Axios from Tel Aviv

Relations between the new Israeli government and the Palestinian Authority have shifted substantially in recent weeks, with Israeli officials going so far as to call it “a renaissance."

Why it matters: During Benjamin Netanyahu's 12-year tenure as prime minister, relations deteriorated to the point where there was almost no contact other than security coordination.

State of play: In the last month, Palestinian President Mahmoud Abbas has held four phone calls with senior Israeli officials — two with President Isaac Herzog, one with Defense Minister Benny Gantz and one with Public Security Minister Omer Bar Lev.

• Abbas had last spoken to an Israeli minister in July 2017, when Netanyahu called him over a crisis at the Temple Mount in Jerusalem.
• Meetings took place today between the Palestinian and Israeli ministers of health and environmental protection, the first such meetings in several years.

Driving the news: The Israeli government also announced today that it had agreed to a request by the Palestinian Authority to issue 15,000 new permits for Palestinians to work in Israel.

Between the lines: One reason for the shift is the participation of left-wing parties in the coalition. Minister for Regional Cooperation Issawi Frej, a Palestinian Israeli, is the driving force behind it.

• Bennett, a right-wing hardliner, hasn't spoken to Abbas himself, but he also hasn't objected to the renewal of dialogue.
• He supports cooperation with the PA on economic and civilian issues, but he opposes any new political negotiations.

What they're saying:

• “The political echelon signals it is much more interested in moving things forward with the Palestinians, and after many years, talking to Abbas is legitimate again," an Israeli official who deals with Israeli-Palestinian relations told me.
• Palestinian Civilian Affairs Minister Hussein al-Sheikh said in an interview with The Media Line last week that he hopes the new Israeli government will change the atmosphere and restore confidence between the Palestinians and the Israelis.
• “My personal opinion is that going forward, it could not be worse than the period of Netanyahu’s rule in Israel," he said.

What’s next: With the PA in a deep economic crisis, the governments are negotiating a package of confidence-building measures that will improve the atmosphere and help the Palestinian economy, Israeli officials say.

• Yes, but: There will be a big test on Aug. 1. Israel is expected to deduct $30 million from the tax revenues it collects on behalf of the Palestinians over the stipends paid by the PA to Palestinian prisoners convicted of terror attacks against Israelis.
• The government is obligated to do so by Israeli law, and the step could derail the progress made in recent weeks.

The Israeli government is weighing rejoining the United Nations Educational, Scientific and Cultural Organization, which Israel left in 2019 together with the U.S., Israeli officials tell me.

Why it matters: An Israeli return to UNESCO, which promotes the preservation of cultural sites around the world and holds educational programs, could help pave the way for the Biden administration to rejoin the organization — and help fend off criticism from Republicans.

The backstory: Several weeks ago, Foreign Minister Yair Lapid asked his ministry to review the matter.

• Lapid's view, the officials say, was that Israel's withdrawal from international forums over claims they were biased only made Israeli foreign policy less effective.

Behind the scenes: Around the same time, Lapid received a phone call from the president of the World Jewish Congress, Ronald Lauder, who urged him to rejoin UNESCO, per sources familiar with the matter.

Flashback: In October 2017, then-Secretary of State Rex Tillerson announced the U.S. would leave UNESCO over funding issues, unmet U.S. demands for reforms and bias against Israel.

• Israel was surprised by the decision but moved to follow suit, with that decision coming into force in January 2019. Israel had also been very critical of UNESCO, mainly over resolutions that the government said minimized the Jewish connection to Jerusalem.
• This was the second time the U.S. left UNESCO. The Reagan administration withdrew in the 1980s, and the George W. Bush administration rejoined two decades later.
• In 2011, the U.S. froze funding for UNESCO — which amounted to one-quarter of the organization's budget — after a majority of member states recognized Palestine as a state and allowed it to join as a full member. As a result of the unpaid dues, the U.S. voting rights in UNESCO were revoked.

The big picture: The U.S. retreat paved the way for China to have much more influence over UNESCO's decisions. The Chinese even want to move some of UNESCO’s departments to Shanghai.

Between the lines: Rejoining UNESCO would be politically sensitive in both the U.S. and Israel.

• In 2016, after UNESCO passed a Palestinian-led resolution that questioned the Jewish connection to the Western Wall in Jerusalem, then-Minister of Education Naftali Bennett decided to halt all contacts between his ministry and the UN agency. Bennett is now prime minister.
• In order to rejoin UNESCO, the U.S. would have to pay around $500 million in membership dues, which would require action by Congress. Many members of Congress, including some Democrats, are highly critical of UNESCO over alleged anti-Israel bias.
• A law passed by Congress in the 1990s bans U.S. funding for any UN agency that accepts Palestine as a full member state.

What’s next: The Foreign Ministry's International Organizations Department has been discussing the issue of a return to UNESCO and is expected to present its recommendation to Lapid soon, the Israeli officials say.

• A spokesperson for Lapid told me the Israeli government will coordinate any possible decision about UNESCO with the Biden administration.

Amid growing domestic criticism, Abbas is planning to reshuffle the Palestinian government and replace a number of ambassadors and governors, writes Abdel Raouf Arnaout, political correspondent for Al-Ayyam newspaper.

The intrigue: A senior Palestinian official told me the changes would include appointing a new minister of the interior and a new minister of endowments, the officials responsible for the security forces and for religious affairs and Muslim holy sites, respectively.

• Prime Minister Mohammad Shtayyeh held both roles himself for several years.
• The Palestinian official, who asked not to be named, added that there will be a limited number of other changes in the Cabinet, all to be announced in the coming days.

