FP’s Situation Report: Why “Lady Al-Qaeda” is so wanted; American jihadi killed in Syria; CENTCOM’s airstrikes, analyzed; Farewell to a fighting diplomat (Joe Dunford); Bobby Zarate to Kirk’s office; and a bit more.

By Gordon Lubold with Nathaniel Sobel

Meet "Lady Al-Qaeda," the woman every militant wants the U.S. to free. Aafia Siddiqui has been a "perennial bargaining chip" for terrorists and Islamic militants who have made the woman’s release from a federal prison in Texas a condition for freeing a number of American and European prisoners over the years. FP’s Shane Harris tells you all about her: "Two years ago, a group of senior U.S. national security officials received a tantalizing proposal from officials in Pakistan. If the United States would release a Pakistani woman serving a lengthy prison sentence in Texas for attempted murder, Islamabad would try to free Army Sgt. Bowe Bergdahl, who had been missing since 2009 and was thought to be held in Pakistan by Taliban forces.

"According to current and former U.S. officials familiar with the proposal, President Barack Obama’s national security advisors swiftly rejected the offer. To free the prisoner, Aafia Siddiqui, who’s linked to al Qaeda and was convicted in 2010 of attempting to kill Americans in Afghanistan, would violate the administration’s policy of not granting concessions to terrorist groups, the officials concluded. It would also put a potentially dangerous fighter back on the street. Siddiqui, 42, who’s known in counterterrorism circles as ‘Lady al Qaeda,’ has been linked to 9/11 ringleader Khalid Sheikh Mohammed and was once on the FBI’s most-wanted terrorists list.

"…Although U.S. officials never seriously considered trading Siddiqui, she has been a perennial bargaining chip for terrorists and Islamist militants who’ve made her release a condition for freeing a number of American and European prisoners over the years. The militants had repeatedly threatened to execute Bergdahl if Siddiqui wasn’t set free. And the Islamic State terrorists who murdered American journalist James Foley last week had demanded Siddiqui’s release to spare his life." More here.

An American fighting with Islamic State is confirmed dead in Syria. The number of U.S. and European-passport holding citizens thought to be fighting in Syria and elsewhere has numbered in the several hundreds. This has gripped the Obama administration as it ponders what to do next in the region. But the news that one of them was killed fighting underscores the threat to the U.S. homeland. Al Jazeera’s story: "An American citizen was killed during the weekend while fighting for the Islamic State insurgent group in Syria, U.S. officials confirmed on Tuesday in response to an NBC News report. It was one of the first confirmed deaths of an American in the Al-Qaeda-inspired radical group that has taken over large swathes of Syria and Iraq.

"…Sources with the Free Syrian Army, a U.S.-backed moderate rebel faction, told NBC they found an American passport on a corpse following a battle with the Islamic State. The report said the passport, as well as the body’s distinctive neck tattoo, identified Douglas McAuthur McCain, 33, of San Diego, California." More here.

Meantime, Israel and Hamas agree to an open-ended cease-fire. This is the first time in weeks that such an agreement has been reached with open-ended terms, even if Hamas isn’t happy. The WSJ’s Joshua Mitnick in Tel Aviv and Asa Fitch in Gaza City: "Israel and Hamas agreed to their first open-ended cease-fire after seven weeks of military confrontation and will resume truce talks in Cairo in the coming days. Though nine previous cease-fires have come and gone since Israel’s offensive against Hamas began on July 8, the latest deal was greeted in Gaza City with celebratory gunfire, street celebrations and honking car horns.

"The agreement was reached just hours after Israeli warplanes destroyed one high-rise building in Gaza City and severely damaged another, marking a shift in tactics that observers said escalated pressure on Hamas. Across the border in southern Israel, the mood was subdued as last-minute rocket fire ahead of the 7 p.m. truce killed two people in a border kibbutz and wounded several others." More here.

What’s in the Egyptian-brokered plan to end the fighting in Gaza? Reuters’ Nidal Al-Mughrabi and Luke Baker offer a breakdown, here.

John Kerry’s statement on the ceasefire yesterday afternoon, here.

