Patrick J. Leahy
Chairman
The Honorable Judd Gregg
Ranking Minority Member
Subcommittee on State, Foreign Operations,
and Related Programs
Committee on Appropriations
United States Senate

The Honorable Nita M. Lowey
Chairman
The Honorable Frank R. Wolf
Ranking Minority Member
Subcommittee on State, Foreign Operations,
and Related Programs
Committee on Appropriations
House of Representatives

Subject: Foreign Assistance: U.S. Assistance to the West Bank and Gaza for
Fiscal Years 2005 and 2006

For decades, the United States has worked toward the resolution of the
Israeli-Palestinian conflict, most recently under the 2003 Roadmap for
Peace, which calls for an independent Palestinian state coexisting
peacefully with the State of Israel. Since fiscal year 1993, the United
States has provided more than $2.2 billion in assistance to the West Bank
and Gaza to support the Middle East peace process and encourage progress
in reforming the Palestinian Authority.1

1These funds included $121 million in direct budget support for the
Palestinian Authority and $1.3 billion to the United Nations Relief and
Works Agency.

In fiscal years 2005 and 2006 alone, the United States provided over $420
million in Economic Support Funds2 for the West Bank and Gaza; this
funding is primarily administered by the U.S. Agency for International
Development (USAID). About $200 million of this assistance was provided
through a fiscal year 2005 supplemental appropriation.3 In the conference
report accompanying the 2005 supplemental appropriation legislation, the
Congress directed that the assistance be allocated to two broad
development categories--economic revitalization and infrastructure
development--each with five subcategories.4 The Congress did not provide
similar direction for the remaining funds appropriated in fiscal years
2005 or 20065--about $223 million.

In January 2006, Hamas--designated a terrorist organization by the United
States and others--won a majority of the seats in the Palestinian
parliament. On January 30, 2006, the United Nations (UN), the United
States, the European Union, and Russia--known as the Quartet on the Middle
East--stated that they would provide support and assistance to the
Hamas-led government only if it agreed to nonviolence, to recognize the
State of Israel, and to respect previous Israeli-Palestinian peace
agreements.6 In June 2006, the Congress directed that the Department of
State (State) submit a new assistance plan; State provided that on July
21, 2006.7

For fiscal years 2005 and 2006, the Congress mandated that the Comptroller
General of the United States report to the Congress on U.S. assistance to
the West Bank and Gaza.8 In response to this mandate, we reported in
September 2006 on the steps USAID had taken to help ensure that U.S.
assistance did not support terrorist activities in the West Bank and
Gaza.9 In this report, also in response to the mandate, we examine the
status of (1) USAID's obligations and expenditures10 of the fiscal years
2005 and 2006 appropriations for the West Bank and Gaza and (2) the fiscal
year 2005 supplemental appropriation in greater detail to determine
whether USAID allocated the funds in accordance with congressional
guidance.

2According to a Department of State publication, the Economic Support Fund
promotes the economic and political foreign policy interests of the United
States by providing assistance to allies and countries in transition to
democracy, supporting Middle East peace negotiations, and financing
economic stabilization programs. Also, legislation authorizing the
Economic Support Fund provides 2 years to obligate the funds; that is,
USAID does not have to obligate the funds appropriated in fiscal year 2005
until the end of fiscal year 2006, or September 30, 2006. In addition,
none of the funds appropriated for assistance under the West Bank and Gaza
program may be made available for the purpose of recognizing or otherwise
honoring individuals who commit, or have committed, acts of terrorism
(Consolidated Appropriations Act of 2005, Pub. L. No. 109-102, S 559(c),
118 Stat. 2809, 3019 (2004)).

3Emergency Supplemental Appropriations Act for Defense, the Global War on
Terror, and Tsunami Relief, 2005, Pub. L. No. 109-13, 119 Stat. 231
(2005).

4H.R. Conf. Rep. No. 109-72, at 132 (2005).

5Pub. L. No. 108-447, 118 Stat. 2809 (2004) and Consolidated
Appropriations Act of 2006, Pub. L. No. 109-102, 119 Stat. 2172 (2005).

6As of March 1, 2006, Hamas had not accepted these conditions.

7Emergency Supplemental Appropriations Act for Defense, the Global War on
Terror, and Hurricane Recovery, 2006, Pub. L. No. 109-234, S 1304, 120
Stat. 418, 435 (2006).

