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October 2008. The mortgage market in the United States is in free fall, Iceland's economy is in a meltdown and headlines scream that the global financial crisis is deepening every day. But in the offices of the Peres Center for Peace on Derech Hashalom in Tel Aviv, optimism reigns. At the end of that month the center will celebrate the 10th anniversary of its founding and the staff is getting ready to welcome an airlift of tycoons, artists and actors who will arrive from the ends of the earth to take part in the events and open their cash-lined pockets.

"We filled the airport with private planes," Y., a former employee of the center who helped produce the event, recalled last week. "Nearly everyone who arrived got VIP treatment at the airport - meaning he sat in the lounge while someone else took care of getting his passport stamped."

Y. also has some carefully worded comments about the caprices of a number of the guests, such as their insistence about staying in suites at the luxurious Dan Hotel. "Some of the invitees said they would not come if they didn't get a suite of a certain standard, so we reserved suites in the Hilton, too."

Says Y.: "This was the dedication of a building that was far from being ready, and for the event they speeded up the construction so that at least the outside deck would be finished and everything inside would be clean. There was a whole story of who would sit next to whom. Naturally, the most important thing was who would sit next to Peres, because all the donors wanted to sit with him, and the President's Residence had to approve everything."

The next evening the guests were invited to a concert at the Tel Aviv Performing Arts Center. After they mingled and noshed on Ben & Jerry's ice cream in the lobby, they were treated to performances by Andrea Bocelli, Mercedes Sosa, Avinoam Nini (Noa, as she is known abroad) and others.

Not all the center's employees felt comfortable with the festivities, it seems. "You are at an event sponsored by a peace-making organization and all you see is money, money and more money," says H., a staff member. "There was something simply disgusting about it - it was foreign to what some of us thought the center's character should be."

Forty-eight hours before the start of the anniversary celebration, the institution's president, Uri Savir, was quoted in the press as saying: "The event is an opportunity for the donors to contribute to the projects." But soon it became clear to the organizers that they had set their sights too high. They invested about NIS 10 million in the celebration, but it ended up being like a wedding where the checks don't cover the expenses. The donations weren't sufficient, and the center had to make up the balance.

"I had hoped that the 10th-anniversary event would bring us money, not cost us money," says the center's director general, Dr. Ron Pundak. "It was a huge success as an event, but a total failure from the point of view of having people come during the economic depression."

Yet, despite the tendency to blame the global crisis for the failure, it's unlikely that anyone at the center was truly surprised by what happened. In the months prior to the event, the center's executive discussed whether it was right to hold celebrations on that scale at all - and, particularly, at that time.

The 10th anniversary of its conception was a painful benchmark in the Peres Center's history. It was followed by cuts in salaries, changes in working conditions, dismissals, the closure of departments and the termination of projects. Fundraising efforts were now aimed primarily at one target: completing the construction of the building on Kedem Street in Jaffa.

How did the center, which raises millions of dollars in donations every year and boasts of being Israel's most successful "peace association," find itself in this situation? A good place to look for the answer to that question is Fuksas' plans. Staff members at the center relate that the total cost of the building is approaching NIS 100 million - nearly four times the original forecast. Since 2003, when the expensive seaside lot was leased for the monumental structure, the center has been immersed in efforts to underwrite its construction.

'Original' architect

It's midday in mid-August, 10 months after the big event at the Peres Center for Peace. The Arab workers from the village of Taibeh who are still building the structure, look skeptical. They have already heard that - barring (more) last-minute changes - the center's staff will move in within the next two months.

"We are moving into the building in October, come what may," Pundak insists. "There's been a legitimate argument about whether to do that although parts of the structure, like the garden, are not completely finished, or to wait until everything is completed. We reached a decision to get as much done as possible and to move in."

What caused the big delay?

"The building is far more complicated than what was planned originally," he explains, "and the architect is very, let's say, original. He came up with work plans that were very hard to implement and turned out in retrospect to be more expensive than we had planned. We had to solve a large number of engineering problems, and the economic crises and growing costs generated a work plan that took a relatively longer time than anticipated."

A tour reveals not much has changed since May 2008, when the public - as part of the annual "Houses from Within" events in Tel Aviv-Jaffa - was invited to check out the progress at the building, which consists of layers of green-tinged cement and bands of glass, and is located in the heart of a poor Arab neighborhood, adjacent to a Muslim cemetery. Local residents, who for years have complained of neglect and harassment by the municipal authorities, are appalled by this postmodern intrusion.

