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Despite two years of intense terrorism against Israeli civilians by the Palestinian Authority, Jerusalem is still willing to reward the violence and participate in the creation of yet another Arab police state in the Mideast - probably under the direction of the bloodthirsty, would-be tyrant and friend of Saddam Hussein, Yasser Arafat.  Will they ever learn?

Worse yet, this capitulation by Sharon comes under pressure from the United States, which claims to be fighting a war on terrorism.

Maybe it's time for a little review of history.

Arafat's Palestine Liberation Organization, the umbrella group under which many Arab terrorist groups united, was classified as a terrorist organization from its inception in 1964 until 1993. Magically, following the Oslo Accords, in which Arafat theoretically renounced terrorism, he and his group become non-terrorists. They got a full pardon, a clean slate, they were bestowed political "grace" - or unmerited favor.  It was truly unmerited.

Arafat may have mumbled some magical words, but he did not stop his terrorist campaign.

In fact, a study conducted by my friend Rachel Ehrenfeld showed Arafat used the public relations coup of 1993 to launch a whole new career as a drug trafficker, arms smuggler, money launderer and counterfeiter to help amass a fortune estimated by the British National Criminal Intelligence Services nearly 10 years ago at $10 billion.

You might think a fortune like that would lead to moderation. But, Arafat has every incentive to maintain his terrorist and criminal escapades. After the first year of the 2-year-old uprising utilizing suicide bombings and other terrorist tactics against Israel, the Palestinian Authority's annual revenues from donations jumped 80 percent - from $555 million to more than $1 billion.

Not surprising Arafat has provided the inspiration and financial model for terrorist groups all over the world - including Osama bin Laden's al-Qaida network.

Arafat's PA has survived and flourished since 1993 based on two sources of revenue, reports Ehrenfeld: "international donors such as the European Union, the Arab states and the United States; and " criminal enterprises.

Want to know how much of your taxpayer money goes to fund Arafat? You better sit down.

The U.S. has given $548.7 million in direct aid to the PA, according to the Palestinian Ministry of Planning and International Cooperation. But the total sum, according to Ehrenfeld's study, is actually $1.1 billion.

The European Union is even crazier than Washington. Altogether, in loans and aid, the EU has provided $2.52 billion to the PA.

Then there's the U.N., which provided $521.7 million just this year, about 30 percent of which came from the U.S.

But that's just the tip of the iceberg. Arafat has taken these "investments" from the West and put them to work in criminal enterprises to create new revenue streams. " The PA oversees massive counterfeiting of CDs, DVDs, clothing, cosmetics and schoolbooks. " The PA oversees the counterfeiting of Israeli, Jordanian and Kuwaiti currency. " The PA shakes down ordinary citizens for tribute through kidnappings, extortion, even   phony traffic violations. " Stealing cars from Israel is rampant in PA territory, and the government runs the relicensing of those cars.

Then there's the drug-running, arms-smuggling, etc. It all adds hundreds of millions to the phantom PA budget.

Where does all this money go? Israeli government estimates say about $1.3 billion went directly into the pockets of Yasser Arafat.

So, not only is this man a murdering terrorist, he's a thief. Not only is he a liar, he's a con artist. Not only does he victimize Israelis, he victimizes his own people.

Yet, Israel continues to travel down this dead-end "road to peace." And the United States and Europe, unable to admit their mistakes, keep applying the pressure to continue this business-as-usual approach to Mideast policy.

It's time to call the PA what it is - a terrorist, criminal enterprise. It's time to cut off the donations. It's time to seize the assets. It's time to declare war on it as a terrorist entity. It's time to free the people under its grip like we're about to free the people of Iraq.

Joseph Farah's nationally syndicated column originates at WorldNetDaily, where he serves as editor and chief executive officer.

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