The answer to that question is Yes and No.
U.S. law prohibits spending any American aid money beyond the Green Line, the pre-June 1967 border, to make sure none of it goes to build or benefit settlements or those who live and work there, which every single administration has considered illegal.
All $3.1 billion in grant assistance the administration requested for the current fiscal year is designated to be spent for defense, with nearly three quarters actually being spent in the United States for weapons systems and other purchases, like F-16s, missiles, ammunition, electronics, etc. Just over one quarter of those funds actually go to Israel to be spent there to help strengthen its own defense industrial base and assure self-sufficiency in some categories.
In addition, the United States gives Israel $15 million to aid new immigrants. That is to be spent on absorption, youth aliyah, resettlement, training and other humanitarian assistance. To receive that money Israel agrees that none will be spent beyond the green line.
But cash is fungible. Those billions of American taxpayers’ dollars free up billions of Israeli taxpayers’ sheqls to be spent any way the government wishes, free of any American restrictions. That’s called fungibility. That could be interpreted as American taxpayers subsidizing — albeit indirectly — the settlement enterprise that their government considers illegal, opposes and wants stopped.
This was brought to mind by an article in The Guardian by Edwin Black about how American and British taxpayers are supporting Palestinian terrorism. Through fungibility.
Use of American and British aid to the Palestinian Authority is designated for specific uses, but it frees up other funds to be
“diverted to a program that systematically rewards convicted prisoners with generous salaries. These transactions in fact violate American and British laws that prohibit US funding from benefiting terrorists. More than that, they could be seen as incentivizing murder and terror against innocent civilians.”
The PA’s Ministry of Prisoner Affairs provides ongoing financial compensation – salary or ratib in Arabic — for Palestinians in Israeli prisons for acts of “resistance to Occupation.” That means terrorists, not common thieves and burglars, Black points out.
Can this practice be stopped? One possibility is by reducing aid — to all countries — by the amount each recipient spends on the prohibited or objectionable practices. It was used on loan guarantees to Israel but not on other aid programs and not on aid to the PA.