Earlier this year, Fuksas explained his vision in an interview to Haaretz Magazine ("Peace in the abstract," March 13): "I had in mind a multilayered building which from the outside looks like a straight box and inside creates a feeling of things changing. The layers represent the history of two peoples that have lived side by side in the same place for so many years. I see peace as a utopia; it cannot be enclosed in wrapping."

Yet even though the element of glass is very prominent, direct light from outside is a rare commodity: There are no windows and only the side facing the sea is exposed to the view. During their short breaks, the workers escape from the overwhelming heat in the building, which as of the second week of this month did not yet have an air conditioning system.

According to an official report by the center's association six years ago, the Peres Center, which began to take concrete shape with the leasing of land and payment of municipal taxes (about NIS 5.5 million), was supposed to be completed in a little more than three years, at a budget of between $5.5 million and $6 million. Since then, however, the project has encountered various obstacles. The association's audit committee report for fiscal year 2003 stated that: "As of May 6, 2004, construction had not yet begun and contracts had not yet been signed to start the construction."

Three years later, the same body noted that the advisory committee overseeing the construction had met once, in 2006. The audit committee urged the advisory body "to meet more frequently in order to receive ongoing updates about the project's progress and about problems that occasionally arise."

The most recent report of the audit committee notes that: "As of May 1, 2007, the estimate [of the project's cost] stands at approximately $12.6 million." In 2007, a significant portion of the association's budget had already been earmarked for construction. Only payments to hospitals - toward a medical project launched by the center for treating Palestinians - exceeded the funds paid to suppliers, and the outlay for construction reached NIS 16.1 million. But in that year only NIS 500,000 was donated to the center, and NIS 232,828 of that was earmarked for "fundraising." In short, there wasn't enough money for construction.

On top of this, the center became embroiled in a dispute of millions of shekels with Kal Binyan, the company charged with building the skeleton and exterior. The company's CEO, Gonen Hofshi: "We claim that more money is coming to us for certain work done, and they think it is not." In the meantime, an arbitrator has been appointed and part of the money has been paid.

Staff members say the financial situation was so bad that the management wanted to take out a mortgage on the building a few months ago, and there was concern over the center's continued activity. However, says Pundak: "That's a bit exaggerated, because relative to other projects, the Peres Center has 'wide margins' [in which to maneuver]." At the same time, he confirms that "we very much wanted to take out a mortgage. It would have made things easier for me and I would have paid in installments. Regrettably, no bank agreed to this. They claim it would be impossible to sell the building. So we have had to become more aggressive in raising funds."

The result is that in recent months Pundak's primary activity vis-a-vis donors has revolved around the construction project: "If I were to ask them for money to underwrite activities with the Palestinians, they would not give a red cent. Almost all of them are donors who contribute to the construction ... because of their ties with and love for Peres, and the feeling that it's necessary to create something to remember him by. Everyone has his own agenda. It's true that as director general, I see the need to raise more funds for the building than for activity as a sort of diversion: If I am engaged in a task of that kind, my managerial energies definitely go to a different place. However, the building is an independent financial 'box,' and we are not taking money away from the center because of it."

The aggressive fundraising has not always been productive. Pundak confirms that some potential donors refused to give money for construction because they did not want their name to appear on the donors' plaque alongside that of Marc Rich, who donated more than $1 million. (In 1983, Rich was charged in the United States with a series of serious federal crimes. He was convicted but fled to Switzerland, and was granted a presidential pardon by Bill Clinton on his last day in office - in part because of requests by senior Israeli figures.)

Furthermore, the Peres Center's international board of governors has a member with whom people may not be proud to associate: Lord Michael Levy of Britain, a confidant of former prime minister Tony Blair and the Labour Party's one-time chief fundraiser. Levy was arrested in 2006 on suspicion of being involved in the "cash for honors" scheme, in which peerages were "sold" in return for donations to the party. However, the prosecution eventually decided not to press charges.

Asked if this is the reason Pundak instructed all employees this month "to ensure that when you hand out the Peres Center brochure to guests, you do not add the list of the international board members other than in special cases" - he demurs. The real reason is that "people tell me: 'If this is your board, why do you need me? Let them donate.' I am caught up in this conflict between image and reality every day."

