Top Iraqi Officials Growing Restless
Vice President Has Tried to Quit; Shiite Leaders in Disarray
By Joshua Partlow and Robin Wright
Washington Post Foreign Service
Thursday, June 21, 2007; A01

BAGHDAD, June 20 -- Iraqi Vice President Adel Abdul Mahdi, a senior Shiite politician often mentioned as a potential prime minister, tendered his resignation last week in a move that reflects deepening frustration inside the Iraqi government with Prime Minister Nouri al-Maliki.

Other senior Iraqi officials have considered resigning in recent weeks over the failures of their government to make progress after more than a year in power, according to Iraqi and U.S. officials.

Abdul Mahdi said he was provoked by the second bombing of the Shiite shrine in Samarra on June 13, in which he said corrupt police abetted Sunni insurgents. "The two minarets were as important to us as September 11, and we should be accountable to the people," Abdul Mahdi said in a telephone interview Wednesday. "We should be doing more to move in a positive direction -- on corruption, accountability and defending the important sites."

Abdul Mahdi's attempted resignation, which has been held at bay by promises of action, is also a sign of growing disarray among the Shiites who lead the government.

As the U.S. military attempts to show the success this summer of a security plan to pacify the capital and other parts of the country, Iraq's prime minister has also entered what many officials say is a crucial test period for his government. A growing number of Iraqi leaders, including several fellow Shiites, are expressing discontent with Maliki's ability to stanch the bloodshed, contain civil war, make progress on economic fronts and share power with the minority Sunnis.

"It's all about what is perceived to be Maliki's centralizing control with the inner circles of the Dawa party and also not taking on the country's tough challenges," said a senior Iraqi politician, referring to the prime minister's party. The politician said he had read Abdul Mahdi's resignation letter but would not speak for attribution. "There is growing frustration about the leadership of this country."

The prime minister's advisers insist that Maliki remains committed to national unity, that his position is secure and that calls for his removal threaten to undermine the fledgling democratic experiment in Iraq. The responsibility for any failures of this government, aides say, would rest equally among the rival factions and not just on the prime minister.

"We have noticed, since the start of the Baghdad security operation, people have opened fire on the Maliki government," said Yaseen Majeed, a Maliki spokesman. "Whoever wants to change the government should go to parliament, and follow the constitutional, democratic methods, by forming a new bloc, if they are true believers in democracy. Otherwise, we see this propaganda campaign as an attempt to discredit the Maliki government, and we reject that."

Maliki's political benefactor, radical cleric Moqtada al-Sadr, has again withdrawn his followers in parliament in the wake of the Samarra bombing. The leader of Sadr's legislative bloc, Nasar al-Rubaie, said that "the Maliki government will surely collapse if the situation continues as it is right now."

Humam Hamoudi, a senior leader of another powerful Shiite faction, the Supreme Islamic Council in Iraq, said that "these two months will give a strong indication on the issue of his continuation, or whether we go into the crisis of looking for another prime minister."

"Everybody wants him to succeed," Hamoudi added. "Rather, I should say, many, not everybody."

Maliki's government has failed so far to push through major laws demanded by the U.S. government as a means of promoting national reconciliation. These so-called benchmarks include laws governing oil resources and the reintegration of former members of Saddam Hussein's Baath Party into the government, and constitutional amendments to afford more influence to Sunnis.

While the official U.S. position remains supportive of Maliki, some American military commanders question the Iraqi government's commitment to evenhanded enforcement in security operations and worry that decisions to capture or release certain suspects are made with sectarian motives in mind.

The turmoil within Shiite political circles is exacerbated by the deteriorating health of Abdul Aziz al-Hakim, leader of the Islamic Council. He has sought treatment in Houston, and now Tehran, for lung cancer, and several U.S. and Iraqi officials said his condition is grave. While the Islamic Council has several prominent members, including Abdul Mahdi and Hamoudi, many U.S. and Iraqi officials expect that Hakim's son, Ammar al-Hakim, will succeed his father.

"A highly complicated political landscape is about to get more complicated," said a U.S. official who tracks Shiite politics. The Islamic Council "is on top now, but other groups are contending for greater political power," he added.

Earlier this year, the Fadhila Party staged the first direct challenge to Shiite unity when it withdrew its 15 members from the United Iraqi Alliance, the ruling Shiite coalition in the 275-seat parliament. Some observers see the Shiite religious leadership in Najaf as one of the last bonds holding together an increasingly fractious political grouping.

Sadr and Hakim are powerful rivals who command large militias, and Sadr might be attempting to expand his disparate following at a time of transition for the Islamic Council. Sadr is known as a fierce nationalist, while Hakim has pushed to create a semiautonomous region of largely Shiite provinces in southern Iraq. Sadrists tend to see the Islamic Council as an Iranian proxy, although U.S. and Iraqi officials say they believe Iran supports Sadr's militia as well.