8Pub. L. No. 109-13,  S 2103, 119 Stat. at 266; Pub. L. No. 109-102, S
559, 119 Stat. at 2222.

To address these objectives, we analyzed data provided by USAID for fiscal
years 2005 and 2006 appropriations for assistance to the West Bank and
Gaza as of December 31, 2006. We asked for and obtained additional
information on how the 2005 supplemental appropriation had been allocated
to the congressionally directed categories and subcategories. To determine
whether the data were sufficiently reliable for purposes of this report,
we interviewed officials at the USAID mission in Tel Aviv, Israel, about
their procedures for entering contract information into USAID's data
system. We also interviewed USAID officials at the Washington, D.C.,
headquarters about the underlying financial data system. We verified much
of the USAID project information with similar data we had developed and
verified with USAID project officers at USAID's Israel mission for a
previous engagement related to awards for the West Bank and Gaza. We
determined that the USAID data were sufficiently reliable for purposes of
our report. See enclosure I for a more detailed description of our scope
and methodology. We conducted our review from October 2006 through March
2007 in accordance with generally accepted government auditing standards.

Results in Brief

As of December 31, 2006, USAID had obligated $300.8 million and expended
$109.1 million of the $422.9 million in assistance provided by the United
States to the West Bank and Gaza from fiscal years 2005 and 2006
appropriations. After Hamas won a majority of the seats in the Palestinian
parliament in January 2006, USAID slowed and, in April 2006, selectively
suspended assistance to the West Bank and Gaza to prevent U.S. assistance
from potentially benefiting a terrorist organization. USAID resumed
assistance in July 2006 after the Department of State notified the
Congress of its new U.S. assistance plan, along with a revised spending
plan, for the West Bank and Gaza in response to the June 2006
congressional mandate. The revised spending plan emphasized humanitarian
projects, private sector support, and democracy/civil society programs
directed to the Palestinian people. In February 2006, USAID requested that
the Office of the President of the Palestinian Authority return $50
million in fiscal year 2005 appropriations. The Palestinian Authority
returned $45 million, and USAID has since reobligated these funds to other
projects.11 The remaining $5 million funded road projects that USAID
canceled. According to a mission official, as of January 30, 2007, USAID
and the Palestinian Authority had not yet resolved the value of the
pre-cancellation construction, close-out and security costs, and the
remaining funds to be returned.

9GAO, Foreign Assistance: Recent Improvements Made, but USAID Should Do
More to Help Ensure Aid Is Not Provided for Terrorist Activities in West
Bank and Gaza, GAO-06-1062R, (Washington, D.C.: Sept. 29, 2006).

10In this report, we use "expenditures" to mean cash disbursements.

11According to a USAID mission official, the Palestinian Ministry of
Finance returned $30 million on March 1, 2006, and $15 million on May 8,
2006.

USAID obligated the fiscal year 2005 supplemental appropriations for
projects in the West Bank and Gaza almost equally between the two
congressionally directed categories: economic revitalization and
infrastructure development. However, as a result of the parliamentary
election and the subsequent shift in U.S. strategy for assistance to the
West Bank and Gaza, USAID's obligations to the 10 subcategories differed
from the allocations originally put forward by the Congress. Before the
election, the U.S. assistance plan supported the administration of the
Office of the President of the Palestinian Authority with a wide range of
development projects; after the election, all funds going to the
Palestinian Authority were canceled or, in the case of existing
obligations, withdrawn and funneled through other organizations. Examples
of specific projects funded in part with the 2005 supplemental funds
include labor-intensive construction projects to improve infrastructure
and generate employment, and the training of doctors to improve medical
care in the region. The results of these projects included new classrooms
being built, doctors being trained, and facilities being rehabilitated.

Background

The Palestinian territories, comprising the West Bank and Gaza, cover
about 2,400 square miles and have a combined population of 3.8 million
people.12 The Palestinian Authority administers Gaza while both the
Palestinian Authority and Israel administer areas within the West Bank.

12The West Bank has a land area of 2,263 square miles and a population of
about 2.4 million. Gaza has a land area of 139 square miles and a
population of about 1.4 million.

