The Rafah tent encampment.

 In a random check I made of international news outlets’ coverage of the tragic incident at the Rafah tent encampment, it appears that most of them had already made up their minds. Impatient, unwilling or unable to wait for an impartial investigation, they have denounced Israel.

“Our munitions alone could not have caused the fire. our investigation seeks to determine what could possibly have ignited the fire at the Rafah tent encampment,” IDF spokesman Rear Admiral Daniel Hagari said in a televised briefing.

Hagari added that the IDF had not targeted the Rafah tent encampment.

He said the IDF is “exploring all possible causes of the fire that broke out subsequent to the IDF attack on the Hamas commanders, including the possibility that Hamas had a weapons and explosives cache in a place nearby that was ignited by ‘shrapnel fallout’.”

Hagari showed aerial footage of a strike on a building, in which, senior Hamas commanders were meeting. He added that the air strike used two munitions with small warheads -- "the smallest munitions that our jets could use."

“We are working to verify the cause of the fire, it is still too early to be determined,” ..... “Even when we do find the cause of the blaze that broke out, it won’t mitigate the suffering of the survivors and the families of the people that died in the fire."

At least 45 people were killed and 200 others were injured in the fire.

Margin note: - For the sake of clarity, I have paraphrased some of the comments Daniel Hagari made at the briefing.  

So far, there has been no progress in concluding a deal for the release of the hostages held in Gaza. Additional IDF units in Rafah have been ferreting out Hamas forces in the area and advancing cautiously along the Philadephi corridor, planning to seal off Hamas’ weapons supply line.  

Drawing on his vast experience in a number of conflict zones, veteran war correspondent Ron Ben-Yishai, suggested an alternative modus operandi.

“The battles in the Jabaliya refugee camp over the past two weeks serve as a condensed model of the entire war with Hamas, encapsulating all its complexities. Lessons from these battles can guide Israel in releasing hostages and dismantling Hamas' rule. They also indicate that Hamas can be destroyed, but it must be done gradually.

The decision to attack and take control of the recently formed eastern Jabaliya Hamas battalion, was made for two important reasons. First, the western Negev and its residents won’t be safe as long as around 1,000 terrorists are hiding in the refugee camp and its tunnels, armed with weapons and rocket launchers.

Second, the IDF possessed qualitative intelligence on the tunnel network under the refugee camp and where the Hamas hideouts were. This intelligence information indicated that the hostages' bodies were underground.

After five days of intense fighting, the IDF managed to control the area and penetrate the depths of the tunnels. However, it took two weeks for the combat teams and the Engineering Corps to dismantle Hamas' eastern Jabaliya Battalion. According to Intelligence Directorate estimates, this battalion included about 1,000 local operatives and others who had gathered in the camp after fleeing other locations.

Roughly 500 operatives were killed or captured, while the rest fled into the tunnels. Meanwhile, the IDF recovered the bodies of Israeli hostages and continues to destroy tunnels under the camp.

Destroying Hamas' underground capabilities is crucial to weakening it militarily and undermining its credibility among the civilian population. To achieve this, the IDF must address several issues: First, they need to free hostages held in the tunnels who may be harmed during operations. Second, high-quality and precise intelligence is essential. Third, IDF soldiers must apply the lessons learned in Khan Younis, including identifying Improvised Explosive Devices (IEDs), approaching booby traps with caution, and navigating narrow alleys without being harmed by IEDs or RPG ambushes.

The IDF can learn from its war experiences and remain dynamic throughout this conflict by engaging in large, recurring operations as needed. Future operations will look different from those conducted so far.

The IDF's main military goal is to destroy at least 65%-70% of Hamas' strategic tunnels, including those leading to Egypt for supplies and escape routes. This will make Hamas more dependent on international aid for food, medicine and other supplies for the Gazan population.

According to a Wall Street Journal report, American intelligence estimates that the IDF has only destroyed 35% of Hamas' combat force and even less of its tunnel capabilities. However, IDF intelligence disputes these figures. Of the 30,000 Hamas known operatives before October 7, the IDF has eliminated or captured more than 14,000. While Hamas is recruiting new fighters, these new recruits won’t significantly change the balance of forces. Many of them are untrained and often lack motivation.

Estimates suggest there are still about 50 escape tunnels under the Gaza-Egypt border, which the IDF's progress in Rafah is addressing. Nonetheless, the IDF must approach this issue cautiously and in coordination with Egypt.

All of the above should lead Prime Minister Benjamin Netanyahu to conclude that weakening Hamas in Gaza is imperative, as its ability to recover and regroup still poses an immediate danger to the residents of the western Negev and Israel as a whole. However, it is equally crucial not to abandon the ultimate military goal of releasing the hostages. The IDF's achievements in dismantling Hamas's military power furthers this goal, and the Israeli government must prioritise the release of the hostages.

Achieving both objectives simultaneously is feasible, but it requires a change in the war strategy. Instead of aiming to accomplish everything in one fell swoop, the IDF should adopt a phased plan. Similar to its approach during the Second Intifada, the IDF should deploy forces for pinpoint operations of varying scopes whenever a need is identified or if Hamas provokes action.

Priority should be given to negotiating a hostage deal, and if necessary, committing to a cease-fire for a relatively long period to facilitate this. The negotiation team must maintain maximum flexibility to reach a deal, even through a cease-fire. This should be achieved through intense diplomatic and intelligence efforts, which will also provide an opportunity to formulate a post-conflict plan with the Americans.

