Rising Support for Palestinian Statehood, But Expectations for Israel to Continue Gaza War

• Announcements by the United Kingdom, Canada, Australia, France and other countries last week to officially recognise a Palestinian state will deepen Israel’s isolation and may, over the longer term, lead to international legal measures or sanctions against the country by individual states. However, Fitch does not expect that the announcements will have any substantive effect in pushing Israel to end the war in Gaza, curb settlement activity in the West Bank, or adopt a serious pathway to a two-state solution.
• This will likely remain the case even if Israeli Prime Minister Benjamin Netanyahu and his far-right coalition partners lose power in elections due to be held by October 2026. In addition, Israel’s role as a key security partner for European states which are seeking to bolster their defence capabilities will limit how forcefully they are willing to press Israel on a two-state solution.
• Nonetheless, expanded diplomatic recognition of Palestine will deepen Israel’s dependence on the U.S. as a source of diplomatic cover and military support. Netanyahu met with U.S. President Trump on September 29, 2025, and unveiled a proposal to end the war in Gaza that they trumpeted as a giant step toward peace in the Middle East, and they demanded that Hamas accept it.
• But it appeared improbable that Hamas would agree to their demands. Among the proposals are for the militant group to disarm, accept considerably less than a full Israeli withdrawal from the territory and play no role in governing Gaza in the future. Hamas said before and after the plan was released that it had not been consulted on it or received a copy. Later, at the White House, Trump warned that if the group did not agree, Israel would have his “full backing” to eliminate Hamas as a threat.
• However, Trump stated on September 25, 2025, that he would not allow Israel to annex the West Bank. Such a move would be extremely negative for the Abraham Accords, his signature diplomatic achievement, and the UAE has explicitly said that the expansion of Israeli settlements is a ‘red line’.
• If Israel goes ahead with annexing the West Bank, Fitch expects at least a downgrading of diplomatic ties between the UAE and Israel, as well as a further severe setback to efforts to normalise relations between Saudi Arabia and Israel.

(Sources: BMI, A Fitch Solutions Company and NY Times)