“Palestinians deserve a government that serves their interests and listens to their voices,” said President George W. Bush in his address to the U.N. Thursday. But Palestinian reform, thus far, is a case of déjà vu all over again. Arafat is still running the place, and no major changes have occurred in the Palestinian Authority. Terrorist organizations, some funded by Iraq, roam freely in the Palestinian territories and are even being sheltered at Arafat’s compound in Ramallah.

On September 10, thousands of anti-American, pro-Iraq demonstrators marched on the streets of Gaza while Hamas spiritual leader Sheikh Ahmed Yassin incited the crowds, saying: “We are standing with Iraq and its people in front of the American offensive. We are one body.” Indeed, Saddam Hussein’s money has paid for many homicide bombings and continues to fund Palestinian terrorism. Yet Arafat has yet to stop with his doubletalk of “fighting” terrorism and promising reform. In an address to the PLC on September 10, he spoke of his willingness to help the U.S. in its fight against terrorism — while refusing to condemn any of the terrorist organizations under his patronage. On the 11th, on a local TV program, he called on the Palestinian people to continue their attacks against the enemy.

The “task force” on Palestinian reform that concluded its meeting in Paris on August 23 underscored the Palestinian commitment to reform and the commitment of the international donor community to help implement and monitor these reforms. Similar statements have been made ever since the Palestinian Authority was first established in 1994, as grounds for funding the PA’s declared “efforts” to build a democratic administration and a “civil society” for the Palestinian people.

That the PA is anything but a civil or democratic society is no secret anymore, especially in view of the recent daily executions of alleged collaborators with Israel. And the PA documents captured earlier this year by the Israeli Defense Forces, both in Ramallah and elsewhere, attest that the billions in taxpayer money given to the PA went only to create a wasteland, an anti-American and anti-Israeli hotbed of international terror.

At least $4.5 billion in international aid has been given to the Palestinian Authority since 1994. According to the March World Bank study, the lion’s share, $1.1 billion, was given by the U.S. to help build a civil society, establish the necessary infrastructures, and provide humanitarian aid to the Palestinian people. Had all the aid money reached the Palestinian people as originally planned, every Palestinian could be living in his own little villa with at least a Ford in his garage. Instead, the PA leadership got richer even as the rest of the Palestinians remained poor — or became poorer — and terror became the law of the land.

Under heavy international pressure, Arafat reluctantly announced changes in the makeup of his cabinet, though still without addressing the requested reforms concerning security, the war on terror, financial affairs, and cleaning up corruption. The appointment of the new PA finance minister, Salam Fayad, drew applause from the international donor community. But expecting the Palestinians’ political leaders to take charge of financial reforms is like asking a bank robber to guard the vault.

This is not the first time the PA and Arafat have announced forthcoming reforms. The results of their past efforts can be found in the PA documents captured by the Israeli Defense Forces in Ramallah. Thousands of documents have yet to be examined, but from the little that has been analyzed, there is no doubt that Yasser Arafat has been micromanaging the PA’s money and appropriating payments for terrorists. Moreover, it was with his knowledge and authorization that international aid money was redirected to the Palestinian Liberation Organization (PLO) and Fatah-related terrorist organizations — the very same groups that were supposed to have been disbanded following the Oslo accords that established the PA in 1993. The documents show that instead of providing humanitarian aid, Arafat channeled the money to fund terror and suicide bombing and to enrich himself and the PA leadership. The documents further attest that diverted international aid paid for at least 70 terrorists, and has funded most of the terror attacks inside Israel and in the territories.

The PA’s modus operandi has been to keep two sets of books. Its official budget lists $90 million in monthly expenditures, $60 million of which — from international aid — is slated for salaries. But the documents indicate that up to $27 million per month of the PA’s salary budget does not reach PA employees. These millions are available for other uses. And while the Israelis do not know how all of this money has been spent, it is clear that a large portion has been used to support terrorism. The documents show that the PA committed currency exchange fraud, keeping for themselves the difference between the real exchange rate and the lower one they listed. They also skimmed two percent from each employee for a mandatory “Fatah Membership Fee.” The PA has additionally exploited the public-salary budget by falsely listing as “police” operatives of Fatah/Tanzim, the al-Aqsa Martyrs Brigades, and similar organizations. The Israelis have also found that each month, $5 to $10 million was transferred directly to the terrorist elements of Fatah and used to provide weapons, ammunition, fuel, etc. These activities apparently went undetected by the international donors.

Beyond those funds diverted to terrorism against Israel, money slated to help the Palestinian people has also gone directly into the coffers of its leadership. On the basis of documentary evidence, the Israeli government stated recently that Yasser Arafat personally controls $1.3 billion dollars. That assertion seems to suggest this is the sum total of all the money he controls — but the PA’s own documents show that he in fact controls not only the money he has skimmed for personal use, but all of the PA’s money as well. As their leader, Arafat has received, collected, or otherwise obtained many billions of dollars on behalf of the Palestinian people — and not always by legal means — since the Palestinian Liberation Organization (PLO) was first established in 1964.

Even after two years of intifada and thousands dead on both the Israeli and the Palestinian sides — and despite the evidence, in Arafat’s own handwriting, that donor money was used to support terrorism — the State Department persists in pushing forward the reform agenda as though it were sincere. The Palestinians maintain that the only obstacle in the path of reform is the Israeli presence in the West Bank and Gaza. This is clearly not the case, since the corruption and terror led by Arafat and the PA predate the presence of the Israeli forces. Yet somehow, the U.S. and the donor community seem to trust that the PA leadership that stands with Saddam Hussein will readily give up their swords (and bank accounts) for ploughshares. Just this week, Minister of Planning and International Cooperation Nabil Shaath revealed that the U.S. and the World Bank have agreed to hand over another $35 million to start a new investment guarantee fund for supporting investment projects by the private sector. The U.S. would pay $20 million, the World Bank $15 million.

— Rachel Ehrenfeld is director of the Manhattan Center for the Study of Corruption & the Rule of Law and is working on her forthcoming book,Funding Evil: Follow the Money Trail.