JERUSALEM, Aug 25 (Reuters) - The United States says Jewish settlements in the occupied West Bank threaten any peace between Israel and the Palestinians -- yet it also encourages Americans to help support settlers by offering tax breaks on donations.
As Condoleezza Rice flew in on Monday for another round of peace talks, Israeli and American supporters of settlements defended the tax incentives, which benefit West Bank enclaves deemed illegal by the World Court and which the U.S. secretary of state has said are an obstacle to Palestinian statehood.
Pro-settler groups say they are entitled to the tax breaks because their work is "humanitarian", not political, and reject any comparison to Palestinian charities, some of which face U.S. sanctions over suspected links to Islamist groups like Hamas.
The full extent of tax-exempt U.S. funding for settlements is unclear because so many groups are involved and their spending practices are not always transparent.
But a review by Reuters of U.S. tax records found 13 tax-exempt organisations openly linked to settlements that have raised more than $35 million in the last five years alone.
Asked about the tax exemption, Rice spokesman Sean McCormack said such tax and legal issues were not the purview of the State Department. But he added: "Regarding U.S. policy on settlements, it's clear, it's the right policy to try to help bring about a political settlement between Israel and the Palestinians."
The Internal Revenue Service would say only that groups can qualify if funds go to "charitable, religious and educational purposes".
Records show money from the tax-exempt groups went to what they described as community development, immigrant absorption, health, education and welfare projects in the enclaves, whose presence Palestinians say cripples their society and economy.
In one example, when settlers took over a new building in the flashpoint city of Hebron last year, a tax-exempt New York organisation sprang into action to solicit funds for renovations to accommodate more families.
The Hebron Fund, which raises an average of $1.5 million a year to support Jewish settlers in the city, and other groups said they were as entitled to tax exemptions as other charities.
"Are you saying you can get a charitable deduction for helping starving people in New York City but you can't get a charitable deduction for helping starving people in Judea and Samaria," said Sondra Oster Baras, president of Christian Friends of Israeli Communities, using an Israeli term for the West Bank. "That's an argument that doesn't make sense."
Palestinian and some Israeli critics counter that there is an underlying political objective -- to expand Jewish enclaves on occupied land -- and that the tax exemptions are at odds with stated U.S. foreign policy and international law. Rice has pressed Israel to cut its own financial incentives for settlers.
"It is inconsistent," said Noam Shelef of Americans for Peace Now, which supports an Israeli group opposed to settlement in the West Bank, where some 2.5 million Palestinians live.
Palestinian negotiator Saeb Erekat said the tax breaks "contradict American policy", adding: "Either they stop the settlements or they stop talking about a two-state solution."
Experts say the millions raised by tax-exempt groups in the United States contribute to settlement expansion by financing public services and by subsidising immigrants who relocate to Jewish enclaves which already house some half a million people.
But that is dwarfed by Israeli spending on settlements, which some groups estimate at over $550 million a year.
Ian Lustick, a political science professor at the University of Pennsylvania, played down the chances the tax breaks will be rolled back. "It's a political hot potato," Lustick said, citing the clout of U.S. pro-Israel groups to block any change.
Americans for Peace Now and other anti-settler groups also benefit from U.S. tax breaks -- exemptions pro-settler spokesmen said should be questioned because those groups are "political".
Hebron Fund Director Yossi Baumol acknowledged that promoting settlements ran counter to U.S. foreign policy but insisted: "The U.S. government has no right to use political considerations when judging humanitarian and non-profit needs.
Geoffrey Aronson, director of research at the Foundation for Middle East Peace in Washington, said the "humanitarian" nature of such settler programmes was "in the eye of the beholder".
The underlying goal of pro-settler groups, Aronson said, was "controlling Hebron and bringing more Jews to Hebron", where some 650 settlers live in enclaves guarded by Israeli troops.
Baumol said his fund raised money for renovating a building in Hebron known to Israelis as Beit HaShalom, or House of Peace, after it was controversially acquired by settlers in March 2007.
"Dozens of new families can now come live in Hebron -- only if we renovate this building quickly!" the fund said on its Web site. The building lies close to the highly sensitive Tomb of the Patriarchs, a site revered by both Muslims and Jews.
Palestinians in Hebron trade accusations of harassment with settlers. U.S. policy was "empty words", according to Bassam al-Jabri, who lives near the new settler building. He added:
"Why are the Americans talking about getting rid of settlements when they are building a new one right next door?" (Additional reporting by Joseph Nasr and Arshad Mohammed in Jerusalem, and Haitham Tamimi in Hebron; Editing by Alastair Macdonald and Sami Aboudi)
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