tonight on "worldfocus" -- israeli prime minister benjamin netanyahu and u.s. special envoy george mitchel meet to try to solve the thorny issue of jewish settlements in the west bank. can they find common ground? from those trying to broker a peace to stockbrokers hoping to cash in on it. tonight, we take you to the palestinian stock exchange. it may be one of the world's smallest but the dreams are big. in the wake of the world's economic meltdown, we have a special "how they see it" report from britain's itn which questions one of the basic

principals of american economics. and the world pays tribute to the passing of senator edward kennedy. >> from the world's leading reporters and analysts, here's what's happening from around the world. this is "worldfocus." made possible in part by the following funders -- major support has also been provided by the peter g. peterson foundation dedicated to promoting fiscal responsibility and addressing key economic challenges facing america's future. good evening. i'm martin savidge. the quest for peace in the middle east has been going on for generations now, and it never seems to get much easier. we got that impression again today after another apparently inconclusive meeting in london between israeli prime minister benjamin netanyahu and u.s. middle east envoy george

mitchell. the two men and the two nations they reprent have been searching for months now for a way to resolve their differences over israeli settlements in the west bank. the u.s. has been pushing hard for an israeli settlement freeze, and the palestinians are refusing to restart peace talks until israel halts all construction there. despite their failure to reach agreement again today, the two sides will resume talks in washington next week. both men tried to put the best face on today's talks. >> we' headway in the past five months. my government has taken several steps both of word and deed to advance course of peace. and i hope that today and in the coming weeks, we can move that process forward. >> the american commitment to israel's security is firm and unshakeable. and we appreciate the opportunity to discuss with you, ways by which we can move toward our common objective which is a comprehensive peace in the middle east.

>> we are going to try to make sense of this important story tonight by turning to one our of regulars. we're joined by daniel levy, a senior research fellow for the new america foundation. mr. levy was also a former advisor to the israeli government representing the labor party. welcome back. >> thank you. >> i think there is pretty much an agreement that there has to be an agreement on this settlement issue in order to move this middle east peace process to move this forward. where do we stand? >> there is a narrowing of gaps. the israeli's sides still want exemptions. east construction, east jerusalem, that's problematic. anything over the green line contributes over international law but if you consider this as perhaps the most right wing government in history i think there has been progress. i think the obama administration now wants to move on beyond the settlement issue so i think we're moving to an end game on that. >> so you didn't see as today being as some sort of setback? >> i don't think so. i think we'll continue next week. within four to six weeks i think we'll have moved on. >> the opinion polls coming out of israel shows a great deal of opposition to the idea of a settlement freeze.

and there's also a great deal of distress at the obama administration. so what leverage does the united states have then? >> first of all, some context. as a standalone freeze not y2 popular. put it in the broader outline of an agreement, withdrawal, two states, arab recognition. israelis can get behind that. that's another reason why i think that we'll move onto those broader issues. there are some polls that shows obama's desperately popular. the most significant poll shows only 40% of israelis think that he's more pro-palestinian and now it's true. israelis usually preferred president bush. he was very popular in israel. preferred mccain over obama. some israeli ministers are saying let's get sanctionses against america. bottom line israelis understand how important the relationship is, they appreciate the relationship and israeli's so dependent on the u.s. but without it getting ugly, president obama has tremendous influence at his disposal should he choose to use it. >> the last time you were here you suggested that there seemed to be progress on reaching this

overall, broader outline of a peace proposal. you still feel that way? >> what i think we have is that if there's going to be a two-state solution, we still -- we know what it looks like. room to create but we know, palestinian state, 67 lines. some minor land swaps. refugees acknowledged what happened to them, they can't return en masse to israel. security without emptying the palestinian state of its meaning. we know the outlines. the question is can you bring the parties, the israeli government, hamas, for instance, to agree to these. that requires u.s. lifting because it's an american international interest i think that you might get it. >> i want to bring up there are unconfirmed reports that when the palestinian leader mahmoud abbas when he comes to new york he might meet with next month. what do you think about that. >> the palestinians are saying without a fall freeze no negotiations. i think america will be able to bring the palestinians past that position. what they're saying now is we can meet in the new york, that's

not the same as negotiations so it gives them some wiggle room. i think you'll likely, perhaps here in new york if not soon thereafter to see israelis and palestinians resuming negotiations. the real issue is, how closely will the u.s. shepard and whether the u.s. at some stage bring its own plan forward. >> and for that, we'll bring you back. daniel levy, thank you very much as always. >> one person notably absent from today's talks in london was the israeli foreign minister, avigdor lieberman. you may recall, he's the hardline israeli politician hardline israeli politian known for his often undiplomatic language. there is now speculation that lieberman's influence may be fading within the israeli government, a development that some see as increasing the likelihood of a mideast peace deal. channel 10 news of israel has this report, translated from hebrew and narrated by "worldfocus" producer yuval lion. >> reporter: the wonders of six months ago the combination of words, avigdor lieberman and foreign minister, was unthinkable. but the man who told the