Figure 1: Map of West Bank and Gaza and Surrounding Countries

In 1993, the Oslo Peace Accords13 were signed, and USAID established its
West Bank and Gaza mission. In September 2000, the second intifada
(uprising) began and the Oslo peace process unraveled. Peace efforts were
renewed in June 2002 when President George W. Bush outlined the principles
for a strategy called the Roadmap for Peace. The Quartet on the Middle
East,14as well as Israel and the Palestinian Authority, endorsed the
strategy in April 2003. In January 2005, Mahmoud Abbas, a supporter of the
peace strategy, was elected president of the Palestinian Authority. A year
later, in January 2006, the Palestinian people elected a Hamas majority to
the Palestinian parliament.

13The accords called for the withdrawal of Israeli forces from parts of
Gaza and the West Bank and affirm the Palestinian right to self-government
within those areas through the creation of the Palestinian Interim
Self-Government Authority. Palestinian rule would last for a 5-year
interim period during which a permanent agreement would be negotiated
(beginning no later than May 1996).

14The quartet is involved in mediating the peace process between the State
of Israel and the Palestinian Authority.

Since establishing its mission in the West Bank and Gaza in September
1993, USAID has directed assistance to the Palestinians toward five
development sectors: economic growth, water and infrastructure, democracy
and governance, health, and higher education. It has supported these
objectives through efforts such as job creation programs, construction of
reservoirs and roads, election support projects, projects to improve
maternal and child health, and university scholarship programs.

The January 2006 Elections

In January 2006, Hamas won a majority of the seats in the Palestinian
parliament. On January 30, 2006, the Quartet on the Middle East stated
that its members would continue to provide support and assistance to the
Hamas-led government only if the government would agree to nonviolence,
recognize the State of Israel, and respect previous Israeli-Palestinian
peace agreements. As of March 2006, Hamas had not accepted these
conditions.

In June 2006, the Congress directed that no Economic Support Funds in 2006
or any prior appropriation for foreign operations, export financing, and
related programs be obligated for assistance to the West Bank and Gaza
until the Secretary of State reported to the appropriations committees (1)
how the funds would be spent and

(2) that appropriate measures were in place to ensure that no funds would
support terrorist activities.15 The Department of State released its new
assistance plan on July 21, 2006.

Status of U.S. Assistance to the West Bank and Gaza for Fiscal Years 2005
and 2006

In fiscal years 2005 and 2006, the United States provided a total of
$422.9 million in bilateral assistance to the West Bank and Gaza through
three separate appropriations.16 After Hamas won a majority in the
Palestinian parliament in January 2006, USAID slowed aid pending a review
of how to proceed.

Fiscal Years 2005 and 2006 Appropriations

As of December 31, 2006, USAID had obligated $300.8 million and expended
$109.1 million of the total U.S. assistance provided to the West Bank and
Gaza in fiscal years 2005 and 2006. (See table 1.)

15Pub. L. No. 109-234, S1304, 120 Stat. at 435.

16Pub. L. No. 108-447; S 595, 118 Stat. at 3039; Pub. L. No. 109-13, S
2111, 119 Stat. at 268; and Pub. L. No. 109-102 S 596, 119 Stat. at 2239.

Table 1: U.S. Appropriations, Obligations, and Mission Expenditures for
West Bank and Gaza, Fiscal Years 2005 and 2006

Dollars in millions

                                 Appropriations Obligations Expenditures 
Fiscal year 2005                       $74.4     $74.4-a        $27.6 
Fiscal year 2005 supplemental          200.0      200.0b         79.4 
Fiscal year 2006                      148.5c        26.4          2.1 
Total                                 $422.9      $300.8       $109.1 

Source: USAID

-aIncludes a $36 million transfer to the United Nation Relief and Works
Agency that is not reflected in mission expenditures.

bIncludes $27.35 million in Washington, D.C.-based obligations that are
not reflected in mission expenditures.

cIncludes $33.3 million in direct allocations to other agencies.

Note: Economic Support Funds are available for 2 years for obligation and
for 5 years for expenditure. Expenditures are exclusively mission-directed
project expenditures.

The combined total 2005 appropriations of $274.4 million--the largest
yearly amount of U.S. bilateral assistance for the West Bank and Gaza
since the second intifada--was provided, among other purposes, to support
the President of the Palestinian Authority, elected in January 2005, and
to facilitate the Israeli disengagement from four northern West Bank
settlements and Gaza.

           o In December 2004, the United States provided $75 million in
           assistance to the West Bank and Gaza through the fiscal year 2005
           annual appropriation. A subsequent 0.8 percent rescission reduced
           that appropriation to $74.4 million.

           o In May 2005, the United States provided an additional $200
           million to the West Bank and Gaza in a fiscal year 2005
           supplemental appropriation, which was accompanied by a conference
           report that allocated the funds to 10 different subcategories17
           under the two broad categories of economic revitalization and
           infrastructure development.

