FP’s Situation Report: Germany expels an American spy; Is Chalabi the answer in Iraq?; Bergdahl all smiles with the Taliban as new photo emerges; A new narrative in post Snowden-era; State runs out of visas for Afg. interpreters; and a bit more.

By Gordon Lubold with Nathaniel Sobel

Could Ahmed Chalabi be Iraq’s next leader? The Iraqi politician, long discredited by many inside the U.S., is among those who believe they could save Iraq – even if Chalabi denies he’s interested in becoming the next prime minister. But with Washington’s military assistance to Baghdad so tied to its demand for a political solution, the question at this point becomes, would anyone do as long as their name wasn’t Maliki? For FP, Jane Arraf with "the resurrection of Ahmed Chalabi": "To many in the West, Chalabi, 69, is still the political operator who convinced the Bush administration that Iraqi dictator Saddam Hussein had weapons of mass destruction, paving the way for the U.S.-led invasion of the country. But inside an Iraq dangerously on the verge of splintering, that invasion is almost ancient history. After almost a decade of being sidelined, the man who could not win a seat in parliament in 2005 and whose name once inspired insults scrawled on Baghdad walls has emerged as a serious contender to replace Prime Minister Nouri al-Maliki.

"Part of Chalabi’s proposed reconciliation would be reviewing the cases of thousands of prisoners, most of them Sunnis, who have been arrested under sweeping anti-terrorism laws and held in jail without charge, or long past orders for their release. Chalabi says he would also appoint a judicial committee to review cases where people have been sentenced on the basis of coerced confessions.

"Then he would turn his attention to Iraq’s bleeding economy and combat corruption. The former banker proposes a team of forensic auditors — perhaps headed by the American former special inspector for Iraq reconstruction, Stuart Bowen — to review contracts and contracting procedures in order to reduce Iraq’s staggering corruption.

Chalabi, to Arraf for FP: "The facts, you see, add cumulatively to my credibility with all sections of society… These people proposing me to be prime minister — [they are] not only among the Shiites but among the Sunnis and the Kurds." More here.

The Kurds this morning say they will no longer take part in Iraq’s national government in protest against Maliki’s accusation that they were harboring Islamist insurgents. Ahead of the Iraq Parliament convening on Sunday, a month earlier than planned, as pressure mounts on the Iraqis to reconcile, there are few signs that any such reconciliation is afoot. Reuters this hour: "…The Kurds said on Thursday they were cancelling their participation in cabinet meetings. Zebari told Reuters that Kurdish ministers were now suspending their day-to-day involvement the foreign, trade, migration and health ministries and the deputy premiership.

"[Kurdish minister] Zebari said the Kurds will continue to attend the parliament, elected on April 30, which is seeking to form a new government in the face of a Sunni insurgency that has seized large sections of northern and western Iraq. Maliki said on Wednesday the Kurds were allowing insurgents of the Islamic State (ISIL), an offshoot of al Qaeda, to base themselves in Arbil. Zebari said Iraq risked falling apart if a new inclusive government is not formed soon as ‘the country is now divided literally into three states – ‘Kurdish; a black state (ISIL) and Baghdad.’ More here.

Kurdistan Regional Government President Massoud Barzani should walk back his talk of a referendum on independence for Iraqi Kurds. Amir Taheri for Asharq al-Awsat: "…Why did Barzani, a seasoned politician, decide to fly that kite at this time? Cynics claim he wanted to divert attention from his seizure of Kirkuk. A Persian proverb says that if you want an adversary to accept fever, threaten him with death. Thus, Barzani is inviting Iraqis to accept the loss of Kirkuk as a lesser evil compared to secession by the Kurdish autonomous region." More here.

ICYMI – The Committee for a Secular Iraq ran a full-page open letter to the American people in the WaPo yesterday, calling for the U.S. to "bring all sides to the table to negotiate a workable future for Iraq."  Find it here.