president of egypt where to go -- >> translator: he doesn't want to come here. he can get lost. >> reporter: -- became israel's most senior diplomat. after that, it was clear to everyone that lieberman would boss around netanyahu. he defeated him in the coalition negotiations and he entered the foreign ministry with a storm. >> translator: there is one document to which we are accountable. and it's not the annapolis agreement. it is no longer in effect. >> reporter: six months later, and lieberman is a foreign minister almost in name only, left to deal with relatively minor ministerial issues. on the important issues, he's not involved. while the defense minister is conducting negotiations with the americans on stopping settlement construction, the foreign minister is outside. when the prime minister and defense minister hold talks with senior american officials on iran, the foreign minister is outside. lieberman is also weakened because of allegations of fraud hanging over his head. >> translator: if the attorney general indicts me, there's no doubt that at that moment i will resign. >> reporter: there are those who

didn't understand this lieberman statement. it was his calculated way of buying time. previously, senior officials under investigation have resigned before being indicted. what's the difference? at least half a year, maybe more. lieberman, who resigned from olmert's government because of negotiations with the palestinians, has already declared that he won't create obstacles for netanyahu. in other words, he gave the prime minister a green light to freeze settlement construction and to resume negotiations with the palestinians. not by chance, this lieberman atement was not given in front of the cameras. who knows better than he, that when zigzagging it's best do so quietly. >> that was israel's channel 10 news. when thinking about the middle east, it's the peace negotiations that often come to mind. but what you may not know is that palestinians on the west bank are already busy planning for the future. just yesterday, the palestinian authority said it plans to have all the institutions necessary for statehood in place within

two years. our partner deutsche welle recently paid a visit to the palestinian stock market, a place that's small in size but big in dreams. >> reporter: for almost a month getting to work has been a lot easier for ahmad. one of the most stringent israeli checkpoints is located just outside of nablus but checks are only sporadic nowadays. >> it'll take some time to reverse nine years of siege but i'm very happy about what's going on. it hasn't made my life easier, it hasn't made my employee's life easyier so far. unfortunately it doesn't affect so much the change because know the stock exchange is fully electronic. >> reporter: historically, nablus has been the economic center of the weite the region's political conflict. the palestinians security exchange was established here 14 years ago. and since then the al quds index has been a barometer of the palestinian economy. ahmad is the chief executive of

one of the world's smallest stock market and he's optimistic. in 2008 the pse performed well. despite the global financial crisis. >> many companies listed on the stock exchange are good, solid, profitable companies. we have been in business for a very long time. and basically they're used to working in situations of unstable political in economic environments. and they have internalized that into their operations. >> reporter: on a global scale, daily trade volume here is minute. averaging 3.5 million euros. 39 companies are listed on the exchange. one company, telecommunications firm paltel, accounts for almost half the index's value. a kuwaitan investor wants to buy he company. brokers are following the deal. >> translator: the palestinian market is really down at moment and we're down with it.

>> translator: i think it's still going to take a long time. we're a long way from being able to compete with the other stock markets. >> reporter: the nablus exchange is now working to attract more investors from the middle east and palestinians living abroad especially in south america. >> the minute there's a slight improvement in the political and the diplomatic front, particularly the prospects of the peace agreement with israel, growth is going to come to the palestinians stock exchange and when it comes it's not going to be 20% and 30%. but much, much more. >> reporter: plans to take the exchange itself public by 2010. but the best way to attract investors and bring sustainable growth to the west bank economy will be a long-term peace agreement. >> that was deutsche welle. >> and that brings us to our segment, "how you see it." we'd like to know from you, what do you think it will take to reach a mideast peace agreement? you can tell us what you think

by going to our "how you see it" section of our website at worldfocus.org and we'll report on what you said tomorrow. last night, we asked you about the detention of a terror suspect who was thought to be only 12 years old when he was sent to guantanamo. how should the u.s. deal with terror suspects when they are still children? one viewer told us, "of course, the arrest was proper and the detention at guantanamo was proper. he should still be detained. as far as his age, had he actually succeeded americans would be just as dead as if he were 25." but another viewer saw it differently, saying, "it truly frightens me that we treat children like adults. when i think of how unsure i was of myself at age 14 and how easily i might have been influenced, i thank my lucky stars that i survived." fghanistan, officials there released more partial results today from last week's presidential election. those results show president hamid karzai widening his lead over his nearest rival, the former foreign minister abdullah abdullah. with less than a fifth of the