Additionally, in November 2005, the United States provided $150 million in
assistance to the West Bank and Gaza through the fiscal year 2006 annual
appropriation. A subsequent 0.99 percent rescission reduced that to $148.5
million. The legislation authorizing the 2006 assistance did not contain
the same congressional directives relating to categories of assistance as
the conference report accompanying the fiscal year 2005 supplemental
appropriation.

17The 10 subcategories are (1) Palestinian agriculture and agribusiness
production and marketing; (2) trade promotion and capacity building; (3)
home construction financing; (4) job creation, with an emphasis on
construction of schools and community centers; (5) improved flow of people
and goods into Israel; (6) roads and water; (7) democratic reform and the
rule of law; (8) community policing;

(9) education, including vocational training; and (10) health care and
food assistance.

USAID Response to the Change in the U.S. Assistance Plan for the West Bank
and Gaza

After the January 2006 parliamentary elections, USAID slowed assistance to
the West Bank and Gaza pending a comprehensive review. In April 2006, in
concert with State, USAID notified its implementing partners that it
intended to suspend certain activities. On July 21, 2006, the Secretary of
State issued a new assistance plan with a revised spending plan totaling
$468 million,18 about a third of which had previously been obligated,
focused primarily on democracy and governance, health, and higher
education. This revised spending plan affected the use of all three
appropriations from fiscal years 2005 and 2006.

USAID Deobligated Certain Funds from the Fiscal Year 2005 Annual
Appropriation

Along with the revised spending plan, USAID requested the return of $50
million from its fiscal year 2005 annual appropriation of $74.4 million
that had been obligated for the use of the Palestinian Authority. Between
March 1, 2006, and May 8, 2006, the Palestinian Authority returned a total
of $45 million, which USAID reobligated. The remaining $5 million funded
road projects that USAID canceled. According to a mission official, as of
January 30, 2007, USAID and the Palestinian Authority had not yet resolved
the value of the pre-cancellation construction, close-out and security
costs, and the remaining funds to be returned.

USAID Shifted the Emphasis of the Remaining 2005 Supplemental
Appropriations

USAID's obligations of U.S. assistance to the West Bank and Gaza varied
from the allocations set forth in the conference report to the fiscal year
2005 supplemental appropriation because the revised assistance plan that
State presented to the Congress on July 21, 2006, redirected some funds to
humanitarian assistance. While U.S. assistance before the January 2006
election supported the administration of the Office of the President of
the Palestinian Authority with a wide range of development projects, all
funds going to the Palestinian Authority after the election were canceled
or, in the case of some obligations, withdrawn and funneled through other
organizations. For example, State notified the Congress that food
fortification and nutrition management programs would be redirected from
the Palestinian Ministry of Health to individual private mills and the
Palestinian Association of Food Industries. Funds for one existing
activity were redirected away from pubic infrastructure works
to ensure that the Palestinian government would not benefit and to shift
support away from the Palestinian Authority. As of December 31, 2006,
USAID had obligated the full $200 million from the supplemental
appropriation. Those obligations included $27.35 million made by USAID in
Washington, D.C. The West Bank and Gaza mission expended about $79.4
million.

18Although the fiscal year 2006 supplemental appropriation act required a
revised plan for unobligated Economic Support Funds for the West Bank and
Gaza, State also included some programs funded from other sources or from
already obligated Economic Support Funds in the revised spending plan.

State Retained a Significant Proportion of Fiscal Year 2006 Funds
Appropriated for Use in the West Bank and Gaza

In its July 2006 revised spending plan, State notified the Congress of its
intent to retain approximately $83 million of the $148.5 million fiscal
year 2006 appropriation for the West Bank and Gaza, transfer or directly
provide about $33 million to other U.S. entities,19 and allocate $31.9
million to USAID's West Bank and Gaza mission. As of December 31, 2006,
USAID had obligated approximately $26.4 million and expended approximately
$2.1 million in fiscal year 2006 funds for projects in the West Bank and
Gaza. On January 30, 2007, State notified the Congress of its intent to
obligate $86.4 million in fiscal year 2006 funds to carry out security
measures in the West Bank and Gaza. As of the date of this report, the
Congress and State continue to discuss the use of those funds and, as a
result, these funds have not been obligated.