Members of Sadr's militia, the Mahdi Army, have clashed with security forces linked to the Islamic Council in recent days in the southern city of Nasiriyah. The city's police force consists largely of members of the Badr Organization, an arm of the Islamic Council. Ahmed al-Shaibani, a spokesman for Sadr in Najaf, said 11 Mahdi Army fighters and 40 police officers and soldiers had been killed in the clashes.

Such violence is not without precedent. Last October, dozens were killed in similar fighting between the Mahdi Army and policemen affiliated with the Badr Organization in the southern city of Amarah.

"This is the genesis or manifestation of the open rift in the Shiite camp," said the senior Iraqi politician who had read Abdul Mahdi's letter.

Maliki's tenuous position also derives from the relative weakness of his Dawa party, which does not command the devoted following among average citizens that Sadr and Hakim's organizations do. As violence has increased and basic services have declined over the years, the central government -- and with it Maliki's leadership -- has grown more irrelevant to such outlying regions as the Kurdish north and the Shiite south, and among the Sunni tribes in Anbar province.

"Dawa has no popular traction or appeal or footprint," said a senior Iraqi official who also spoke on condition of anonymity. "We really need to have new elections to know who stands where."

One of Abdul Mahdi's demands of Maliki is that he act on long-standing commitments to include the president and two vice presidents in more of the decision-making, according to the politician who read the vice president's letter. The leadership of the United Iraqi Alliance has also met with Maliki's circle and has been critical of its tight hold on decision-making, the politician added.

Khudair al-Khuzai, the education minister and a fellow member of the Dawa party, called Maliki's performance "wonderful" under the circumstances.

"If any government faced even one of the pressures he is facing, it wouldn't be able to continue," he said. "The Shiites won't find anyone better than Maliki, and the next elections will prove that."

Wright reported from Washington. Correspondent John Ward Anderson in Baghdad contributed to this report.

Has Sarbanes-Oxley Harmed Entrepreneurs?
By Alex J. Pollock
Posted: Wednesday, June 20, 2007

SPEECHES
Hudson Institute (Washington)
Publication Date: May 24, 2007


Resident Fellow
Alex J. Pollock

As Professor Geddes's paper says, Sarbanes-Oxley was intended to protect investors. The theory was that having "lost confidence," they were crying out for political action. We know Sarbanes-Oxley was very popular at the time among politicians. The Senate vote was 97 to nothing, and in the House there were only three votes against. So it's clear what the politicians thought.

It's a very good idea to measure, as this paper does, what investors in the aggregate were thinking, and in particular, what they were thinking about small firms. As the paper points out, these firms often compete on flexibility, as opposed to large scale operations. So as the investors in stocks in general, and in small stocks in particular, were watching the politicians pass Sarbanes-Oxley, were they saying to themselves, "Oh boy, I'm going to be better protected," so bid up the price of the stocks, and of small stocks in particular? Or were they saying, "Oh no, it looks like this will unleash a host of cost and bureaucracy, which will reduce the value of my investment?"

The paper is pretty clear that it was the latter. The market didn't like political events that made Sarbanes-Oxley more likely, and small firms were even more negatively affected in this investor behavior than large firms. So, the second view, "Oh no, looks like I'm going to get a lot of cost and bureaucracy," is consistent with the observed stock price behavior.

Consider a fundamental proposition in business economics: if the costs of Sarbanes-Oxley are greater than its benefits, then, by definition, it is bad for investors. Even if the costs are less than the benefits, but the costs are simply a lot greater than they need to be, that’s bad for investors also.

We now know, after the fact, with five years experience, that Sarbanes-Oxley did indeed unleash a host of expense, paperwork and bureaucracy, and this disproportionately affects small firms. So it looks like the pessimistic ex-ante investor reactions the paper measures have turned out to be correct. It makes me think of a line from the Declaration of Independence which says, in the bill of particulars against King George III, "He has sent hither swarms of officers to harass the people and eat out their substance." You might say analogously about Sarbanes-Oxley that it has sent hither swarms of accountants to harass the people and eat out their substance.

After the fact, as I say, virtually everybody now agrees that Sarbanes-Oxley unintentionally created a lot of unproductive cost, paperwork and bureaucracy, and that something should be done about it. The SEC and the PCAOB are changing their regulations to try to reduce the excess costs. That's good. Some people think that regulatory change should be and would be enough. I think we should have reform legislation in addition to it. But that's another issue.

Consider a fundamental proposition in business economics: if the costs of Sarbanes-Oxley are greater than its benefits, then, by definition, it is bad for investors. Even if the costs are less than the benefits, but the costs are simply a lot greater than they need to be, that's bad for investors also. These statements are true no matter how sincere the attempt may have been to protect investors.