vote counted, karzai now leads abdullah 45% to 35%. if karzai wins more than 50% of the vote, he would avoid a two-man runoff. abdullah has accused karzai and his supporters of widespread vote rigging. in other news on afghanistan, richard holbrook, the american special envoy for the region, has accused citizens from many of the oil-rich persian gulf countries of aiding the taliban. in an interview with cnn, holbrook claimed that such money is greater than the taliban's profits from opium. "it seems to be more from individuals carrying money in their suitcases," holbrook said. "sometimes they are taking advantage of the pilgrimage," to holy cities in saudi arabia. "sometimes from charities," he said. as americans mourn the loss of senator edward kennedy today, remembrances and condolences are also pouring in from around the world. in ireland, the land of

kennedy's ancestry, prime minister brian cowen said, "in good days and bad, ted kennedy worked valiantly for the cause of peace on this island." israeli prime minister benjamin netanyahu praised kennedy as, "a great american patriot, a great champion of a better world, a great friend of israel." nelson mandela also mourned kennedy's death, saying, "he made his voice heard in the struggle against apartheid at a time when the freedom struggle was not widely supported in the west. we mourn with his family and the united states ofe loss of a champion of democracy and civil rights." one issue of deep concern to senator kennedy, as it is to many, was the global economic crisis. trying to figure out who's to blame for the crisis has become a popular pastime. fingers have been pointed at bankers, government regulators, and even consumers. but as itn's faisal islam reports in tonight's "how they see it" segment, there's another group that's now coming under the microscope -- economists. >> reporter: the credit crunch

has failed banks, cost millions of jobs and wrecked the finances of many governments, but has it also claimed another victim? the way we think about how our economies work, does the crisis also mean the death of economics as we know it? >> hopefully after this crisis, the economy establishment will be discredited enough. to think of it, how many economists saw the risks we were taking? how many? a few. >> they thought of themselves as akin to a natural signs with the ability to make the same kind of precise statements, use maps, because money enabled them to do that. and, too, to have strong predictions. and i think that's rubbish. >> reporter: all the economics is all based on a set of assumptions of how people, shoppers, companies are motivated to pursue their self-interests.

from that can be derived molds of how our entire economies behave. a rule nature but the free market will automatically bring about the best result for all. it was the chicago school of thought, by milton friedman and his colleagues were the driving force. they won nine nobel prizes.x& their ideas exported all around the world. but post financial crisis, the f chicago school appears to be in retreat. robert lucas is one of the remaining high priests of the chicago school. he won the nob economics in 1995. >> we thought we knew a lot. it turned out we didn't know a damn thing about the stability of the banking system so you know it's back to the drawing board. we'll see what comes out of it. somebody is going to have to figure this stuff out. >> you don't mind milton friedman right? >> yeah. i mean if he was right something, he was wrong about others but maybe we should all apologize for not grasping the fragile nature of the financial system but i don't see why chicago in particular. >> reporter: these days, economics muscles its way into pretty much every subject matter -- history, the environment, even a bit of

self-help. but it's a canon of orthodox economics represented by these textbooks that have been conveying the same thing that the world can be modeled by a series of formulae, by mathematics and that can be used to predict the future. while they've got their formulae wrong, and that's asking real questions about the foundations over social science with huge influence. the failure of mathematical particularly the failure of theories associated with the nobel prize winners, is is that one leading thinker to the scrapping of the prize to save from an incompetent economy. >> it's a joke. i mean, would they give that nobel prize to a physicist based on the same criteria? i doubt it. give it to medicine, if i wrote a paper saying, if we lived on mars and did not have lungs and then -- and then this would flow and boom you would get a nobel?

come on, it makes no sense. >> reporter: so you're actually actively lobbying? >> well, i saw the swedish king and i'm going to go back there and make a case of why they should remove it. >> reporter: the complex financial products that's ultimately prove disastrous in this credit crisis have their roots in its theories and equations. it's so widespread, intensive use of mathematics and economics. led to certain failure. it wasn't that. >> no, no, no. a lot of people hate me. they're missing the boat. they've been missing the boat for centuries, you know? some people got mad at newton because he spent too much time with equations. come on. you don't need modern math in order to have a financial crisis. >> reporter: so the chicago school on economics in general is under attack as never before. but there is some head scratching from the thinkers who ruled the world. but little incentive to say sorry. >> faisal islam, for itn. regardless of the cause of the global economic crisis, one thing is clear -- america's

budget deficit is increasing. just yesterday, the obama administration announced it could reach $9 trillion over the next ten years. that's $2 trillion more than previously estimated. joining us for more is c. fred bergsten, the director of the peterson institute for international economics. the chairman of the peterson institute. peter peterson has a separate foundation which is among those providing funding for "worldfocus." welcome to the program. >> good to be here. >> some are predicting the new deficit numbers will lead to a fall in the value of the dollar. do you buy that? and if so, why should we be concerned? >> bigger budget deficits mean bigger trade deficits. that means the u.s. has to borrow more from the rest of the world. and over time, that clearly does put down more pressure on the dollar. in the short run, bigger budget deficits might mean higher interest rates and that might ore up the dollar for a while. but over time, it's bad for the dollar, it's bad for the country, we go into more foreign