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The German government has taken the extraordinary step of ordering the top U.S. intelligence official in the embassy in Berlin to leave the country. The expulsion of the officer means the U.S. and Germany’s relationship and ability to share intelligence is dramatically diminished just as the U.S. needs to keep its friends close as it grapples with Iraq and Syria, and the move potentially doesn’t bode well for U.S. relationships with its other allies. FP’s Shane Harris: "…The expulsion of the official, who wasn’t named, follows the revelation last week that a 31-year-old German intelligence service employee has allegedly been giving classified government files to the United States, including documents about Germany’s own investigation into U.S. spying on Chancellor Angela Merkel, which was exposed by Edward Snowden. The expulsion of the most senior American intelligence official in Germany, known as the chief of station, seems unprecedented.

A former senior U.S. intelligence official said it’s a sign that trust is broken: "When they throw out the chief of station, that’s a very strong indication that the Germans are ticked… It sends that message to the U.S. But it also lets Merkel send a message to the people on her left, who are outraged about the spying Snowden exposed, and to keep them under control, too." More here.

The Justice Department declines to investigate CIA review. The NYT’s David Joachim: "The Justice Department has declined to pursue dueling claims by the Central Intelligence Agency and the Senate Intelligence Committee, which had accused each other of criminal behavior related to the committee’s investigation of the agency’s interrogation practices, the department said on Thursday. ‘The department carefully reviewed the matters referred to us and did not find sufficient evidence to warrant a criminal investigation,’ a spokesman, Peter Carr, said in a written statement." More here.

And speaking of intelligence, FP’s Harris explores the new narrative in the post-Snowden world: "To hear some of America’s top intelligence officials tell it, the damage the most famous leaker in history inflicted on U.S. spying might not be as severe as previously thought, and the storm that beset the National Security Agency when former contractor Edward Snowden exposed a trove of top-secret documents to journalists may finally be subsiding." More here.

On Day Four, there are no signs of a ceasefire between Israel and Hamas.  Reuters’ Nidal Al-Mughrabi and Ori Lewis this morning: "Israeli air strikes on Gaza killed four more Palestinians before dawn on Friday, raising the death toll from the four day offensive to at least 85, while a Palestinian rocket hit a fuel tanker at an Israeli petrol station causing a huge blaze. Israeli leaders, determined to end Palestinian rocket attacks deep into the Jewish state, have hinted that they could order the first ground invasion of the coastal strip in five years. Some 20,000 army reservists have been mobilized. The Israeli military said it launched fresh naval and air strikes early on Friday, giving no further details." More here.

This morning’s Ha’aretz editorial cautions Israel against repeating past mistakes: "…After Operation Cast Lead in early 2009, during which hundreds of innocent civilians in the Gaza Strip were killed, Israel paid a heavy price in the form of international censure, which reached its peak in the Goldstone report. Israel should have learned its lesson and been as careful as possible to avoid harming civilians. But the first few days of Operation Protective Edge make us fear that Israel hasn’t learned anything. The growing body count not only damages its international standing, it is first and foremost a corruption of its own moral character." More here.

The AP’s Aaron Heller on how Israel’s ‘Iron Dome’ changes the face of battle, here.

Who’s Where When today – Secretary of Defense Chuck Hagel hosts an honor cordon at the Pentagon for Japanese Minister of Defense Itsunori Onodera at 1:45 p.m and then Hagel does a presser with him at 3:15 p.m (though they rarely start on time)… Marine Corps Commandant Gen. Jim Amos participates in the change of command at I MEF, Camp Pendleton.

The Japanese Defense Minister visited Hagel’s alma mater, the University of Nebraska at Omaha on Wednesday. Onodera did some homework at the school ahead of today’s meeting with Hagel. Read more from Omaha.com, here.

Onodera: he’ll buy more Joint Strike Fighters – if the price drops. Onodera to reporters during a visit to the Lockheed factory this week, according to Kyodo News via Global Post, July 9: ‘"If the unit price falls, it may be important to reconsider the number of fighters (Japan will buy)’ … He held talks with senior officials from Lockheed Martin at the factory." More here.