As the paper points out, there is also debate about the opportunity costs involved. These are very hard to measure, if not impossible, but they reflect distracting managements and boards as they shift their efforts from production and innovation to dealing with accountants, corporate governance consultants, checklists, the regulators, the SEC, and arguably from entrepreneurial risk-taking to risk-avoidance.

I don't know whether that's true or not: I tend to believe it is. A wonderful example of the mindset that goes along with Sarbanes-Oxley is contained in a statement by the Fannie Mae and Freddie Mac regulator, OFHEO, which recently has produced this biting criticism of Fannie Mae (and, by the way, I'm not a fan of Fannie Mae, in general). This biting OFHEO criticism is that Fannie "focused more on business innovation than on backend accounting."

Now there's a really terrible problem. Imagine a company that would focus more on business innovation than on backend accounting! This statement by OFHEO is deadpan. In writing it they were obviously not aware of how silly it sounds. It is an example of the sort of opportunity cost which is likely to be real.

Speaking of regulators, I want to take up the paper's idea of opaque industries, specifically banks and insurance companies. It's really hard to have any kind of an idea about what's really going on in a financial company by looking at its financial statements. Financial statements may tell you virtually nothing about its soundness. So, one social reaction to that is to put on a lot of regulation, so you have regulators and examiners running around inside these companies. For financial institutions, Sarbanes-Oxley is just more regulation on top of existing, already heavy regulation. A very common argument among smaller banks is, "Look, we've already got all this stuff, and now you just layered it on again."

On the question of whether accounting statements are opaque or transparent, one of the problems I have with the Sarbanes-Oxley era is that there is no simple way in which any financial statements can ever be "transparent." It is simply impossible in principle. In other words, "transparency" is an ill-conceived and unfortunate metaphor when applied to the whole set of problems that Sarbanes-Oxley attempted to address.

This is why: transparency suggests that you can actually see the object as it is, as if you were looking through a transparent window and seeing whatever is on the other side of the window, whereas financial statements are nothing like a window. Financial statements are a set of highly debatable, highly theoretical constructs, which take the data and form it in complicated ways, add in all kinds of guesses, estimates, and modeling parameters, which are themselves guesses and estimates, and produce a statement. So they can't ever be transparent. They're constructions. They are creations of the theories which result in the statements. I point this out as a reality check on what politicians may think they're doing in legislating for "transparent" or "accurate" accounting statements.

The Institute of Chartered Accounts in England and Wales has an excellent statement on this. They say, "Financial reporting attempts to measure inherently abstract and debatable concepts such as income and net assets and has particular features that make it, to some extent, inevitably subjective and arbitrary. It tries to portray a reality that's constantly changing, partially in response to changes in the measurement itself. Financial reporting measurement is therefore a matter of evolving conventions, not something to which there are immutably right and wrong answers." So, when we layer on a lot of costs and bureaucracy to try to create "transparency," there is always going to be some frustration.

I said before that virtually everybody agrees about the fact that the costs of Sarbanes-Oxley are large and excessive, but how about the benefits? The benefits, obviously, are debatable. We've seen in this paper an ex-ante judgment by investors that the costs were going to be greater than the benefits, but what would we say ex-post? This is very hard to measure, and debate continues.

Members of the Sarbanes-Oxley faith offer an exoneration of the Act: they say it increases "investor confidence." I leave aside the fact I think it's a bad idea to make investors confident, since I believe confident investors are stupid investors. However that may be, Sarbanes-Oxley makes investors confident, they say, and therefore "lowers the cost of capital." "Lowers the cost of capital" means it makes investors willing to pay more for securities.

Does Sarbanes-Oxley make investors willing to pay more for securities? In my mind, this sets up a natural experiment that we could do by amending Sarbanes-Oxley, particularly with respect to small companies. That is, simply make Section 404 of Sarbanes-Oxley voluntary, as opposed to mandatory.

I believe the argument that Arthur Levitt and others make, that if you do the Sarbanes-Oxley bureaucracy and certification of controls, and so on, it will lower your cost of capital--that is, make investors pay more for your shares--is actually a marvelous argument for having a voluntary system.

This would be a good step anyway, if you believe in market economies and market discipline. It would not be simply "exempting" small companies, because that suggests you just get a pass. I suggest rather that small companies (better all companies, but at least small companies) should be able to make a decision about how they want to manage internal controls in compliance or not with Sarbanes-Oxley, and then explain to their investors what decision they've made and why.

I believe the argument that Arthur Levitt and others make, that if you do the Sarbanes-Oxley bureaucracy and certification of controls, and so on, it will lower your cost of capital--that is, make investors pay more for your shares--is actually a marvelous argument for having a voluntary system. If the companies find that they can make their shares go up by doing Sarbanes-Oxley, they certainly will. So I suggest we ought to run this experiment: make 404 voluntary (preferably for everybody, but at least for small companies) and then observe what happens.

