The way out of the war in Gaza will shape Israel-Egypt relations for years

March 26, 2024, marked the 45th anniversary of the signing of the peace agreement between Israel and Egypt. The unforgettable ceremony on the White House lawn on that day in 1979 signified from Egyptian President Anwar el-Sadat’s point of view both a strategic achievement and a demonstration of rare leadership. In turn, with this accord, Prime Minister Menachem Begin’s government could take credit for the State of Israel’s greatest political achievement since its establishment, even though the peace agreement was not an Israeli initiative but rather something forced upon it following the Yom Kippur War. Over the years, this bilateral settlement has proven its stability and resilience, despite a series of crucial challenges, mainly caused by Israeli military activities toward third parties, such as Hamas and Hezbollah. The Begin-Sadat legacy became an essential gift to the next generations. Yet that legacy, and the benefits it brings, is now in jeopardy.

Egypt and the Gaza war: Three major threats

During the past few months, clouds have again begun to darken over the two countries’ relations. Israel’s continuous military campaign in the Gaza Strip has severely undermined Egypt’s economic and national security. Egyptian officials have identified three immediate threats to their country that are generated by the Gaza war: refugees, internal instability, and sharp reductions in state revenues.

When Israeli troops invaded northern Gaza, they forced around 1 million people — almost half of the strip’s population — to abandon their homes and flee southward, in particular to the city of Rafah. However, innocent civilians are not alone there: hiding and operating among them are Palestinian militants, whom the Israel Defense Forces (IDF) continue to vigorously pursue. So far, the Israelis have not entered Rafah in force, deterred by heavy pressure from the United States and the wider international community. Washington and other capitals are warning Prime Minister Benjamin Netanyahu’s government against carrying out a military operation in an area with a densely packed civilian population because of its likely bloody consequences.

The Israeli leadership, nevertheless, continues to publicly state its determination to launch an incursion of Rafah — even after a pause in fighting, should a temporary cease-fire be reached — in order to eliminate Hamas’ militant wing. But here the Egyptians have raised a sincere concern. A huge number of displaced Palestinians escaping Rafah might try to cross the border into Egyptian Sinai in search of sanctuary. And given how many Gazans have lost their homes in the war, countless members of this mass refugee wave may see no other alternative than to try to establish a permanent home in the Sinai.

The creation of a new refugee problem is currently not the only threat to Cairo. An Israeli invasion of Rafah, particularly if it results in a high level of civilian casualties, might cause an eruption of internal protests against Egyptian President Abdel-Fattah el-Sisi’s regime. Given Egypt’s already fragile economic situation and rapidly climbing inflation, a Rafah tragedy could be the spark Sisi has sought to avoid for more than a decade.

Finally, when it comes to the economy, Egypt has already paid the price in cash for Israel’s war. Since the Houthis in Yemen have begun attacking ostensibly Israeli-linked cargo ships in the Red Sea — as they have claimed, in solidarity with Palestine — maritime passage through the Suez Canal has decreased significantly. In a speech on Feb. 19, Sisi revealed that revenues from the canal had dropped 40-50 percent, since January 2024. In contrast, during the 2022-23 fiscal year, Suez Canal revenues reached a record $9.4 billion.

Israel and the “day after” the war: Will history repeat itself?

For at least two years leading up to the massacre of Oct. 7, 2023, Egyptians felt that the Israelis were ignoring or dismissing their concerns. This situation began with the May 2021 Gaza crisis, when tensions started to seep back into the bilateral relationship. Notably, the trend coincided with a rise in political instability inside Israel. Cairo likely developed the impression — even if its officials never stated so explicitly — that there was no one in Jerusalem with whom to discuss strategic challenges and dangers related to the Palestine issue. Today, the lines between the two capitals are busy as usual, and both sides regularly convey messages of concern to one another; but this exchange hardly bears fruit when it comes to addressing Egypt's most sensitive security interests.

Cairo presumably worries that Israel is steadily marching toward the worst of all scenarios in the Gaza Strip, one that will directly impact Egypt itself. According to this script, even if the IDF is successful in eliminating Hamas’ military arm, the al-Qassam Brigades, and the group’s governing apparatus, no stable government will be established in its stead, thus drawing the IDF into a long-term struggle against a guerilla insurgency. Alternatively, it is possible that even more extremist factions will take the lead.

Much of the international community officially considers the Palestinian Authority (PA) the sovereign authority over the Gaza Strip. Hamas kicked it out of Gaza in a military coup in 2007; and since then, the PA only officially retains rule in the West Bank. Its return to Gaza goes against Netanyahu’s “divide and rule” policy regarding the two regions of Palestinian land: For more than 10 years, he has persistently weakened the PA to prevent it from proving itself as a significant political factor, and, therefore, the latter has been unable to force Israel to give concessions. The Israeli right wing, Netanyahu’s base, sees the PA as a terrorism-backed entity, and so it opposes giving it any sort of prize. Egypt, on the other hand, has made multiple attempts to advance intra-Palestinian reunification.

