Caption: Former Israeli justice Edmund Levy: “If it beats like an occupation, if it oppresses like an occupation, if it kills like an occupation, it’s a…” Bibi: “A duck!” (Meme submission by John Brown)
This week, the Netanyahu government set the stage for a clash with its closest allies, the international community and its own Supreme Court by commissioning a kangaroo court to rule on the authorization of settlements in the Palestinian territories. Filled with political appointees and headed by pro-settlement former Supreme Court Justice Edmond Levy, the surprising (or unsurprising?) recommendation of the “Levy report” (Hebrew) is that there is, in fact, no occupation.
The background: The Levy commission was tasked with responding to a prior report under a prior Prime Minister, the “Sasson report,” that exposed violations of Israeli red tape and even whole ministries working cross-purposes to Prime Ministerial direction. In March 2005, then-Prime Minister Ariel Sharon had tasked his state prosecution office, headed by lawyer Talia Sasson, to investigate the status under Israeli law of settlements and outposts built without his permission. Sasson put the state’s imprimatur on what was already publicized by Peace Now and known by the US State Department — that millions of shekels of state funds were being spent on unauthorized outposts, settlement expansion and theft of private land.
Unrepentant of the Sasson report’s revealings and emboldened by a Knesset majority, Israel’s right-wing has been seeking to authorize these outposts — and all settlements — in the face of 45 years of legal challenges. They began advancing a tired legal theory that to date no one in the world believes, not even Israel’s staunchest allies. Namely, that Israel is not an occupying foreign power because the 1917 Balfour Declaration gave all of the British Mandate of Palestine exclusively to the Jewish state.
It’s a common hasbara argument that wasn’t supported by any standing in Israeli court. Making it official policy is what Levy recommended and it sparked exultation in the right-wing and fury among the left. But to the bigger point: both reports discuss the “legality” of settlements under Israeli law but not international law. That is why I’ve used “unauthorized” or “without permission” instead of “illegal.” All settlements are illegal. Israel is in lone disagreement against the US, UK, Canada, every UN court and all other countries in the world. (Two exceptions: only Costa Rica recognizes Israel’s annexation of East Jerusalem; only Micronesia recognizes Israel’s annexation of the Golan Heights.)
JJ Goldberg, Editor-in-Chief of The Forward, explains succinctly:

The notion is that the operative international treaty governing sovereign rights to historic Palestine — today’s Israel, the West Bank and Gaza — is the post-World War I San Remo Resolution. Drafted by the victorious European allies in April 1920 and later incorporated into the League of Nations charter, the treaty assigns Great Britain the Mandate to govern Palestine and orders implementation of the 1917 Balfour Declaration. To be clear, the treaty calls for “the establishment in Palestine of a national home for the Jewish people.” That, advocates say, constitutes a binding, still-valid international commitment to make Palestine into a Jewish state.
Unfortunately, establishing a Jewish homeland in Palestine is not the same thing as making Palestine into a Jewish homeland. Zionist leaders fought mightily throughout the summer of 1917 to win a British declaration “that Palestine should be reconstituted as the National Home of the Jewish people,” but they lost. “The” national home became “a” national home to protect the citizenship of British and other Diaspora Jews. Establishing the home “in” Palestine fudged the question of how much land would be Jewish, to allow future negotiating.

For a longer discussing and rebuttal of the Levy report, then I recommend the (very extensive) comments by Israeli human rights lawyer Noam Wiener following his piece on 972 Mag.
But don’t get upset about it and here’s why:
Two weeks ago, the same issue was addressed regarding a single West Bank outpost, Ulpana. The Supreme Court had ruled it could not be authorized since it was built on appropriated private Palestinian land and set a dismantlement deadline. Netanyahu stood between defying the Israeli courts to appease his base and the international consensus. In the end, Netanyahu backed down. Michael Manekin, director of policy for a new research group, the Center for Renewal of Israeli Democracy, explains why in a policy paper:

In the following days, not only did Netanyahu oppose the bill, he also made sure that the bill would be rejected by all of his ministers. He threatened that any cabinet member who voted in favor of the bill would be fired from his/her post. The bill did not pass, ensuring that this settlement would be evacuated in the coming weeks. […] If the Regularization law had passed, it would be the first time that the Israeli government, as opposed to the Israeli Defense Forces, decides on land allocation in the West Bank. In other words this would be the first time that Israeli lawmakers would decide the fate of Palestinian lands (a role that up until now was the responsibility of the Israeli military). In this way the government would officially challenge the framework of temporary military occupation, and take a step towards annexation.
Up until now, no Israeli government was willing to commit formal acts of land annexation in the West Bank (with the exception of East Jerusalem). No Israeli government, even the most pro-settlement, was willing to formally renounce the two state framework that was created with the Oslo accords in the early 1990s. This is due to the fact that the two state framework is a unanimously accepted within the western world, and a precondition for viewing Israel as a legitimate state, rather than a rogue one. It would also complicate many issues within Israeli bureaucracy from settlement subsidies to ultimately the right of Palestinians to vote.

Thus there are two reasons why you shouldn’t be too concerned or care too much about the Levy report:
If Netanyahu couldn’t steal a cookie, he certainly couldn’t steal the whole bakery. Israel depends on international goodwill for trade, aid and defense against the Palestinian’s meager attempts to change the status quo. Contrary to assertions that Israel could grossly flout international opinion (from the right) or that Israel doesn’t believe it faces any consequences (from the left), these turns out to be only half true. Tellingly, Netanyahu refrained from commenting on the report while promising to review it in another committee. After the Ulpana conclusion, he knows this path has even graver consequences.
Also, were Israel indeed to overrule 45 years of Supreme Court rulings and “legalize” the settlement enterprise in its entirety, this would be the deathknell for Israel’s defenses against charges of apartheid. Civil law would replace military law in the territories. Palestinians would not longer be considered as vote-less military subjects justified under the Geneva Conventions. Noam Sheizaf at 972 Mag mockingly answers right-wing suggestions they be regarded as citizens of Jordan, saying, “Why Jordan, I say? If we are going to make them citizens of another system which has no effect over their life, let’s at least be generous and make them French!”
The Levy report is a landmine for Israel’s international standing. And we haven’t yet considered the delicate sensibilities of American Jewry, who will at large defend Israel’s military actions but is morally torn over settlement growth. Netanyahu walks its recommendations with peril.