An Israeli blockade on all but humanitarian goods has lead to the creation of tunnels through which smugglers operate.
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Palestinian families enjoy the surf.

Hamas profits from Israel's Gaza blockade

The group, which taxes goods smuggled through tunnels, is supplanting Gaza's business leaders and could strengthen its political position as well.

A few months ago, Gaza City's beachfront Commodore Hotel plastered a large Koranic message atop its new glass front door. The hotel lobby, once dusty and aging, got a complete makeover in green, the color of Islam.

What happened? The decades-old establishment on a prime piece of Gaza coastline was recently purchased by Abdul Aziz al-Khaldi, an ardent supporter of the Islamist movement Hamas, which has ruled this coastal strip since winning a brief war for control of the area with rival Fatah in June 2007.

Mr. Khaldi is part of a coterie of local businessmen close to Hamas who appear to have emerged as the big financial winners from the Israeli-imposed economic blockade of this tiny enclave.

The two-year-old blockade has strangled Gaza's economy and put the majority of Gazans out of business. Israel's logic has been that a collapsing economy will convince Gaza's people to push Hamas from power. But instead, Hamas – which rose to prominence as a "clean" alternative to the famously corrupt Fatah – has benefited handsomely. Now, the movement and its friends appear to be supplanting Gaza's traditional business leaders, which could entrench its political position as well.

They're doing so, veteran Gaza businessmen say, thanks to the fact that Hamas can generate capital while all its potential competitors are running dry. They charge that Hamas and its associates have been using their control of smuggling tunnels, money changing, and tax revenue to buy prime tracts of land and buildings across Gaza, particularly along the enclave's main boulevards.

"Thanks to Israel, while everyone else suffers, day after day Hamas is strengthening itself with the blockade," says Amr Hamad, executive manager of Gaza's Palestinian Federation of Industries (PFI), a private-sector organization. "And they are using this position to deepen their roots in Gaza." Mr. Hamad was an economic adviser to the Gazan government when Fatah was in charge and resigned before Hamas took over.

Hamas officials deny any formal initiative to buy property, or that the group is benefiting from the siege in any way.

But a blockade that prohibits importing everything but humanitarian items has made the smuggling tunnels between Gaza and Egypt a vital lifeline. While Israel considers the tunnels illegal, no one here does. Hamas levies a value-added tax of 14.5 percent on every item that comes through, local shop owners say.

Nasser al-Helow, a prominent businessman, says a Hamas member offered him $2.8 million for his beachside Al-Quds Hotel two months ago. "The siege has been such a positive thing for Hamas and it is feeding their treasury in many ways," says Mr. Helow. He says he refused the offer because he worries that an economically dominant Hamas will ultimately prove bad news for Gaza's future. Such purchases, he says, "strengthens them, [allows] them to tighten their grip on Gaza at the same time."

Taxes may be hurting business – and angering shopkeepers – but they're keeping cash flowing to Hamas. Mohammed, the owner of a Gaza City grocery, says there's no choice in the matter. "If I don't pay, they will shut me down."

Even if the borders were open to a free flow of trade, allowing Hamas to tax even more items coming from Israel, Hamad says Hamas would be less able to control commerce and generate revenue. "They would have less control over the flow of goods than they have right now at the tunnels," he argues.

For instance, according to Palestinian smugglers, Hamas taxes luxury items like cigarettes at higher rates and sometimes demands protection money for allowing their tunnels to be used. If cigarettes freely flowed across an open border, it would be harder for Hamas to extract payments.

Concrete figures on just how much money Hamas is making, or spending, are difficult to acquire.

The Hamas-appointed minister of economy, Ziad al-Zaza, says the government spends roughly $30 million a month. Mr. Hamad estimates the movement brings in more than $100 million a month. "The only expenses they have as a government are salaries," says Hamad. He alleges the difference goes "straight into their pockets and into their new investments in Gaza."

Local businessmen say the new Islamic National Bank is a Hamas front. A manager there says the bank is not affiliated with Hamas. But shortly after it opened, Hamas started paying all its employees' salaries through its branches.

Economists say Israel's policy of limiting cash transfers to Gaza has weakened the formal banking system and made Hamas Gaza's key financial middleman.

"The siege gave birth to the informal system," says Gaza-based economist Omar Shaban. "And money exchangers are now significantly stronger than the formal banking system in Gaza."

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