If you choose to implement Sarbanes-Oxley, what happens will be one of two things. One possibility is that because you will have created a lot of cost and bureaucracy and opportunity cost, the share price will suffer, the abnormal returns will fall. The second possibility is that because investors view this as a good thing, the returns will rise, and the share price will go up. If we would do this experiment I'm suggesting, then in a couple of years, Professor Geddes could do a wonderful, similar study of price movements in small company stocks (or in all company stocks) to measure the market's reaction to this choice, the market returns depending on how you make this choice, and we would learn something highly interesting and useful.

For the present, the paper concludes that "Reform of Sarbanes-Oxley is worthy of consideration," and I certainly agree.

Alex J. Pollock is a resident fellow at AEI.

June 21, 2007
Memo From Shanghai
Fast-Growing China Says Little of Child Slavery’s Role

By HOWARD W. FRENCH
SHANGHAI, June 20 — There is a certain ritualistic aspect to stories in China like the one this past week about the hundreds of people, many of them teenagers or even younger, who were forced to work under slavelike conditions in the brick kilns of Shanxi Province. First, Chinese readers are horrified by a picture of their country that many say they hardly recognize, then a villain is rounded up, and finally, after a torrent of unusually blunt and emotionally charged news reports and editorials, the matter drops from view, ensuring that the larger issue goes unresolved.

The villain in the case was Heng Tinghan, the manager of the brick works, who was arrested Saturday and promptly cemented his bad-guy image by protesting that it was a “fairly small thing” to beat and abuse underage workers, and to deprive them of pay. With his arrest, and the urging of the Central Office of External Communication of the Communist Party, the story then died away. But Chinese newspapers are constantly peppered with accounts of the death and injury of child laborers, and of disputes that arise because of unusually low wages, or the withholding of pay, with no region of the country exempted.

Just within a week or so of the brick kiln story, there were several reports of labor abuses against children. A 14-year-old boy was killed in an explosion while filling a tank with napthalene at a chemical factory near Nanjing. A 15-year-old boy was dragged into a cotton gin and crushed to death in Nanchang after working a succession of 20-hour days. And 70 girls from rural Henan Province were brought by their teacher to work at a grape processing plant in Ningbo, where their hands bled from working 16-hour shifts.

From the densely packed factory zones of Guangdong Province to the street markets, kitchens and brothels of major cities, to the primitive factories of China’s relatively poor western provinces, child labor is a daily fact of life, experts here say, and one that the government, preoccupied with economic growth, has traditionally turned a blind eye to.

“In order to achieve modernization, people will go to any ends to earn money, to advance their interests, leaving behind morality, humanity and even a little bit of compassion, let alone the law or regulations, which are poorly implemented,” said Hu Jindou, a professor of economics at the University of Technology in Beijing. “Everything is about the economy now, just like everything was about politics in the Mao era, and forced labor or child labor is far from an isolated phenomenon. It is rooted deeply in today’s reality, a combination of capitalism, socialism, feudalism and slavery.”

Under President Hu Jintao, the Communist Party has made the creation of what it calls a harmonious society the government’s main watchword. As part of that effort, in fact, a major revision of laws governing the rights of children took effect just this month, prompting the country’s vice premier, Wu Yi, to call their adoption “a festive present for the mainland’s 300 million children.”

Chinese labor market experts say, however, that the country remains far from achieving even the spirit of the new law, which mandates that adequate time be set aside for sleep, entertainment and sports. In fact, many say, an overwhelming emphasis on economic growth directly contradicts it.

This was underscored by another story that emerged the same week the kiln factory abuses were revealed. Students from the Dayin Middle School in Sichuan Province, in China’s interior, complained in newspaper reports about a work-study program in which they were shipped to an electronics assembly plant hundreds of miles away, in the industrial boomtown of Dongguan, which is near the coast.

The students told about having to work 14-hour days, with mandatory overtime, and having their wages withheld. In some instances, they said, those who wished to quit the program had no way of telephoning their families or paying for transportation home.

“My daughter promised to call every week, but she’s been gone for three weeks and has only called once,” said Zhang Ronghua, the mother of a 15-year-old Sichuan student. “She said that she wants to come home, that she’s worked from 8 a.m. to 11 p.m. and that she’s constantly busy and tired.”

Yuan Guangyao, the deputy manager of the factory, defended his company’s arrangement with the school. “This internship is a form of cooperation between our company and the school, or rather with the county,” he said. “I’ve been to that county myself, and I found the local people were very poor, so this initiative of having students work here is a win-win strategy for both of us.”

But many of the parents see a different picture, suspecting that the factory and the school are profiting at their children’s expense.