Driving the news: The PA faced large protests after the death last month of Palestinian political activist Nizar Banat following his arrest by security forces.

• The PA also faces criticism over its response to the recent war in Gaza, its decision to reject a vaccine deal with Israel, and Abbas' decision to delay what would have been the first legislative elections in 15 years in May.

There is also international pressure to move toward elections.

• A European diplomat told me the EU has asked Abbas to set an approximate date to hold legislative and presidential elections and wants “a clear signal and commitment that the elections have been postponed and not canceled."

Behind the scenes: According to another Palestinian official, the Hamas movement rejected a proposal to form a consensus government that could be acceptable to the international community, and instead it proposed a two-year transitional council.

• There are major unresolved differences between Hamas and Abbas' Fatah party over the reconstruction of Gaza.

What’s next: In the midst of all this, the PA is facing a financial crunch that may render it unable to pay its employees' salaries in the coming months.

• Palestinian, Israeli and U.S. officials have been working on initiatives to help support the PA.

With the new Iranian government about to take office, U.S. officials are stressing that Iran won't win more concessions by attempting to renegotiate the understandings reached in Vienna.

State of play: The U.S. hoped an agreement on returning to the 2015 nuclear deal would be reached before hardliner Ebrahim Raisi took office. But after six rounds of talks, the negotiations were suspended by the Iranians until the new government can form its own negotiating team.

Driving the news: Raisi will be inaugurated next week and start to fill out his government.

• Ali Bagheri-Kani, a conservative diplomat and leading critic of the 2015 deal, is reportedly the leading candidate to serve as foreign minister. If appointed, he will then form the new negotiating team.

There have recently been conflicting statements from Tehran about the nuclear talks.

• Members of the outgoing government have claimed a draft deal that meets Iran's objectives was already on the table, while members of the incoming team have said no such deal exists and the understandings that have been reached are insufficient.
• Recent press reports indicate Raisi intends to take a tougher line than his predecessor, Hassan Rouhani.

The other side: The Biden administration is monitoring the public debate in Iran but hasn't heard anything definitive about the incoming government's position, a senior U.S. official involved in the talks tells me.

• The official stressed that the window for reaching a deal won't be open for much longer, and the Iranians should return to the table quickly.
• “We also hope they don’t think they will get more than the previous government because they are tougher," the official said.
• "It’s not about being tougher, it's about fully implementing the terms of the 2015 nuclear deal. The U.S. position will not change, and the Iranians will not be able to reinvent the nuclear deal or be in a situation where they do less and we do more."

The official said there could be a point in the next few months at which it will no longer be worth returning to the 2015 deal because Iran's nuclear program will have advanced to the point where the limitations under the 2015 deal won't produce the intended one year “breakout time” to produce enough enriched uranium for a bomb.

“There is a deal on the table, and if the Iranians want to lift sanctions they have a way to do it."

The latest: In his last meeting with Rouhani's outgoing government on Wednesday, Supreme Leader Ayatollah Ali Khamenei gave an ominous signal about the future of nuclear talks.

• He said Raisi's government should learn from Rouhani's and "utterly avoid tying their plans to negotiations with the West, for they’ll certainly fail."

What to watch: Ahead of Raisi's inauguration, several protests sparked by water shortages and power outages have erupted in Iran, mainly in Khuzestan province around water shortages. Protests also took place in Tehran and other cities, but the number of protesters was modest.

• The protests reinforced that Iran's economy has deteriorated under the weight of sanctions and the pandemic that the government is having trouble providing basic services.

The White House raised concerns with Israeli officials about reports that spyware from Israeli firm NSO was used to spy on journalists, human rights activists and opposition figures in several countries around the world, Israeli officials tell me.

Why it matters: The Israeli government gave NSO export licenses to sell its Pegasus spyware to several countries. Media reports about abuse of the technology have already created uproar in Congress and in several European countries, and Israel fears a possible diplomatic crisis.

The backstory: An international consortium of investigative journalists reported two weeks ago that Pegasus — designed to track terrorists and criminals — had become a valuable tool for governments to spy on journalists and critics.

• Among the countries listed in the reports as NSO clients are Hungary, India, Mexico, Morocco and Saudi Arabia.

State of play: A special team formed by the Israeli government to manage the fallout has been discussing the reports with NSO while also performing damage control over the diplomatic, security and legal ramifications.

Behind the scenes: President Biden’s top Middle East adviser, Brett McGurk, met last Thursday at the White House with Zohar Palti, a senior Israeli Ministry of Defense official, and asked him what the Israeli government was doing about the NSO issue, the Israeli officials say.

• Palti told McGurk Israel was taking the issue very seriously and was in the process of examining what exactly happened, whether there was a violation of the export license and if there is a need to change Israeli policy on the exportation of offensive cyber technology.
• The White House declined to comment for this story.

Driving the news: The NSO crisis already created diplomatic tensions for Israel with France after press reports that Morocco used Pegasus to hack President Emmanuel Macron’s cellphone.

• Last Thursday, Macron called Bennett and asked for clarifications, as was first reported by Dana Weiss of Israel’s Channel 12 News.
• Bennett told Macron this was an inheritance from the Netanyahu government and he was in the process of investigating the issue.
• On Wednesday, Gantz arrived in Paris on a pre-planned trip and briefed the French minister of defense about the investigation into Pegasus.

What’s next: Four Democratic members of the U.S. Congress — Tom Malinowski, Katie Porter, Anna Eshoo and Joaquin Castro — are pressing the Biden administration to take action against NSO and consider imposing sanctions on the company for human rights violations.

• They said the U.S. should consider blacklisting NSO, as it has done for Chinese tech companies like Huawei.