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Israel is falling apart, MK Avishay Braverman lamented at the Institute for National Security Studies' annual State of the Nation conference. Our education system, once Israel's pride, is in the dumps; public corruption is rampant; our universities are starving to death; and the income gap is almost as bad as Brazil's.

Braverman's lamentations reflect a general malaise that pervades Israel's public mood. For the first time in Israel's history, skepticism about its viability, worries about its public norms and questions about whether it will still exist in 50 years creep through society and the media. This is puzzling: Israel was in much greater external danger in the past, and its economic and military resources are more developed today than ever before.

So why is Israel incapable of tackling its social problems? Why don't the corruption scandals, the terrible state of our education system or the deadlock of our geopolitical situation bring people out to the streets? After Sabra and Chatila, the Israeli public was galvanized; hundreds of thousands went to demonstrate on the square in which Yitzhak Rabin was to be murdered 13 years later. The Kahan commission, appointed under the pressure of public protest, ruled that Ariel Sharon was unfit to ever serve as defense minister.

In the past, Israel was sure of its moral rightness. The current feeling that Israeli society is crumbling reflects something essentially new: Israel is no longer sure of its moral foundation.

The paralysis reflects a pervasive sense of guilt about Israel's ongoing behavior. On the one hand, Israel is making a great effort to be a decent, democratic and creative society. On the other hand, in the West Bank, Israel continues building double road systems, expropriating Palestinian lands, cutting Palestinian villages in two with the security wall, and preventing Palestinian women from getting to hospitals to give birth.

In this respect, Israel's collective psyche resembles that of a post-traumatic split personality. Men who have gone through trauma, often related to military service, are frequently able to maintain a facade of respectability throughout the day, but are prone to seemingly inexplicable bursts of domestic violence when they come home.

Israel's collective psyche functions similarly: From 1948, shortly after the Holocaust, to 1967, Israel's existence was truly threatened. The country depended on nothing but its military valor, and had few staunch allies. As if we have never woken up from this past, we continue to act as though Israel were still a small, isolated Yishuv threatened by immediate extinction, and as though every action were justified because we must defend our lives.

Israel, as a society and as a country, accepts and respects the moral principle of universal human rights. Deep down, we all know that causing suffering to millions of Palestinians in the West Bank because of the settlements that are deep inside the territories is morally indefensible. And yet we let it happen: We go about our business trying to numb our conscience by saying, "There is no partner" or "The roadblocks are needed to prevent terror attacks" or "Look what happened when we left Gaza! We left, and all we get is Qassam attacks!"

While the latter point has some validity, all polls show that most Israelis believe the settlements deep inside the West Bank jeopardize Israel's security rather than increasing it - and the military experts agree. And these settlements are the reason for the overwhelming majority of the roadblocks and land expropriations that make the Palestinians' lives impossible and have led most Palestinians to believe that Israel doesn't really want peace.

There is only one way to stop the general malaise and curb the fear that Israel is built on quicksand. It is to recover the moral backbone that has been damaged by splitting the Israeli psyche between a decent part that believes in democracy and human rights and another part that numbly, automatically, continues violating all the norms in which we all believe. We need to recover the ability to do some genuine soul-searching, to become accountable for our actions again.

I predict the paralysis will end once Israel gathers the political will to tell the settlers: "We understand your pain and rage, but we made a terrible mistake in sending you into the West Bank. Israel's moral and political survival depends on your coming back home."

Only when we wake up in the morning knowing that there are no more indefensible horrors to repress, no more young soldiers sent to do a job that will harm them for life, and no more Palestinian women losing babies because they cannot arrive at a hospital will we be able to tackle the huge problems inside our society.

The Israeli psyche needs to be liberated from unbearable guilt if we are to recover our resilience and our belief in our right to be here. Only then will the creativity and entrepreneurship that we see in Israel's businesses, R&D and flourishing art scene be liberated to create the society we all want.

Prof. Carlo Strenger, a philosopher and psychoanalyst, teaches at the psychology department of Tel Aviv University and is a member of the World Federation of Scientists' permanent monitoring panel on terrorism.