Meantime, the F-35 remains grounded as Hagel visits a training facility in Florida. Stars and Stripes’ Jon Harper: "Secretary of Defense Chuck Hagel expressed strong support for the Joint Strike Fighter program Thursday, a week after the entire F-35 fleet was grounded due to safety concerns.

Hagel to troops at Eglin Air Force Base, Fla: "I believe this aircraft is the future for our fight aircraft for our services. This is as big a project…as we have at the Department of Defense, and we’ve got a lot riding on this aircraft, as well as eight partners around the world who have invested in this aircraft."

"…On Thursday, Hagel said the engine inspections are complete, but investigators are still looking at the data they have collected and haven’t issued any recommendations yet as to when flights can resume." More here.

Hagel, an avid swimmer, gave Onodera underwater headphones to use to swim during his first visit to Japan ­- did he bring them on the trip?

The military’s top brass is less concerned about the Taliban 5 than Congress. FP’s John Hudson: "Despite thunderous claims from lawmakers that the five Taliban prisoners released for Army Sgt. Bowe Bergdahl in May represented the ‘hardest of the hard core’ — members of the Joint Chiefs of Staff hold a markedly different view of the threat posed by the former detainees. On Thursday, Senate Armed Services Committee Chairman Carl Levin (D-Mich.) released seven separate letters from the members of the nation’s senior military leadership explaining their supportive opinions on the concessions the United States made to free Bergdahl, who had been held prisoner by the Haqqani network since 2009." Find the five main arguments the military offered, and the letters themselves, here.

A new Bergdahl photo is "100 percent propaganda," the Pentagon says. USA Today’s Jim Michaels: "The photo of a smiling Sgt. Bowe Bergdahl posted to a Twitter account by a Taliban sympathizer is being dismissed by the Pentagon as ‘100% propaganda.’ Bergdahl was "held up in brutal conditions for a half a decade," said Col. Steve Warren, a military spokesman. "We’re glad that he is back." NBC News reported that a Taliban official said the photo was released by a Twitter account belonging to a Taliban sympathizer. Bergdahl, the Army soldier who was held captive for five years by the Taliban after leaving his base in Afghanistan, is seen with a smile standing beside a Taliban commander who has his arm around Bergdahl’s shoulder. The photo could not be authenticated as depicting an actual scene that was not manipulated. The Pentagon pointed out that Bergdahl was held captive by a ruthless enemy and would have no way of preventing the Taliban from staging photographs." More here.

Could the U.S.-trained Afghan security forces wind up in as bad shape as their counterparts in Iraq? FP’s Kate Brannen: "Hanging over the confirmation hearing Thursday for the next U.S. commander in Afghanistan was not the country’s disputed election or its widespread corruption, both of which threaten to unravel any progress the United States has made there. Instead, Gen. John Campbell faced questions about Iraq, where, in parts of the country, militants from the Islamic State have overrun security forces trained by the United States at a cost of more than $25 billion. Now it’s believed that, without help, the Iraqi security forces will be unable to retake areas seized by the Islamic State.

"But not so long ago, U.S. military officials were confident in the capabilities of the units they were training in Iraq and would update Congress and the media about the progress they were making in building those units’ capacity. What members of the Senate Armed Services Committee heard Thursday morning about the Afghan military — that it’s capable and mostly responsible for the largely nonviolent elections that took place in April and June — sounds eerily familiar. And they fear that as U.S. troops withdraw from Afghanistan, what’s happening in Iraq is a preview of what could happen in Afghanistan.

Sen. Claire McCaskill (D-Mo.): "I watch and analyze the mistakes in Iraq, and I think many of them are going to come to pass in Afghanistan."

Sen. Angus King (I-Maine): "I would suggest that one of your missions is to continue to assess the readiness and the effectiveness of the Afghan security forces, because it wasn’t ISIS so much as the collapse of the Iraqi Army that led to the debacle that’s currently unfolding in Iraq." More here.