The diplomatic effort should focus on exerting international pressure on Hamas. The goal is to ensure that all relevant countries, starting with the U.S., followed by Western Europe, and including Qatar, make it clear to Hamas that no financial aid for the reconstruction of Gaza will be provided unless all the hostages, both soldiers and civilians, are released. If Qatar agrees to this, and with American involvement through the United Nations, a different reality could be created.

The intelligence effort at this time is essential not only for releasing the hostages but also to ensure that Hamas does not rebuild its military power and regain control of the Strip. This is also the goal of the international monitoring force that the U.S. is likely to establish with the Gulf states to manage Gazan affairs.

A cease-fire would allow for a concerted effort to end the northern conflict against Hezbollah, either through a focused military operation in southern Lebanon or as a result of a successful diplomatic effort led by the U.S., France, Saudi Arabia and Egypt.

It is important to remember that the fighting must not stop and may even need to be intensified in the coming days until Hamas agrees to the hostage deal. Strengthening and expanding the war to additional areas in Gaza will apply significant pressure on Hamas, as long as it is done without causing setbacks to Israel's international efforts.

It's not easy, but it's possible. A phased plan for the release of hostages and the weakening of Hamas in Gaza is likely the next step, provided there is a government in Jerusalem capable of making the right decisions and avoiding careless actions and statements.

With an eye to concluding on a positive note I’m including something

published by Globes, Israel business news last week.

Margin note – For the of brevity I’ve ‘cherry picked’ some of the report.

“Despite frequent announcements of large contracts, Elbit Systems' share price is down 6% this year.

Defence budgets around the world are rising, and defence companies are benefitting from increasing demand for their products. Elbit Systems (TASE: ESLT; Nasdaq: ESLT) too keeps reporting large contracts. Its orders backlog reached a record $17.8 billion at the end of last year, and just this week the company announced contracts worth $760 million for the Israeli Ministry of Defence, the latest of many such announcements in the past few months, with large orders coming from the US, Europe, and Australia.

Nevertheless, while defence sector stocks have risen by some 8% so far this year and by 18.5% over the past twelve months, Elbit’s share is in the doldrums. The share price is down 6.2% for the year to date, at just under $200, which is similar to the price just before the outbreak of the Gaza War in October last year, giving the company a market cap of $8.9 billion.

What is the explanation for the stock’s lacklustre performance? Two analysts we spoke to mention negative sentiment towards Israeli stocks. "Elbit is an Israeli stock," says Liran Lublin, head of Research at IBI Investment House, "and there are many good Israeli stocks that are underperforming - Bezeq, the banks, Bazan with record results and a declining share price. Foreign investors are not keen on the Israeli market, and Israelis themselves are deciding to look overseas. We are seeing many foreigners exiting the stock, and not enough Israelis buying to halt the slide."

Analyst Omri Efroni adds: "There’s a trend of anti-Israeli sentiment, which can exert a great deal of pressure on foreign investors to sell the stock." He cites the Bank of Nova Scotia, whose asset management company Scotiabank recently sold 40% of its holding in Elbit. According to a filing with the SEC (the US Securities and Exchange Commission), the bank had a 2.5% holding in Elbit at the end of the first quarter, which compares with 4.2% at the end of the previous quarter. This is after it sold shares in the fourth quarter as well. This implies sales of shares to the tune of some $150 million during the first quarter. If the bank still has the same stake today, it is worth $225 million. In Efroni’s view, the bank did not want to be associated with the stock. Bloomberg has reported in the past that the bank has been a target of protests and petitions because of its holding in Elbit.

Efroni says that, besides the pressure on foreign investors, the problem is also low liquidity in the stock on Nasdaq, which depresses it. He believes that at the same time there are institutions that want to invest in defence stocks, because of the high spending on defence in the US and Europe, so that new buyers could come along, but it’s hard to know when that might happen. Oppenheimer holdings gives Elbit an "Outperform" rating with a price target of $256, 28% above market.

According to IBI’s Lublin, another factor negatively impacting Elbit Systems, though to a lesser extent than the general negative sentiment, is its cash flow. "In the end, when you look at the numbers for the past year and going forward, you see impressive growth in the orders backlog and in revenue, and a supportive macro environment, since defence budgets around the world are rising," he says. "Elbit entered this period with a somewhat higher p/e(price to earnings) ratio, reflecting market expectations for growth. All that has still not percolated through to the company’s cash flow.

Lublin adds that "what interests the market in periods of uncertainty is not just growth, but how much cash flow a company can generate, and here Elbit has further work to do." IBI’s recommendation for Elbit is "Market perform", with a price target of $220, 10.2% above the current share price.

While Elbit Systems has underperformed, there are small defense companies on the Tel Aviv Stock Exchange that have risen sharply. Aryt Industries (TASE: ARYT), for example, which makes fuses, and which announced a NIS 150 million order from the Ministry of Defence this week, has shot up 152% in the past year. Specialized camera company Next Vision (TASE: NXSN), and electro-optics companies Imco Industries (TASE: IMCO) and ThirdEye Systems (TASE: THES) have also risen sharply.

No comment was forthcoming from Elbit Systems.

Paging up I realise that I haven’t concluded on a completely positive.

Never mind. Have good weekend.

 

Beni,

 

30th of May, 2024.