An internal report of the Office of Inspector General for the U.S. Department of State recommends terminating the U.S. loan guarantee program to Israel at the end of 2011.

The report, which deals with the performance of the U.S. embassy in Israel, says American diplomats have difficulty mustering support for the Obama administration's policies and implies the embassy failed completely in its PR efforts during the Obama administration.

"A fragile Israeli coalition government leans toward the views of its members from the nationalist and religious right, creating a challenge for diplomats seeking to build support for U.S. policies," the report says.

The unclassified version of the report was distributed in the State Department in March. At the same time the OIG released a report about the Consulate General Jerusalem. Haaretz has obtained copies of both reports, whose findings are published here for the first time.

The State Department's comptroller's team came to Tel Aviv in October 2010 and spent two weeks talking to its American diplomats.

The reports portray a problematic picture of the missions' performance in Israel.

The Tel Aviv embassy faces intense challenges, generated by Israel's current government, negative public opinion toward President Obama, a sensitive political environment and a vibrant media scene, the report says.

It finds that the embassy's annual public relations budget, intended to influence public opinion in Israel, is about $7 million a year, or roughly NIS 25 million.

Despite its diplomatic wording, the report implies the Tel Aviv embassy has totally failed in its public relations efforts during the Obama term. "Much of the Israeli public is suspicious of U.S. efforts to promote negotiations aimed at establishing an independent Palestinian state," it says. "The lively and fractious press often misinterprets American policies."

One of the main issues the OIG team dealt with on its visit in Tel Aviv was the loan guarantee package the United States granted Israel in 2002. The Americans gave Israel loan guarantees of up to $9 billion in world banks to help its economy over the recession.

A condition of the guarantees was that Israel would not use the money for construction in the settlements. The OIG report says the embassy "devotes considerable time to monitoring Israel's compliance with conditions in the loan guarantee agreements," especially as the program has "accomplished its purpose - stabilizing Israel's economy."

"Planning should begin now for [the loan-guarantee program's] orderly termination," the report says. "Israel has been admitted to the Organization for Economic Cooperation and Development, an indication that it is now a modern, self-sufficient economy capable of supporting its citizens as an industrialized country. The OIG team found a broad consensus that the loan guarantee program can prudently be terminated in accordance with the sunset clause in the original legislation, which provided that it would end by 2011."

The report on the Consulate General Jerusalem, which is in charge of relations with the Palestinian Authority, says American diplomats face considerable difficulty in obtaining in-depth information about what is happening there.

"The consulate produces strong reporting on the West Bank, where it has extensive contacts with the senior levels of the Palestinian Authority," it says. "The mission is aware that it is less successful in reporting the views of ordinary Palestinians outside Ramallah. For security reasons, those areas are more difficult and expensive to reach...."

In Gaza things are worse. Since the terror attack on American diplomats there in October 2003, the State Department has forbidden its staff to enter Gaza. "Reporting on Gaza is constrained... by the inability of U.S. diplomats to travel there...." the report says.

"Unable to travel there themselves, consulate officers rely on information from other diplomatic missions, nongovernment organizations, the media and UNRWA. They also meet with Gazan contacts outside Gaza."

Contacts with those in Gaza are maintained by telephone or mail.