Liu Kaiming, a longtime researcher on labor conditions in Guangdong Province, where Dongguan is, said the employment of students who were paid low wages and forced to work overtime was commonplace. “In Dongguan, you can even see children of 12 and 15 working in toy factories,” he said. “These kids are basically from adjacent, underdeveloped provinces and they are brought by their teachers. There are laws forbidding child labor, but for work-study programs there are no specific rules, and no limitations on age, working hours or job description.”

Other experts said local officials were reluctant to take any steps that would impede economic growth. Traditionally, high growth rates and social stability have been the main criteria for promotion of local officials, and in relatively poor regions providing employment, even for youths, is seen as contributing to these goals.

Indeed, in the Shanxi brick kiln case, the owner of the factory that was the focus of most of the media attention was a local Communist Party leader.

Local officials also take advantage of overlapping jurisdictions to evade responsibility. In Sichuan Province, the local officials said they had no say over working conditions negotiated between the school and the factory.

Officials at the provincial labor bureau in Guangdong Province said that labor arrangements made by a school should be regulated by the Education Ministry. The ministry did not respond to telephone calls or faxed questions on the matter.

“Each department or ministry only cares about itself,” said Jin Yingjie, a labor law expert at China University of Political Science and Law. “If the law concerns its own interest, it will make an effort to apply it. But when an issue involves the intersection of more than one department, they tend to shirk responsibility.”

Copyright 2007 The New York Times Company

June 21, 2007
Shiite Rivalries Slash at a Once Calm Iraqi City

By ALISSA J. RUBIN
DIWANIYA, Iraq — The Shiite heartland of southern Iraq has generally been an oasis of calm in contrast to Baghdad and the central part of the country, but now violence is convulsing this city. Shiites are killing and kidnapping other Shiites, the police force is made up of competing militias and the inner city is a web of impoverished streets where idealized portraits of young men, killed in recent gun battles with Iraqi and American troops, hang from signposts above empty lots.

The unrest in Diwaniya, mirrored in Nasiriya to the south, reflects the emergence of a poisonous political landscape in which competing Shiite groups no longer look to the political system to allocate power. The government’s authority appears to have broken down, with the governor calling this spring for Iraqi Army units, backed by American troops, to restore order. Civilians, not sure where to look for protection, are caught in the deepening fear and uncertainty.

Even now, with a large Iraqi Army force and American troops in the area, the violence has continued. In the first 10 days of June, two police officers were shot dead, an American soldier died from a roadside bomb and the brother and nephew of a prominent militia official were killed. While still less dangerous than central Iraq, where militant Sunni Arabs and Shiites battle for control, the situation has worsened since violence first broke out here last August.

In a daylong visit to Diwaniya earlier in June, Prime Minister Nuri Kamal al-Maliki warned, “We cannot build a state that has another state inside it, we cannot build an army that has armies inside it,” referring to the militias within the province that answer to their leaders rather than to elected officials.

Diwaniya is the capital of the almost completely Shiite farming province of Qadisiya, known for its marshy fields where farmers grow aromatic ambar rice, similar to India’s basmati. Even in town, many people patch together a livelihood with seasonal jobs working the rice fields or tending date palms.

It is a poor province, and poorer now because of a recent decline in the farming sector, making it fertile ground for groups allied with the anti-American cleric, Moktada al-Sadr. The cleric, whose legendary father was beloved here, has reached out to the poor, both in town and in the country.

“Diwaniya was never really quiet, never really peaceful, it was only sleeping,” said Abu Faris, a senior official who works with the provincial council. “There were always troubles below the surface, and now they are coming out.”

The city of about 400,000 people has a history of rebellion; it was the first city in southern Iraq to rise against Saddam Hussein in the wake of the 1991 Persian Gulf war. But when the rebellion failed, Mr. Hussein exacted a deadly retribution, arresting hundreds of men and boys and killing many of them. Underlying Diwaniya’s troubles is a fight between factions allied with rival Shiite clerics, Mr. Sadr and Abdul Aziz al-Hakim, who leads the Supreme Islamic Iraqi Council.

Mr. Hakim, who has close ties to the Americans, is allied with an older generation of middle-class, more educated Shiites, many of whom spent some of the Hussein era in Iran or Syria.

By contrast, Mr. Sadr blames the Americans for the havoc in Iraq and refuses to meet with any representatives of the Bush administration. Mr. Sadr is linked more closely with the young, impoverished Shiites who stayed in Iraq during the years of Mr. Hussein’s rule. Mr. Sadr’s movement has only 5 members on the 40-member provincial council but enjoys wide local popularity. Both clerics have ties to armed militias, which local residents say have infiltrated the local police and security forces.