Who's who?

Who, then, are those underwriting the building of the Peres Center? The serious donors, who each gave more than $1 million, are: Daniel Amar, a Jewish businessman who is active in Switzerland and France; American billionaire Eli Broad; multimillionaire Susan von Liebig; Canadian businesswoman Heather Reisman; and banker Joseph Safra. The list of donors who gave smaller amounts includes Ronald Lauder, president of the World Jewish Congress; Nochi Dankner's IDB Foundation; Israeli producer Arnon Milchan; Israeli real estate magnate Alfred Akirov; Jewish-Kazakh tycoon Alexander Mashkevitz; and many others.

About a month before the 10th-anniversary events, the center's senior personnel convened to discuss how to handle expected media questions about the project's soaring costs. Among the ideas suggested were emphasis on the cost of the building itself - without reference to the expenses incurred by leasing the land, building the parking lot, developing public areas and so forth. Yoav Messer, an Israeli architect who is Fuksas' local representative on the project, attended the meeting.

"The subject of the project's expense is wide-ranging," he said earlier this month. "You have the construction cost, development costs, equipment costs, etc. There are quite a few things that have nothing to do with the construction per se. So it is very difficult for me to determine the cost of the project ... I think emphasis should be on the cost of building the center. If the figure that interests you is the total cost, that is the wrong approach, in my view."

In reply to a question, Pundak, too refers initially only to the construction costs and quotes Messer as saying that the cost per square meter is between $2,500 and $3,000. As for the total amount: "That is still being worked out."

Employees of the center say the investment is approaching NIS 100 million.

Pundak: "That is certainly an exaggeration, but we haven't yet added it up. In the final analysis, it is not an inexpensive building."

"It's very painful," says Noam Ziv, the center's former director of information technology. "Just think that all the donations that went for the building could have gone to soccer games to promote peace or to an Israeli-Palestinian theater."

At present, it is almost impossible to find current or former Peres Center employees who are willing to speak openly about what is going on there.

"It's a small world and a small clique," Y. says, trying to explain this reticence. "If you're planning to stay in the peace industry and people find out that you 'betrayed' them, you're screwed." Another employee says the center possesses "a very clear hierarchy, which in a certain sense resembles that of a security establishment."

Earlier this month, for example, all the employees were summoned to a meeting at which Pundak informed them, among other subjects, about the "catastrophe" looming for the center in the form of an article in Haaretz Magazine. It was known, he said, that someone from the center had spoken to the reporter; he instructed the staff not to do so. He did not want employees discussing subjects about which they were not well informed, he stated.

At the beginning of last week the center's spokesperson, Ayelet Maizner, referred the staff to articles published online and quoted studies carried out by the center. She also had a request: "I will be happy if you go into the electronic versions of the articles and post positive talkbacks," she said.

Employees discern two different approaches by the institution's senior officials. One is espoused by the center's president, Uri Savir, his wife Aliza, a deputy director general at the center, and the deputy director general for finance and administration, Eran Levy (whom the Savirs have known for many years, from the period when they served together in the Israeli consulate in New York). The other approach is personified by Pundak, the director general.

"In the past few years Ron shaped the center as a very active place, both at the grass-roots level, in terms of sports, education and culture, and at higher levels, too, in the form of research done by the economic department," relates G., a department director who left the center. "Uri [Savir] managed the center in a more ostentatious way."

Savir, for his part, is proud of his accomplishments and sees no reason to apologize: "I established the Peres Center for Peace 12 years ago in a basement on Ibn Gvirol Street [in Tel Aviv]. In time it grew to become one of the most important, most active peace centers in the world. It was clear to a number of people, particularly to Marchini [Italian billionaire Alfio Marchini, one of the major donors, who also insisted that the center hire the services of architect Fuksas], that the center had to have a home. We welcomed his initiative. The truth is we thought it would be easier to raise the money, but in the end we will raise it. It's clear that on an ongoing basis this is cutting into the center's activity, because the money is going for [construction] and not for other things."

Employees of the center say that the cost of the project is NIS 100 million.

Savir: "No way. If I'm not mistaken, the total cost is $16 million, but I don't want to mislead you. We will raise the missing amount and I think that within a short time we will have all the money."

It's also said that you and Pundak have two different approaches - ostentatious versus productive.

