The stalled peace process and instability in the Middle East are liable to push the Palestinians in the West Bank to turn increasingly violent toward Israel, the Foreign Ministry said in its annual intelligence assessment.
The assessment also states that a potential Israeli military operation in Gaza would generate a severe response from Egypt.
The ministry's intelligence report, which was presented a few weeks ago to the ministers in the security cabinet, runs more than 50 pages. Parts of the report were obtained by Haaretz, including the sections relating to the Palestinians, ties with Jordan and Egypt and the Iranian nuclear issue.
The assessment puts forth a scenario of a third intifada breaking out during 2012, either as a result of a Palestinian Authority leadership decision or as a popular uprising influenced by the wave of revolutions in the Arab world.
"On the ground, at this point, neither the Palestinian leadership nor public opinion seems to want a violent escalation with Israel," the report states. "Still, the continuing freeze of the diplomatic process, combined with any drastic Israeli moves in the military and/or economic realm and the continuing stormy situation in the Middle East, could bring about a change in this approach."
The report states that the Palestinian leadership does not see the Israeli government as a partner with which it can make progress on the peace process. Therefore, the report says, PA President Mahmoud Abbas worked to increase the involvement of the international community in the events of the West Bank and Gaza.
According to the report, the PA is interested in working with the rest of the world to obtain better opening terms for any future negotiations with Israel.
The PA is liable to renew its application to the UN Security Council to get Palestine accepted as a full member in the United Nations, or to ask the General Assembly to recognize Palestine as a state, albeit a non-member state, the Finance Ministry report says.
It also warns of increased tension in ties with Jordan and Egypt.
"The Israeli government is viewed by the Jordanians as not being committed to the two-state solution," the report says. "Israel's policies are being translated into the Jordanian leadership's deep lack of trust in the Israeli leadership."
The report was written before the talks sponsored by Jordan's King Abdullah in Amman had broken down. Prime Minister Benjamin Netanyahu's aides say they don't think the Jordanian monarch blames Israel for the talks' failure.
The report also notes that last year's attack on the Israeli Embassy in Cairo demonstrates that the Egyptian "street" has succeeded in forcing its opinions on the military leadership.
"[Egypt's] Supreme Military Council is aware of the benefits of the peace agreement, but even there, there are some elements that are dissatisfied with parts of the agreement," the report says. One of the first things the new Egyptian government will do after it takes office will be to change the security appendix to the peace agreement to allow Egypt to increase its military presence in the Sinai Peninsula, it says.
The change of government in Egypt is also expected to limit Israel's freedom of movement in Gaza.
"Incidents deemed provocative, such as a military operation in Gaza or in the Sinai, will likely lead to a tougher, sharper response than in the past," the report says.
Like other Israeli intelligence bodies, the Foreign Ministry is pessimistic that anything can be done to get Iran to abandon its nuclear plans.
The report says Tehran will try to maneuver so that it can continue its nuclear program while paying "prices it perceives as tolerable," the report says.
Iran sees its subversive behavior and support for terror "as an important tool in solidifying its regional position and as a way to weaken its rivals, including Israel and the United States, and to settle accounts with them," the report says.
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