Although Mr. Hakim’s Supreme Islamic Iraqi Council is known for its tightly run political arm, that has not always translated into grass-roots support. Diwaniya’s governor, Khalil Jalil Hamza, is from the party, but lived in Iran for many years, returning only after the American invasion, and many local people have criticized his performance. The party also holds the majority on the provincial council.

The result is a governor with little ability to control his territory.

“When problems emerged, assassinations, kidnappings, and when the Sadrists began to move on their own, the governor did not deal with it because he did not know the area, and the problems snowballed,” said Hussein Ali al-Shalaan, a Shiite sheik who represents the province in the Iraqi Parliament and comes from the more secular and moderate Iraqiya coalition.

In March more than 50 people were killed in the province. Now, hardly a day goes by when there is not an attempt to shoot some official. Roadside bombs, unseen in most of southern Iraq, have been aimed at Iraqi and American forces operating in the area.

With no sign of improvement, the governor called in Iraqi Army troops, backed by Americans. In early April the soldiers entered the impoverished warrens at the center of the city, the stronghold of the Sadr loyalists. The area is crushingly poor. The low houses, made of crumbling mud bricks, look as if they would melt in the rain; they have such small doors that men sometimes must stoop to enter them.

Heavy fighting raged for several days, as young men, hiding behind low walls, fired rocket-propelled grenades and AK-47s before running away only to pop up again a few streets away, according to accounts from residents. At least 10 men were killed and 50 wounded in the fighting.

More than a month later the area still looked like a war zone with dangling electrical wires and a wary atmosphere. The neighborhood was surrounded by Iraqi Army checkpoints, the soldiers tense and unsmiling as they checked identification cards and opened car trunks to search for guns. The units were not from Diwaniya.

The head of Mr. Sadr’s Diwaniya office, Sheik Haider al-Nadir, fled to Najaf. “I was afraid of being arrested,” he said. “Sometimes they arrest people with no excuse.”

A soft-spoken cleric, Mr. Nadir said Mr. Sadr’s organization was being wrongly accused of fomenting the troubles in Diwaniya, but granted that many groups involved in “bad activities” were using Mr. Sadr’s name. Others agree that some criminal gangs are trying to burnish their image by claiming a connection to Mr. Sadr.

With provincial elections approaching, the Sadr movement believes that the Supreme Iraqi Islamic Council and the governor want to weaken them by accusing those aligned with Mr. Sadr of causing the problems in the city. The election has been delayed, and Mr. Sadr’s supporters believe that the reason was to give the Supreme Islamic Iraqi Council time to reduce his appeal.

For people here, the competing rivalries breed confusion and fear. They do not know whom to trust. “You couldn’t tell which side was responsible for kidnappings, for killings,” said Abu Faris, the senior Diwaniya official who works with the provincial council.

“And if you looked at the victims, they were all kinds of people: police, workers, professors,” he said. “They were from different groups.”

The unease was palpable on a recent visit to Diwaniya. At a checkpoint at the city’s borders, the police stopped several cars with out-of-town license plates and held the occupants, including a reporter for The New York Times, saying the city was not safe. After relenting, they begged the visitors not to tell the next checkpoint, run by the Iraqi Army, that the police had let them into the town.

“They do not like us, they will try to make trouble for us,” said a police lieutenant, Hussain Ali. He added that there were rumors that the governor was going to dismiss 350 members of the police force. “Why are they trying to do this? We will be left penniless, our families and children without a livelihood, and we are accused of nothing.”

At the next checkpoint, stony-faced Iraqi soldiers looked suspiciously at the Baghdad license plates but let the cars through. A few hundred feet farther on, however, outside the compound that housed the governor’s office, uniformed gunmen who would not say whether they were with the police or the army blocked entry even to the government parking lot. There seemed to be no communication between the various checkpoints and no agreed upon rules.

By the time the reporter left the city, the tone of the encounter with the police had changed from threatening to a plea for help. Mr. Ali and two of his police officer colleagues apologized for not having air-conditioning at the police station, but explained that their generator was broken. They were making tea on a small gas stove. But the worst came at night, Mr. Ali said.

“Please, if you speak to the governor, please ask him to fix our generator,” he said. “At night our checkpoint sinks into darkness and we cannot see if someone is about to attack us.”

An Iraqi employee of The New York Times contributed reporting.

The Geopolitics of the Palestinians
By George Friedman
Last week, an important thing happened in the Middle East. Hamas, a radical Islamist political group, forcibly seized control of Gaza from rival Fatah, an essentially secular Palestinian group. The West Bank, meanwhile, remains more or less under the control of Fatah, which dominates the Palestinian National Authority in that region. Therefore, for the first time, the two distinct Palestinian territories -- the Gaza Strip and the West Bank -- no longer are under a single Palestinian authority.
Hamas has been increasing its influence among the Palestinians for years, and it got a major boost by winning the most recent election. It now has claimed exclusive control over Gaza, its historical stronghold and power base. It is not clear whether Hamas will try to take control of the West Bank as well, or whether it would succeed if it did make such a play. The West Bank is a different region with a very different dynamic. What is certain, for the moment at least, is that these regions are divided under two factions, and therefore have the potential to become two different Palestinian states.

