Speaking at the G8 summit in Canada on 26 June, two days after his long-awaited policy statement on the Middle East, Bush said: ‘The people that are going to be asked to put up money will judge whether the reforms are sufficient . I can assure you that we won’t be putting money into a society which is not transparent and [is] corrupt. And I suspect other countries won’t either.’

The 24 June Bush statement, drafted after weeks of intensive discussions with top foreign policy aides and Arab and Israeli leaders, puts Palestinian reform and the election of a new leadership at the top of the agenda. Once these elements have been achieved, he said rapid progress could be made towards the creation of a Palestinian state, even if some aspects of the state, notably borders, would remain provisional.

Official Arab reaction to the Bush speech has been largely supportive, even though Arab officials, as well as a number of European states, have criticised Bush’s implicit prejudgement of the results of elections.

Palestinian leader Yasser Arafat indicated on 26 January that he intends to stand in the presidential elections, set for mid January 2003. As yet no other Palestinian figure has come forward.

Saudi Arabian Foreign Affairs Minister Prince Saud al-Faisal said on 26 June that he hoped the Bush initiative would be successful, but he added that the Palestinians’ choice of leader should be respected. ‘Only the Palestinians can choose their own leaders,’ he said. ‘Whoever they choose should be acceptable to the international community.’

Egyptian President Mubarak noted on 25 June that Bush had not explicitly called for Arafat’s removal, and he pledged to help in the task of reforming Palestinian institutions. However, Bush’s remarks at the G8 summit reinforced the message that Arafat’s removal is effectively a precondition for a political settlement.

Arafat himself has officially welcomed Bush’s proposals, and the Palestinian Authority on 26 June published a long list of reforms it plans to institute. These include strengthening the role of the legislative assembly, ensuring the independence of the judiciary and setting up a unified Finance Ministry account for all revenues and grants to ensure transparency.

However, Bush made clear in his speech that the US would not be impressed by ‘cosmetic changes or a veiled attempt to preserve the status quo’. The bottom line from Washington’s point of view is that Arafat must go.

It has been clear in recent months that the US and possibly some of the Arab states most closely involved have been addressing the question of finding an alternative to Arafat. The two most senior Palestinian political figures after Arafat are his deputy Mahmoud Abbas (Abu Mazen) and legislative assembly speaker Ahmed Qorei (Abu Alaa). Abu Mazen is unlikely to stand against Arafat. However, Abu Alaa has shown a more independent spirit, and has been the only senior Palestinian official openly to attack the Bush proposals.

The US is reported to have been cultivating Mohamed Dahlan, the 41-year-old head of preventive security in the Gaza Strip, as a potential leader. Another prominent figure from the younger generation who would be guaranteed strong popular support is Marwan Barghouti, 42, the head of the Fatah movement in the West Bank. Barghouti was arrested by Israeli security forces on 13 April and is being interrogated on suspicion of involvement in attacks on Israelis.

However, as long as Arafat remains determined to carry on, it is clear that any move from inside the Palestinian establishment to stand against him would be seen as divisive and pandering to US and Israeli wishes. The main forces outside the establishment are the Islamist groups, whose support has risen as the fortunes of the Palestinian Authority have declined. Deadlock over the election of a new US-approved Palestinian leadership could help the Islamist groups make further gains.

The Bush statement made no reference to Israel’s present military campaign in the West Bank, which has entailed the reoccupation of six of the seven major towns notionally under Palestinian control. Israeli officials warmly welcomed the US statement, although some right-wing politicians questioned Bush’s references to the need to create a Palestinian state.