USAID-Funded Projects Highlight Areas of Humanitarian Aid and
Infrastructure Development

After the election and the change in the U.S. assistance plan for the West
Bank and Gaza, USAID restructured its assistance to place an increased
emphasis on humanitarian projects and to shift funds away from the
Palestinian Authority. The West Bank and Gaza mission provided us with
detailed information about the use of the fiscal year 2005 supplemental
funds for the 10 subcategories of assistance directed by the Congress.
Table 2 shows these subcategories for the fiscal year 2005 supplemental
appropriation with USAID's actual obligations of those funds, the
percentage differences between the congressional direction and USAID's
obligations, and USAID's expenditures. It should be noted that the table
displays the congressional allocations (determined prior to the January
2006 election) and USAID West Bank and Gaza mission obligations and
expenditures (as of December 31, 2006), which reflect USAID's restructured
plan after the election.

19These included the Overseas Private Investment Corporation, USAID's
Office of Transition Initiatives, and State's Near East Asia Middle East
Peace Initiative, among others.

Table 2: U.S. Economic Support Funds Obligated per Congressional
Allocation for the West Bank and Gaza, Fiscal Year 2005 Supplemental
Appropriation, as of December 31, 2006

Dollars in thousands

Category and         Congressional Obligations  Percentage   Expendituresa 
subcategory           allocation                difference                 
                                                      from                    
                                                  congressional               
                                                                              
                                                   allocation                 
Economic                                                                   
revitalization       $110,000      $101,291              (8)       $35,729 
post-disengagement                                                         
Support for                                                                
production and                                                             
marketing in         15,000        15,209                  1         9,219 
Palestinian                                                                
agriculture                                                                
Trade promotion and  24,000        6,693                (30)         8,932 
capacity building                                                          
Home construction    1,000         1,000                   0           989 
financing                                                                  
Job creation, with                                                         
emphasis on                                                                
construction of      20,000        18,389                (8)         5,284 
schools and                                                                
community centers                                                          
Improved flow of     50,000        50,000                  0        11,305 
people and goods                                                           
Economic, social,                                                          
political, and                                                             
security             90,000        98,709                 10        43,712 
infrastructure                                                             
development                                                                
Basic infrastructure 48,500        33,196               (32)        18,181 
(roads and water)                                                          
Democratic reform    17,500        14,932               (15)         7,232 
and government                                                             
Support to confront  3,000         3,500                  17         2,415 
terror and violence                                                        
Expanding education  8,000         6,032                  25         1.285 
opportunities                                                              
Provision of social  13,000        41,048                215        14,599 
services to the poor                                                       
Total                $200,000      $200,000                0       $79,441 

Source: USAID (data) and GAO (analysis).

aExpenditures are exclusive to the USAID mission in the West Bank and Gaza
and do not include USAID expenditures by its Washington, D.C. headquarters
officials. The mission is wholly responsible for project expenditures.

USAID obligated the $200 million fiscal year 2005 supplemental
appropriation almost equally between the two congressionally directed
categories. USAID further obligated the funds to approximately 40
different awards under the 10 subcategories directed by the Congress,
including some ongoing contracts that had been initiated as early as 2004.
The average award size was about $4.2 million. As discussed earlier, the
January 2006 parliamentary election resulted in USAID shifting the focus
of its assistance to humanitarian projects. For example, following the
redirection of funds, the category receiving the largest funding was
health care and food assistance projects ($41 million). A $50 million
allocation to border security measures--labeled "improved flow of people
and goods" in table 2--was specified in the congressional allocations and
was not affected by the change in the U.S. assistance plan for the West
Bank and Gaza.

Based on information provided by the West Bank and Gaza mission, 13 awards
had been completed for projects using some portion of the fiscal year 2005
supplemental appropriation funds. We selected two awards that were
completed or well established with preliminary results from each of the
two major congressional categories--economic revitalization and
infrastructure development--in order to get a cross section of the types
of projects being completed. The four awards represented projects
classified under 4 of the 10 congressional subcategories set out in the
fiscal year 2005 supplemental appropriations conference report.
Descriptions of the projects we chose follow.