debt, it undermines our position in the world. it's a thoroughly bad. >> i think see let's look at china as i specific. how might a decline in the value of the dollar affect the willingness of the chinese government to invest in america. >> china holds something like $1.5 trillion in its foreign currency reserves. it's the biggest in the world. if it sees even a 10% decline coming in the dollar that takes something like $150 billion off of the value of its holdings. so it's obviously going to be anxious and worried. the chinese have been expressing those worries for the better part of a year. they've probably been moving gradually out of dollars into euros and maybe yen and other currencies. the key issue is whether they continue to finance our deficits in the future. and if they're afraid the dollar's going to fall, they won't do nearly to the same extent. that means we'll have to pay higher interest rates to get the financing. and that to put it mildly would complicate our recovery from the current crisis. >> on the flip side, wouldn't a

falling dollar help boost american exports to foreign countries? >> a lower dollar improves the price competitiveness of our exporters and the competitiveness of our domestic producers against imports. it does help us bring down our trade deficit which has been much too large in the past and it has been one of our big economic problems. you want to get an exchange rate for the dollar that's just right, like goldilocks. it shouldn't be too high because that does hurt our trade but if it gets too low and particularly if it falls too fast, then it will push up inflation. particularly push up interest rates. and be a thoroughly bad thing for our economic recovery efforts. >> we've got about 40 seconds left. on another subject, we heard a report earlier about what some see as a mindset in the financial community prone to taking too much risk. do you agree? >> the fact that the financial community took too much risk and underpriced its risk was a minant cause of the current crisis. one would hope they would not

get back in that mindset too soon, but if economic policy does not provide the right framework, particularly if our financial regulations are not reformed to head off an underpricing of risk then we could be back in the soup all over again. it's a disturbing report. major policy efforts have to be undertaken to head it off. >> fred bergsten, thank you very much for joining us tonight. >> good to be here. there's word of labor unrest in south africa. miners at one of the world's largest platinum companies have gone on strike. south africa produces 80% of the world's platinum. that strike is expected to push up the price of the precious metal which is used in everything from jewelry to catalytic converters in cars. africa's mineral wealth has long been bng and a curse for that continent.

there, it's been a cause of wars, coups and revolutions. that's the subject of this excerpt from the latest edition of "wide angle" called "once upon a coup." it's the story of how the discovery of a vast oil reserve in the tiny west african nation of equatorial guinea caught not just the attention of american oil companies but that of an international gang of mercenaries. >> reporter: president teodoro obiang leads one of the world's newest and least understood oil states. >> he's very intelligent. he is very intelligent. not the evil man that the media has as you made him out to be. >> reporter: obiang has his defenders. his country though, its capital standing on a mysterious volcanic island, is home to

stories of torture. >> it's certainly one of the worst countries that i have seen. the prison conditions is as such inhuman and degrading. >> reporter: an american ambassador who spoke out received a death threat - tossed from a car. >> the document that had been thrown out of the vehicle desired that i go home in a coffin. >> reporter: once, the scramble for africa was about ivory and slaves. now, it's about oil. a dot on the coast of west africa, equatorial guinea supplies the u.s. with more than 20 million barrels a year. u.s. oil companies like exxonmobil invested billions. >> this is the newfound bonanza of oil on the planet. >> reporter: china too wanted a share. it would help build obiang a new

capital city. but it wasn't just the great powers that had their eye on obiang's oil. so did a gang of mercenaries. but you just knew there was a fabulous amount of oil here? >> yes. >> reporter: enough to make everybody a very rich man? >> absolutely, yes. >> reporter: they'd fly in a new president, and kidnap or kill obiang. britain and spain knew in advance but did nothing to stop them. >> but you're going there with the best military force in africa, with the backing of serious western governments, yeah, this is a good gamble. >> reporter: the mercenaries and their backers could become as rich as obiang and his clan - if their coup succeeded. >> you gamble with your life and you would make a fortune. sometimes it's better to live like a lion for one day than a

sheep for 100 days, as the old saying says. >> check your local listings for "wide angle." you can also find it online at pbs.org/wideangle. and that's "worldfocus" for this wednesday. i'm martin savidge in new york. as always, we thank you for joining us. and we'll look for you back here again tomorrow and anytime on the web. until then, have a good night. "worldfocus" is made possible in part by the following funders -- -- captions by vitac -- www.vitac.com major support has also been

provided by the peter g. peterson foundation dedicated to promoting fiscal responsibility and addressing key economic challenges facing america's future.