In a way, this makes more sense than the previous arrangement. The West Bank and the Gaza Strip are physically separated from one another by Israel. Travel from one part of the Palestinian territories to the other relies on Israel's willingness to permit it -- which is not always forthcoming. As a result, the Palestinian territories are divided into two areas that have limited contact.

The war between the Philistines and the Hebrews is described in the books of Samuel. The Philistines controlled the coastal lowlands of the Levant, the east coast of the Mediterranean. They had advanced technologies, such as the ability to smelt bronze, and they conducted international trade up and down the Levant and within the eastern Mediterranean. The Hebrews, unable to engage the Philistines in direct combat, retreated into the hills to the east of the coast, in Judea, the area now called the West Bank.

The Philistines were part of a geographical entity that ran from Gaza north to Turkey. The Hebrews were part of the interior that connected north to Syria, south into the Arabian deserts and east across the Jordan. The Philistines were unable to pursue the Hebrews in the interior, and the Hebrews -- until David -- were unable to dislodge the Philistines from the coast. Two distinct entities existed.

Today, Gaza is tied to the coastal system, which Israel and Lebanon now occupy. Gaza is the link between the Levantine coast and Egypt. The West Bank is not a coastal entity but a region whose ties are to the Arabian Peninsula, Jordan and Syria. The point is that Gaza and the West Bank are very distinct geographical entities that see the world in very different ways.

Gaza, its links to the north cut by the Israelis, historically has been oriented toward the Egyptians, who occupied the region until 1967. The Egyptians influenced the region by creating the Palestine Liberation Organization, while Egypt's dissident Muslim Brotherhood helped influence the creation of Hamas in 1987. The West Bank, part of Jordan until 1967, is larger and more complex in its social organization, and it really represented the center of gravity of Palestinian nationalism under Fatah. Gaza and the West Bank were always separate entities, and the recent action by Hamas has driven home that point.

Hamas' victory in Gaza means much more to the Palestinians and Egyptians than it does to the Israelis -- at least in the shorter term. The fear in Israel now is that Gaza, under Hamas, will become more aggressive in carrying out terrorist attacks in Israel. Hamas certainly has an ideology that argues for this, and it is altogether possible that the group will become more antagonistic. However, it appears to us that Hamas already was capable of carrying out as many attacks as it wished before taking complete control. Moreover, by increasing attacks now, Hamas -- which always has been able to deny responsibility for these incidents -- would lose the element of deniability. Having taken control of Gaza, regardless of whether it carries out attacks, it would have failed to prevent them. Hamas' leadership is more vulnerable now than ever before.

Let's consider the strategic position of the Palestinians. Their primary weapon against Israel remains what it always has been: random attacks against civilian targets designed to destabilize Israel. The problem with this strategy is obvious. Using terrorism against Americans in Iraq is potentially effective as a strategy. If the Americans cannot stand the level of casualties being imposed, they have the option of leaving Iraq. Although leaving might pose serious problems to U.S. regional and global interests, it would not affect the continued existence of the United States. Therefore, the insurgents potentially could find a threshold that would force the United States to fold.

The Israelis cannot leave Israel. Assume for the moment that the Palestinians could impose 1,000 civilian casualties a year. There are about 5 million Jews in Israel. That would be about 0.02 percent casualties. The Israelis are not going to leave Israel at that casualty rate, or at a rate a thousand times greater. Unlike the Americans, for whom Iraq is a subsidiary interest, Israel is Israel's central interest. Israel is not going to capitulate to the Palestinians over terrorism attacks.

The Israelis could be convinced to make political concessions in shaping a Palestinian state. For example, they might concede more land or more autonomy in order to stop the attacks. That might have been attractive to Fatah, but Hamas explicitly rejects the existence of Israel and therefore gives the Israelis no reason to make concessions. That means that while attacks might be psychologically satisfying to Hamas, they would be substantially less effective than the attacks that were carried out while Fatah was driving the negotiations. Bargaining with Hamas gets Israel nothing.

One of the uses of terrorism is to trigger an Israeli response, which in turn can be used to drive a wedge between Israel and the West. Fatah has been historically skillful at using the cycle of violence to its political advantage. Hamas, however, is handicapped in two ways: First, its position on Israel is perceived as much less reasonable than Fatah's. Second, Hamas is increasingly being viewed as a jihadist movement, and, as such, its strength threatens European and U.S. interests.

