Israel’s Fragile Return to Normality

Diplomacy triumphed for now, but opinion, not arms, may decide what follows.

The announcement of the 20-step peace plan on September 29 came at a crucial time, as the link between Israel and the US appeared to be weakening. Earlier that month, Trump publicly declared he “would not allow” West Bank annexation, a rebuke of Netanyahu’s far-right coalition’s talks to extend sovereignty. It followed earlier frictions, including Israel’s strike on Doha that undermined US-Qatari mediation, as well as the country’s rightward political shift and the war in Gaza, both of which have alienated many Americans across the political spectrum and taken a toll on a relationship that has endured for decades. Amid growing pressure from state and midterm elections, pro-Israel Democratic congressmen are being pulled to the left, and even Republicans must consider a decline in support among voters. 

The unorthodox approach by Trump to present the deal first, almost daring Hamas, already under heavy pressure, to disagree, pushed both sides to meet in Egypt to begin implementing the plan despite open disagreements. Trump’s pressure on Netanyahu and on Hamas, channeled through Arab and Muslim countries such as Egypt and Qatar, resulted in an agreement to a ceasefire and hostage releases, but it’s too early to consider the plan complete. As the negotiations were rushed, some of the trickier issues, such as Hamas’s demilitarization, were not addressed and remain unresolved.

The choice of Egypt instead of Qatar, its regional rival in mediation, for the ceasefire negotiations was significant, not only because of the presence of Hamas leaders on Qatari soil but because it aligned with Egypt’s past efforts to curb the sheikdom’s influence. Egypt has been seen as an “ailing giant”, being the most populous Arab country, yet unable to exercise much power. While other regional powers such as the UAE accounted for a large share of total aid to Gaza, Egypt served more as a facilitator than a donor, constrained by its high public debt. Internally, some Egyptians are demanding a stronger position from President Sisi, including ceasing compliance with Israeli inspection requirements for aid and opening the border. Egyptian officials warn that welcoming an increased inflow of Gazans, which may include Hamas militants, on top of roughly 100,000 who have already crossed the border and some one million displaced by conflicts elsewhere, would worsen existing security concerns. Externally, Mr. Sisi worries that taking positions more aligned with those of the Gulf states would upset his Western supporters. 

Even if fully implemented, the region will not return to the fragile status quo that preceded the Gaza war. In Europe, some states, such as France and the UK, have formally recognised the Palestinian state and have become more critical of Israel’s conduct. The consensus did not shatter, it thinned, like ice that still bears weight until it doesn’t. Antisemitism has risen, and Jews, especially in Britain where there is a large Muslim community, feel increasingly unsafe. Israel has also slightly changed its trade strategy, partly to ensure a positive GDP growth despite potential sanctions, partly to cope with the economic slowdown, exacerbated by an exodus of qualified professionals, crucial to its tech- and defence-heavy economy. According to the Financial Times, GDP in real terms went up by 0.2% cumulatively in 2023 and 2024, after growing 7.4% in 2022. One of Israel’s major deals this summer was NewMed’s $35bn natural gas deal with Egypt, deepening the reliance on Israeli gas and causing significant domestic backlash. Defence exports also rose by 13% in 2024 to almost $15bn, largely attributed to Europe’s efforts to reinforce its military equipment that represented 54% of the total, up 18 percentage points from 2023. It is also worth noting AsiaPacific’s share of 23%, roughly two and a half times that of the United States.  

IMF DOTS data show the start of the war decreased Israel’s quarterly trade flows by close to $1.5bn in Q4 2023. A brief recovery and renewed dip followed, but by Q1 2025 total trade value was already greater than Q3 2023’s. To fuel the war effort, Israel turned, appropriately enough, to fuel. The average share of fuel exports to emerging markets has increased from 12% and 14% in 2022 and 2023, respectively, to 18% in 2024, demonstrating once again the enduring reliability of fossil fuels, even though trade with those economies decreased. Trade with Europe increased by more than 7% in Q3 2024 and has remained stable since. The implementation of the peace plan likely prevented the economic sanctions discussed in August and September, sparing Israel from a potential cut in trade volume. 

Power relations in the region may stabilise for now, if the peace plan holds. The war was too brief for serious shifts in trade to occur, but long enough to unsettle the political certainties that once felt immovable. Rebuilding Gaza will test not bricks and steel, but whether a nation can live with its ghosts. Israel’s next steps will require restraint, as sentiment shifts in both Europe and the United States mean future support will be more conditional and uncertain. The rise in unfavourable views of Israel among Western voters may prove the quietest, yet most enduring, cost of the war.