The solution Israel is currently proposing likely seems to Egypt to be both naïve and short sighted. The IDF is trying to form relationships with local dignitaries throughout the Gaza Strip, mostly heads of large wealthy families, who could form the basis for a civil administration that would replace the Hamas government. History appears to be repeating itself. In the late 1970s, Israel encouraged the establishment of a Palestinian leadership based on local dignitaries in the West Bank. That network, named “The Village Leagues,” was intended to minimize the Palestinian Liberation Organization’s (PLO) influence and weaken Jordanian claims regarding Palestine. The experiment met with vocal opposition both at home and abroad and, therefore, failed. Today, Egyptians worry that the aforementioned, similar plan for Gaza is not feasible either and will pave the way for further chaos. Even if it were to succeed, this initiative would present its own challenges for Cairo because of the missed opportunity of connecting both Palestinian regions in a unified state. The “divide and rule” principle will again, in a different form, be preserved.

One of the more dangerous scenarios for the day after the war in Gaza ends is the region’s possible descent into chaos, as happened in Iraq. In 2003, after the invading American military dismantled Saddam Hussein’s armed forces and all government ministries practically overnight, Iraqi officers, soldiers, and government clerks found themselves jobless, leaderless, and excluded from any positions of authority. The humiliation caused the offended officers and soldiers to unite under a counter-revolutionary framework and wage war on the foreign conqueror. That unity paved the way for the rise of al-Qaeda and Islamic State in Iraq, in addition to other militant jihadi factions.

The desired Egyptian solution: Security, investments, society

Instability in the Gaza Strip might engender many dangers Egypt has warned about for years: anarchy, fanatic ideologies, and cross-border terrorism. In terms of security, this reality could promote gang rule, the infiltration of ISIS and other jihadi organizations, as well as increased Iranian influence from afar.

Rehabilitating and rebuilding Gaza will necessitate a new “Marshall Plan.” President Sisi, in a speech on March 9, assessed that this project would require at least $90 billion. There is no way to raise that sum — nor half or even a third of it — without the involvement of Western investors and the Gulf states. Saudi Arabia, the United Arab Emirates, and Qatar (along with Egypt, Jordan, France, and the US) are ready to invest in this huge project, as long as this will be the last war. They expect guarantees that within the coming few years, Israel will not lead a new military campaign against Gaza. In order for this to happen, the strip must be rebuilt and stabilized in the financial, political, and security arenas, and an Israeli-Palestinian end-of-conflict agreement will need to be reached in the longer term. A solution that brings true stability will require Israel to take the lead and practice strategic and holistic policymaking.

Egypt’s recommendation to Israel these days is to avoid completely destroying Hamas, arguing that it is better for the group to remain battered and weakened but still left somewhat in charge to be able to prevent Gaza from collapsing into anarchy. Ideally, Egypt wants Israel to transfer political and administrative power over Gaza to the PA, while Israeli forces provide security for the strip. The PA is fragile; but if it returns to the Gaza Strip under Israel’s consent and undergoes reforms, it will likely enjoy widespread international and Arab support. This is how Egypt sees the future in Gaza: With the PA as the sovereign power and Hamas as a minor partner, Gaza has the chance to climb out of its grave.

Foreign investments are critical to funding this major project. To succeed, the scheme will need to guarantee Israel’s security. The US administration is crucial to facilitating the initiative and assuming the role of enforcer when needed. All parties in the region, including Israel, are fully aware that this plan can pave the way for a return to the peace process and talks regarding a two-state solution. Egypt believes that is the best way to bring stability to Gaza and the entire Middle East, and it makes the case that if Israel wants to ensure peace and security for itself, it should adopt the same view. Egypt has been trying to advance that consensus by mediating cease-fire and hostage-release talks and by playing a key role in sending humanitarian aid into Gaza.

Rebuilding governance and security in Gaza is essential, but the war-torn territory’s economy and society will need to be built back up from scratch too. Around 70% of Gaza’s infrastructure has been demolished, the water system has been destroyed, and most major and minor roads have been bombed. Hospitals and clinics have been damaged, doctors and health personnel have lost their lives. Countless children have experienced real trauma, fleeing their homes, witnessing widespread death and destruction, and losing parents or relatives. These children’s emotional and material neglect could create an entire generation of scarred youth much more vulnerable to involvement in crime and terror.

One way or another, a new Gaza Strip will eventually be reborn. But will it remain mired in problems and neglect, or will its population finally have an opportunity to pursue peace, prosperity, and self-determination? Israel holds a central position in deciding on either outcome. Its friends in Cairo expect it to behave with wisdom, seriousness, and moderation. The path Israel chooses will shape its relations with Egypt for years to come.

Jacky Hugi is an Israeli journalist, serving as the Arab affairs editor and host at Galei Tzahal radio and as a columnist at the daily newspaper Maariv.

Photo by Ahmad Salem/Bloomberg via Getty Images