Although Israel does not want terrorist attacks, such attacks do not represent a threat to the survival of the state. To be cold-blooded, they are an irritant, not a strategic threat. The only thing that could threaten the survival of Israel, apart from a nuclear barrage, would be a shift in position of neighboring states. Right now, Israel has peace treaties with both Egypt and Jordan, and an adequately working relationship with Syria. With Egypt and Jordan out of the game, Syria does not represent a threat. Israel is strategically secure.

The single most important neighbor Israel has is Egypt. When energized, it is the center of gravity of the Arab world. Under former President Gamal Abdul Nasser, Egypt drove Arab hostility to Israel. Once Anwar Sadat reversed Nasser's strategy on Israel, the Jewish state was basically secure. Other Arab nations could not threaten it unless Egypt was part of the equation. And for nearly 30 years, Egypt has not been part of the equation. But if Egypt were to reverse its position, Israel would, over time, find itself much less comfortable. Though Saudi Arabia has recently overshadowed Egypt's role in the Arab world, the Egyptians can always opt back into a strong leadership position and use their strength to threaten Israel. This becomes especially important as Egyptian President Hosni Mubarak's health fails and questions are raised about whether his successors will be able to maintain control of the country while the Muslim Brotherhood spearheads a campaign to demand political reform.

As we have said, Gaza is part of the Mediterranean coastal system. Egypt controlled Gaza until 1967 and retained influence there afterward, but not in the West Bank. Hamas also was influenced by Egypt, but not by Mubarak's government. Hamas was an outgrowth of the Egyptian Muslim Brotherhood, which the Mubarak regime has done a fairly good job of containing, primarily through force. But there also is a significant paradox in Hamas' relations with Egypt. The Mubarak regime, particularly through its intelligence chief (and prospective Mubarak successor) Omar Suleiman, has good working relations with Hamas, despite being tough on the Muslim Brotherhood.

This is the threat to Israel. Hamas has ties to Egypt and resonates with Egyptians, as well as with Saudis. Its members are religious Sunnis. If the creation of an Islamist Palestinian state in Gaza succeeds, the most important blowback might be in Egypt, where the Muslim Brotherhood -- which is currently lying very low -- could be rekindled. Mubarak is growing old, and he hopes to be succeeded by his son. The credibility of the regime is limited, to say the least.

Hamas is unlikely to take over the West Bank -- and, even if it did, it still would make no strategic difference. Increased terrorist attacks against Israel's population would achieve less than the attacks that occurred while Fatah was negotiating. They could happen, but they would lead nowhere. Hamas' long-term strategy -- indeed, the only hope of the Palestinians who not prepared to accept a compromise with Israel -- is for Egypt to change its tune toward Israel, which could very well involve energizing Islamist forces in Egypt and bringing about the fall of the Mubarak regime. That is the key to any solution for Hamas.

Although many are focusing on the rise of Iran's influence in Gaza, putting aside the rhetoric, Iran is a minor player in the Israeli-Palestinian equation. Even Syria, despite hosting Hamas' exiled leadership, carries little weight when it comes to posing a strategic threat to Israel. But Egypt carries enormous weight. If an Islamist rising occurred in Egypt and a regime was installed that could energize the Egyptian public against Israel, then that would reflect a strategic threat to the survival of the Israeli state. It would not be an immediate threat -- it would take a generation to turn Egypt into a military power -- but it would ultimately represent a threat.

Only a disciplined and hostile Egypt could serve as the cornerstone of an anti-Israel coalition. Hamas, by asserting itself in Gaza -- especially if it can resist the Israeli army -- could strike the chord in Egypt that Fatah has been unable to strike for almost 30 years.

That is the importance of the creation of a separate Gaza entity; it complicates Israeli-Palestinian negotiations, and probably makes them impossible. And this in and of itself works in Israel's favor, since it has no need to even entertain negotiations with the Palestinians as long as the Palestinians continue dividing themselves. If Hamas were to make significant inroads in the West Bank, it would make things more difficult for Israel, as well as for Jordan. But with or without the West Bank, Hamas has the potential -- not the certainty, just the potential -- to reach west along the Mediterranean coast and influence events in Egypt. And that is the key for Hamas.

There are probably a dozen reasons why Hamas made the move it did, most of them trivial and limited to local problems. But the strategic consequence of an independent, Islamist Gaza is that it can act both as a symbol and as a catalyst for change in Egypt, something that was difficult as long as Hamas was entangled with the West Bank. This probably was not planned, but it is certainly the most important consequence -- intended or not -- of the Gaza affair.

Two things must be monitored: first, whether there is reconciliation between Gaza and the West Bank and, if so, on what sort of terms; second, what the Egyptian Islamists led by the Muslim Brotherhood do now that Hamas, their own creation, has taken control of Gaza, a region once controlled by the Egyptians.
Egypt is the place to watch.

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