In 1950 and 1951, some 100,000 Iraqi Jews—most of whose assets had been frozen by the Iraqi government—immigrated to the Jewish state. In response, Israeli leaders began to investigate the possibility of an agreement with the Arab countries whereby any property abandoned by Palestinian refugees would be exchanged for property lost by Jewish refugees from Arab countries. Eylon Aslan-Levy writes:
One week [after Iraq announced the freezing of assets], the Israeli foreign minister, Moshe Sharett, addressed the Knesset. The government of Iraq, he argued, had “opened an account with the government of Israel,” and forced the Jewish state to link this account to one that already existed: [that of] the Arab refugees from Israel’s War of Independence. “We shall take into account the value of the Jewish property that has been frozen in Iraq,” declared Sharett, “when calculating the compensation that we have undertaken to pay the Arabs who abandoned property in Israel.”
This principle has been a centerpiece of Israeli policy ever since. . . . In August 1948, Israel had told the UN mediator Folke Bernadotte that any peace treaty with the Arab states should pay “due regard to Jewish counterclaims” for “havoc and destruction.” . . .
[What’s more], this linkage was not entirely Israel’s idea: its strongest support came from Baghdad. In 1949, [the Iraqi prime minister] proposed an organized Jewish-Arab population exchange to a UN commission, offering a compulsory transfer of 100,000 each way, in which Iraq would confiscate Jewish property as compensation for Palestinian property. This came after Arab states suggested to the UN Conciliation Commission for Palestine (UNCCP) an “exchange of their [Jewish] population against the Arab Palestinian refugees.” Egypt specifically mentioned a possible “exchange of Jews and Arabs.”
Britain rejected Iraq’s proposal. . . . The UNCCP [likewise] refused to endorse it. . . . Arab governments . . . never replied [to formal letters about the subject]. Israel eventually unblocked Arab bank accounts at the UNCCP’s request, after the Israeli UN ambassador Abba Eban’s plea that “equal concern” be given to Jewish refugees fell on deaf ears.