"Utter nonsense. I would not be able to work with a director general with whom I did not see eye to eye about the Peres Center. Ron is like a brother to me; we have spoken a common language since Oslo. Both of us have a proven record with [Yitzhak] Rabin and Shimon Peres in regard to Oslo, and we are very practical people. I have absolutely no interest in ostentation. My whole concept at the center was to create concrete areas of cooperation with the Palestinians. We initiated a great many projects with thousands of partners, and anyone who claims otherwise doesn't know what he is talking about."

What about the 10th-anniversary celebrations?

"We committed to bringing the international board to Israel, but had not done so for a long time. When we discovered we had already been active for 10 years, Ron and I made a joint decision to do that. I agree that I am more of a believer in an event of this kind, which afterward creates waves in the country, in the Palestinian Authority, in the Arab world and in the international community. Some of the world's most important people came; no one else gets a crowd like this. I believe in events like this and I believe that in another two years we will do another one. I don't regret it, because most of the outlay was covered ... You don't know if a project received money because people were inspired by the 10th anniversary, or whether they would have given in any event."

(Pundak does not hide the fact that he was not thrilled by the festivities, but explains that was not enough of a reason to prompt him to resign.)

Some staff members are skeptical about Aliza Savir's qualifications. A case in point, they say, is the Zoora project, of which she is in charge, which aims to promote Internet cooperation between Israeli and Palestinian filmmakers. After large amounts of money were invested in the undertaking, it has run into economic difficulties.

Says Savir: "In the current global economic atmosphere it is extremely difficult to advance projects. This is a relatively expensive project, of a strategic character, which includes a great many elements. I am trying to raise funds and haven't yet succeeded in getting the project off the ground."

Savir's husband is infuriated by the insinuations about her. "My wife is a star," he insists. "When it comes to peacemaking, there are few in Israel as expert as she is. She worked in the Foreign Ministry and dealt with cultural relations with the Palestinians, organized a joint Israeli-Palestinian theater and joint films. She is there by right, not because someone did her a favor."

From 50 to 40

The Peres Center for Peace was conceived in 1996 by Shimon Peres, the Nobel Peace Prize Laureate and former Israeli prime minister. Despite the center's name and its identification with him, since he again assumed national roles in recent years - first as a cabinet minister and now as president - Peres is banned from participating in the center's activity due to possible conflicts of interest. Thus, he attends official events sponsored by the center in his capacity as president, not as founder of the center. Still, he has informal ties with the institution. His daughter, Dr. Tsvia Walden, is a member of the center's executive board. Uri Savir is one of his confidants, as are two other members of the executive board: Moshe Theumim (an advertising man who has known Peres since childhood and was his adviser); and former cabinet minister Rafi Edery. (Edery campaigned for Peres during his first try for the presidency in 2000, and was the local representative of Daniel Amar, one of the building's major donors.)

In addition, attorney Moshe Shalit, chairman of the Peres Center's audit committee, is also Peres' personal lawyer. "Peres has conceptual access to the center," Shalit explains, "but not administrative access ... Of course, he takes an interest in developments, and when asked he expresses an opinion, but he does that the same way he expresses an opinion about every public issue."

The phone number of the President's Residence in Jerusalem is listed on the center's internal list of staff contact information; it's the only state institution that appears there. Says Pundak: "Wherever he goes, from the parliamentary opposition to the presidency, his office number always appears on the contact page. In practice, though, I am the only one who talks to him." On the other hand, when the idea recently came up to photograph Peres for a promotional film about the center, one of the participants in the staff meeting said: "We will try to enlist him, but it's not at all certain that we will succeed."

A spokesperson for the President's Residence stated in response: "We wish to make it unequivocally clear that since taking office, President Shimon Peres is not involved, directly or indirectly, in the management of the Peres Center for Peace or in formulating its policy. Similarly, the president does not engage in fundraising for the center. It is puzzling that you mention his phone number. The phone numbers of governmental authorities, including the Prime Minister's Bureau and the President's Bureau, are available to everyone, are published in every official site and are in the possession of many organizations in Israel and worldwide."

