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In 1987, then-Foreign Minister Shimon Peres tried to negotiate an agreement with King Hussein of Jordan where Israel would cede the West Bank to Jordan. Prime Minister Yitzhak Shamir killed it, and in 1988 Jordan abandoned its claim on the West Bank.

What if Shamir had accepted the deal?

It's highly unlikely that Israel would cede the entire West Bank to Jordan. However, I could easily see a scenario similar to recent proposals IOTL where Israel keeps a few settlements and most of Jerusalem, in exchange for some land on Israel's side of the Green Line. Assuming neither government abandoned negotiations, I think a peace agreement could have been reached by 1990.

The obvious loser here is the PLO. The Peres-Hussein agreement would have excluded them entirely, with Israel recognizing Jordan as representing the Palestinians. The agreement probably wouldn't avert the First Intifada (and implementation would probably have to wait until things quieted down), but it's not hard to see Jordan taking back the West Bank over the protests of the PLO.

Questions
1. What would happen to Jewish settlements? The same issue is discussed today, but perhaps some settlers would find becoming Jordanians preferable to abandoning their homes (provided Jordan grants them full citizenship, which would presumably be included in the final peace deal).

2. Jordanian custody of the Al-Aqsa Complex would probably become outright possession (even without contiguity). Perhaps Israel could be granted the Tomb of the Patriarchs in return.

3. The big question is Gaza. Egypt had already relinquished its claim on Gaza, but perhaps they could change their minds. A Jordanian annexation would be possible, but difficult to implement. Finally, Israel could simply annex Gaza itself - adding ~600,000 Arabs would not threaten Israel's Jewish majority.

4. What would the reaction of most Palestinians be? Would they accept a return to Jordanian rule and no separate Palestinian state? Or would there be an Intifada against Jordan? My guess is that most would go along with varying degrees of reluctance, but there would be plenty of diehards. Some (particularly the Islamists) might try to overthrow the Jordanian monarchy as a stepping stone towards the liberation of Palestine. We might see a Jordanian civil war sometime in the 2000s, possibly even leading to Israeli intervention. And that's without someone like Saddam Hussein stirring up trouble.
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