Palestinian Economic Opportunity Program for Lending and Economic
Development

USAID awarded a total of $8.6 million, including $1 million in fiscal year
2005 supplemental funds, to a contractor to continue its Palestinian
Economic Opportunity for Lending and Economic Development program. This
program seeks to provide housing solutions that are technically
appropriate and meet basic standards of livability and safety. The program
gives 12- to 42-month microfinance loans for home improvements to
low-income Palestinians to repair, expand, or improve their homes. All
loans are extended at market rates and under strict repayment conditions
to families with a demonstrated ability to repay. Monthly loan
installments are limited to 33 percent of income to ensure repayment
capacity. Since the program began, the contractor has opened site offices
in Ramallah, Nablus, Hebron, Khan Younis, Jenin, Bethlehem, and Tulkarem
and hired qualified staff in all required positions. According to USAID
reports, as of September 30, 2006, the program had disbursed home
improvement loans totaling $21.7 million and generated over 648,000 person
days of employment, almost exclusively in the construction sector, far
exceeding the 595,200 days projected by the contractor.

Partnership for Expanded Access to Quality Maternal and Neonatal Health
Care for Palestinian Women and Infants

USAID awarded a total of $3.5 million, all in fiscal year 2005
supplemental funds, to the Holy Family Hospital of Bethlehem for a project
to provide quality maternal and child health services, especially for
high-risk pregnancies and newborns. The project also seeks to expand its
current services in response to evolving community needs, promote
sustainability of the facility's specialized care capacity, and enhance
the quality of existing maternal and neonatal services. Project components
included expanded access to advanced neonatal health care, expanded access
to gynecology services, expanded access to health education services for
families, expanded access to training for health care professionals, and
expanded support for essential equipment and supplies. According to USAID,
program achievements, as of September 30, 2006, include the following:

           o a contract was awarded for the construction of a labor ward,
           emergency department, and nursery/day care unit, with construction
           started on the new labor ward;
           o a new part-time gynecologist was hired for the Well Women
           program;
           o two obstetric/gynecologist resident doctors began board
           certification training;
           o two pediatric resident doctors were chosen and began to receive
           long-term training;
           o three student midwives were currently studying at Bethlehem
           University; and
           o the hospital procured a vehicle and medical equipment.

           Labor-intensive Building for Education, Recreation, and Training
           of Youth

USAID awarded a total of almost $2 million, including about $184,000 from
fiscal year 2005 supplemental funds, to a contractor to improve
educational and youth infrastructure, thereby generating critically needed
employment in the most deprived areas of Gaza. This program also leveraged
an additional $800,000 from other sources to increase the scope of
activities. According to USAID, the program provided immediate job
opportunities for Palestinians in southern Gaza through a series of
labor-intensive infrastructure interventions that generated approximately
48,000 days of employment. These interventions included the building of
classrooms and the beautification and rehabilitation of local schools. The
program also improved educational and youth facilities through the
implementation of several educational infrastructure development projects
including the construction, expansion, renovation and minor upgrading of
several schools and the construction of multipurpose youth centers and
kindergartens. According to USAID reports,

           o 86 classrooms were built,
           o 20 schools were beautified,
           o 22 additional classrooms were rehabilitated,
           o 1 multipurpose hall was constructed,
           o 3 sports fields and 3 sanitation units were built,
           o 4 new kindergartens were constructed, and
           o 2 youth and sporting clubs were rehabilitated.

           Emergency Assistance to Palestinians through Nongovernmental
           Organizations

USAID awarded a total of $28.2 million, including $7 million in fiscal
year 2005 supplemental funds, to a contractor to extend its Emergency
Assistance through Nongovernmental Organizations program. According to
USAID, this program provided highly targeted grants to address urgent
needs of Palestinians in the West Bank and Gaza, using existing locally
based nongovernmental organizations of various sizes and capabilities as
the main vehicle for service delivery. Emphasis was placed on reaching the
poorest sectors and marginalized groups of Palestinian citizens,
frequently those living in remote areas, enclaves that experienced
recurrent and prolonged closures, and regions severely affected by
occupation. Over 100 subprojects valued at $10.2 million have been
completed or are being implemented, addressing general humanitarian
assistance, environment, education, infrastructure, conflict mitigation,
economic growth, and health. Activities supported include aid to the
disabled, agricultural revitalization, shelter for the abused, and basic
social services infrastructure. Specific projects included the following:

           o supporting the establishment of a Palestinian pediatric surgery
           unit to provide high-quality heart surgery for children in
           Palestinian hospitals;
           o establishing the first Palestinian eye bank and helping raise
           the awareness of the importance of corneal donations;
           o providing sunshades and water fountains for six schools; and
           o constructing, maintaining and improving sanitary units, washing
           facilities, drinking water taps, classrooms, playgrounds, and
           outdoor spaces at 11 public schools.