Amid an election impasse in Kabul, Kerry tries to broker an election-audit deal between Abdullah and Ghani. The WSJ’s Ian Talley and Nathan Hodge in Kabul: "…It is unclear how the Obama administration plans to broker a compromise. Mr. Kerry said he has contacted both candidates several times, encouraging them ‘not to raise expectations for their supporters, [and] to publicly demonstrate respect for the audit process.’ Administration officials say the U.S. isn’t trying pick a winner, but rather to ensure that the election is seen as legitimate so that the new government has a mandate for power.

"…Mr. Abdullah claims that as many as 2 million fraudulent ballots were cast on Mr. Ghani’s behalf, out of an official tally of 8.1 million-an accusation denied by his opponent. Mr. Ghani says higher voter turnout in the second-round vote was due to more effective voter mobilization by his campaign. On the eve of Mr. Kerry’s arrival, Afghan President Hamid Karzai endorsed a plan presented by the United Nations to audit 8,000 polling stations, the president’s spokesman said." More here.

Afghan interpreters are in limbo at State. Interpreters who put their lives at huge risk for American personnel and are now hoping to relocate to the U.S. are in limbo as State is running out of visas to give them. The WaPo’s Ernesto Londono, here.

The VA is overpaying administrative staff by millions an internal audit finds. The HuffPo’s David Wood: "The scandal-plagued Department of Veterans Affairs is systematically overpaying clerks, administrators and other support staff, according to internal audits, draining tens of millions of dollars that could be used instead to ease the VA’s acute shortage of doctors and nurses. The jobs of some 13,000 VA support staff have been flagged by auditors as potentially misclassified, in many cases resulting in inflated salaries that have gone uncorrected for as long as 14 years.

"Rather than moving quickly to correct these costly errors, VA officials two years ago halted a broad internal review mandated by federal law. As a result, the overpayments continue. Moreover, in the two years since thousands of misclassified jobs were identified, hundreds of additional positions have been filled at improperly high salaries. Internal VA documents obtained by The Huffington Post show that between September 2013 and May 2014, for instance, overpayments in annual salaries for the latter jobs alone came to $24.4 million, not counting benefits." More here.

SOCOM troops could be becoming "frayed." The Hill’s Martin Matishak at yesterday’s confirmation hearing: "The Obama administration’s nominee to lead the U.S. Special Operations Command (SOCOM) on Thursday expressed concerns about the physical and mental health of the troops he could soon command. Army Lt. Gen. Joseph Votel told the Senate Armed Services Committee that the 67,000 special operators force could be ‘fraying’ after being ‘operationally active for a long time.’ However, the troops ‘remain effective in the tasks’ assigned to them and can continue offering ‘unique solutions to challenging problems,’ he added during his confirmation hearing." More here.

Obama’s counterterrorism blueprint looks good, on paper by the WaPo’s David Ignatius, here.

Meantime, how strong is the U.S. Navy? James Holmes for War on the Rocks, here.

China’s heavy-handed behavior is driving neighbors, especially Australia, farther away from its orbit. FP’s Keith Johnson: "For years, policymakers from Down Under have worried about just how long the country could balance moving ever closer to China in terms of economic interests with maintaining deep defense ties with the United States as tensions rise in the Asia-Pacific. With the U.S. ‘pivot to Asia’ — featuring a leading role for Australia — and growing concern about China’s heavy-handed diplomacy, those fears had been intensifying… On Tuesday, just weeks after doubling down on security ties with the United States, Australian Prime Minister Tony Abbott and Japanese Prime Minister Shinzo Abe signed sweeping economic and defense deals, reaffirming the two countries’ ‘special relationship.’ The deals, which include plans for joint development of advanced submarines, indicate Abbott’s vocal support for Abe’s more muscular military posture — while also sending a clear message to China." More here.