Pundak maintains it is unjust to examine the center's activity solely through the prism of the Peres building and its celebrations last October. "The main thing from our point of view is the activity," he says, adding that earlier this month "we concluded the first session of a day camp held near Zichron Yaakov for about 50 Israeli and Palestinian children - half of them from Kiryat Gat [in the northern Negev] and half from Tul Karm, Hebron and Jericho. A second session started last week. We also held two day camps in the south, with the participation of children from Sderot and Yeruham, and Palestinian children, including some Gazans who are stuck in Ramallah. The counselors told us that when the time came to say goodbye, 50 children hugged one another and cried. True, that will not bring peace now, but it will help change a good many of the hundreds of children who attended and their extended families. And besides, 13-year-old kids from Gaza deserve the chance to see a bit of a normal world and also to discover that not all Israelis are insane.

"Three weeks ago," Pundak continues, "we held a very impressive conference on 'economic peace,' based on two position papers that were presented. The participants included the Palestinian economics minister and [Regional Development] Minister Silvan Shalom. That was the first public encounter between Israeli and Palestinian ministers since the establishment of the present government."

For the past year, all this activity has been conducted by fewer center employees. One of the units shut down within the framework of the cutbacks was the Civil Society Dialogue and Cooperation department at the center, which aimed to advance projects "to change mind-sets, provide a platform for constructive dialogue, and advance humanism and re-humanization."

The center's Arab presence was also sharply reduced in the wake of the dismissal of Shadi Habaib, one of the center's three full-time Arab employees, who was in charge of relations with the Arab world. He was replaced by a Jewish woman.

"I employ people on the basis of logic and needs," Pundak says. "All in all, in contrast to many associations where the executive board consists of a cousin, an aunt and other relatives, we are a very serious and realistic organization that is doing many good things. It is not run superficially or unprofessionally."

Well, the wife of the center's president has a job there.

Pundak: "Aliza Savir is above all a good worker."

Wage disparities

The center receives no official state funding and its activity depends primarily on donations. The latest report filed with the Registrar of Associations refers to 2007. (The report for 2008 will be filed within a month, but Pundak declines to disclose its contents or the center's updated list of donors.)

A perusal of the donors who gave more than NIS 20,000 in 2007 (their donations added up to more than NIS 35 million, according to the report) reveals foreign governments, and Israeli and foreign associations, foundations, companies and businessmen, including: the friends associations of the Peres Center in the United States, Italy, Britain and Germany; the Canadian government; the European Community; the province of Tuscany, Italy; the embassies of Australia, Holland, Denmark and Greece in Israel; the Rich Foundation; the Yeshaya Horowitz Association; the Ford Foundation; the World Bank; and others. According to the report, the center's activities in 2007 cost NIS 35 million. Of this, nearly NIS 21 million was allocated for "regional cooperation," and in excess of NIS 14 million for cultural and sports activities and workshops.

The high salaries were cited in a special audit conducted a year earlier in the Peres Center by Brightman Almagor accounting firm on behalf of the Registrar of Associations. "We recommended that the association's audit committee meet and discuss the rationale for the salaries of the three highest-paid recipients," the accountants' report stated.

The association stated in response: "Beginning in May 2003, in accordance with a decision by the executive board, the salary [of the association's senior personnel] was reduced ... In regard to the rationale behind the amounts paid to the officials, we must emphasize that these are individuals who possess a broad education (and are Ph.D.s or even professors), and perform complicated and complex tasks of a large financial scale, entailing considerable responsibility. The association and all its organs believe that the salary paid to these officials is perfectly reasonable."

In conversations with employees at a more junior level, the topic of the wage disparities is painful and comes up repeatedly. These employees, including project managers who sometimes put in 10- and 12-hour days, receive far more modest salaries of between NIS 6,000 and NIS 7,000 gross a month.

"The salary principles were determined when the organization was established many years ago," Pundak explains. "There are three basic levels: project managers, department directors and deputy director generals / director general. The lower salaries are similar to those in not-for-profit associations. A good many people who started with low salaries and developed in the center are by now at the intermediate level. The pyramid naturally grows narrower and there are always those who get stuck. In any event, since I took over, the salaries of the senior officials above NIS 20,000 a month have been lowered. In fact, in the past eight years these senior personnel - including myself - have not received any wage hikes, and recently we cut the wages of all the employees. At the beginning of 2009 we remained with only two employees who earn more than NIS 20,000 a month: one Ph.D., who is about 65 and has been with the center from its first day, and the other a Ph.D. and director general." W