Agency Comments

USAID provided written comments on a draft of this report (see enc. II).
Overall, USAID was pleased that the report emphasized the changed
political situation following the January 2006 parliamentary elections and
the resultant shift in the allocation of resources. USAID also provided
two clarifications that we incorporated. In addition, USAID provided
technical comments and updates, which we have incorporated throughout the
report as appropriate.

                                   - - - - -

Copies of this report are being sent to the Secretary of State, the
Director of Foreign Assistance and USAID Administrator, relevant
congressional committees, and other interested parties. We will also make
copies available to others upon request. In addition, the report will be
made available at no charge on GAO's Web site at http://www.gao.gov .

If you or your staff have any questions about this report, please contact
me on

(202) 512-3149 or at [email protected] . Contact points for our Office
of Congressional Relations and Office of Public Affairs may be found on
the last page of this report.

David Gootnick
Director, International Affairs and Trade

                       Enclosure I: Scope and Methodology

To determine the status of appropriations, obligations, and expenditures
of the U.S. Agency for International Development (USAID) assistance to the
West Bank and Gaza in fiscal years 2005 and 2006, we relied on
appropriations legislation, including related conference reports, and
USAID data provided separately by USAID's West Bank and Gaza mission (the
mission) and USAID's Washington, D.C., headquarters. The mission is
responsible for allocating its appropriated funds to specific projects in
the West Bank and Gaza, and headquarters controls obligations of funds to
the Palestinian Authority and other institutions, such as the Office of
Transition Initiatives at USAID. The mission provided data on obligations
and disbursements for each contract and specific information on its
management of each contract (the start and end dates and specific
appropriations that funded each contract). We reviewed legislative
documents to determine congressional policy goals for assistance to the
West Bank and Gaza and changes in those goals after the election of Hamas
to the Palestinian parliament. The mission and Washington, D.C., USAID
officials described the steps they took immediately after the January 2006
parliamentary election and later actions in response to congressional
legislation and the Department of State's new U.S. assistance plan for the
West Bank and Gaza. Headquarters staff provided supporting documentation
for notifications to the Congress on the revised spending plan for the
West Bank and Gaza released in July 2006.

To determine USAID's use of the fiscal year 2005 supplemental
appropriations and whether it obligated the funds in response to the
congressional guidance, we reviewed legislative documents and detailed
data provided by the mission, including information on specific awards as
of December 31, 2006. To assess the reliability of the data provided by
mission and headquarters staff, we spoke with agency officials at
headquarters and reviewed technical documentation about the agency data
systems. We also conducted interviews with mission staff to determine how
they implemented USAID operating procedures for entering, verifying, and
processing data. For purposes of this report, we determined that USAID's
data were sufficiently reliable. For the project information that we
include in this report, we relied on data provided by the mission. Because
the Congress allocated funds to 10 categories of assistance, the mission
had detailed data for projects using fiscal year 2005 supplemental funds.
We examined the start and end dates for all projects to identify projects
that had been under way long enough to demonstrate results. We also
interviewed mission staff on the status of projects, and the mission
provided us with quarterly reports of the project results. We verified
much of the information provided with similar data we developed and
verified with USAID project officers at its Israel mission for a previous
engagement related to awards for the West Bank and Gaza. These data
provided award amounts and contractor information.

                         Enclosure II: USAID's Comments

See comment 1.

See comment 2.

                 Enclosure II: GAO's comments on USAID's letter

The following are GAO's comments on USAID's letter dated February 28,
2007.

           1. We added information to this report regarding State's decision
           to retain $83 million out of the total $150 million for fiscal
			  year 2006 in the West Bank and Gaza.

           2. We modified the text to reflect USAID's comment.

                                 Enclosure III

                     GAO Contact and Staff Acknowledgments

GAO Contact

David Gootnick (202) 512-3149

Staff Acknowledgments

Albert H. Huntington, III; Judith K. Knepper; and Michael Maslowski made
key contributions to this report. In addition, David M. Bruno, Martin de
Alteriis, Etana Finkler, Reid L. Lowe, and Grace P. Lui provided technical
assistance.

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