FP’s Rothkopf talks with former U.S. Special Envoy Martin Indyk about Israel’s new allies, the Gaza blowup, and why Washington shrugged when the peace process collapsed. Indyk tells Rothkopf that the fundamentals of the U.S.-Israeli relationship are solid, but that Israelis shouldn’t lose sight of why Israel needs America: "…You know, I think there’s a great deal of tolerance and patience in Washington that comes from a basic commitment to the relationship. I think John Kerry has a perfect voting record on Israel — 30 years in the Senate, 100 percent support — that comes not because AIPAC told him to do it but because he has a fundamental understanding of the importance of Israel and the U.S.-Israel relationship." More here.

Welcome to Wednesday’s edition of Situation Report. If you’d like to be one of our subscribers, we’d love to have you. Sign up for Situation Report by sending us a note at gordon.lubold@foreignpolicy.com and we’ll just stick you on. Like what you see? Tell a friend.  And if you have a report you want teased, a piece of news, or a good tidbit, send it to us early for maximum tease. And hey! Follow us: @glubold and @njsobe4.

It’s official in SitRep: Mary Legere and Stephen Fogarty aren’t in the running for those intel jobs in the U.S. military. Foreign Policy (and SitRep) had reported first some weeks ago that the White House was going to pass on nominating Lt. Gen. Mary Legere, currently the Army’s G-2, or top intelligence official, to lead the Defense Intelligence Agency. Maj. Gen. Stephen Fogarty was expected to replace her as the G-2. Now, neither officer will be nominated for those jobs, as a senior Pentagon official informed a member of Congress.

"Thank you for your … letter regarding your concerns on the suitability of Lieutenant General Mary A. Legere and Major General Stephen G. Fogarty for positions of importance and responsibility," wrote the Pentagon’s personnel chief, Jessica Wright, to Rep. Duncan Hunter, Jr., the California Republican wrote July 9. "In the case of each of these officers, the Secretary of the Army has requested both nominations be withdrawn because of the lengthy review process."

FP’s story, with Shane Harris and Lubold, June 27, here.

Read the letter from the Pentagon to Duncan Hunter, here.

Back to Iraq: Here’s everything the U.S. military has hit with airstrikes in Iraq. The WaPo’s Dan Lamothe examines the patterns of the nearly 100 strikes the U.S. has conducted since August 8:

"Vehicles have been targeted in the majority of the strikes -?The very first airstrike took out a convoy of seven vehicles, and the military hasn’t let up on similar targets since. Airstrikes have destroyed or damaged more than 85 vehicles, including 43 described either as ‘armed trucks’ or ‘armed vehicles’ and 19 more identified as Humvees.

"…A variety of stationary targets have been hit?– The military said it destroyed nine enemy fighting positions on Aug. 18, but it hasn’t reported doing so since.

"…Weapons under fire?– The Islamic State has seized a variety of weapons from Iraqi forces during their assault across the northern and western regions of the country this year. Among the targets the U.S. military has hit: Mobile artillery (once), mortar systems (three times) and anti-aircraft artillery guns (once).
"…Most are near Mosul Dam?- Two-thirds of all airstrikes conducted by the U.S. in Iraq have occurred near the Mosul Dam, a strategic asset that the Iraqi military took back from the militants earlier this month." Full story here.

Overnight: Journalist Peter Theo Curtis, freed by the Nusra in Syria, returns home to Boston, AP, here.

But militants are holding another American, a woman, who was doing aid work and was captured last year. AP, here.

It looks like the Obama administration has found its grand strategy after all: "step back, criticize others who step forward, and laud our own moral superiority for doing nothing."  Kori Schake for FP: "…America is not incapable of devising and executing grand strategy. But the Obama administration evidently is." More here.

The U.S. is mobilizing its allies to widen the assault on ISIS. The NYT’s Helene Cooper and Mark Lander: "…As Mr. Obama considered new strikes, the White House began its diplomatic campaign to enlist allies and neighbors in the region to increase their support for Syria’s moderate opposition and, in some cases, to provide support for possible American military operations. The countries likely to be enlisted include Australia, Britain, Jordan, Qatar, Saudi Arabia, Turkey and the United Arab Emirates, officials said.

"The officials, who asked not be named discussing sensitive internal deliberations, said they expected that Britain and Australia would be willing to join the United States in an air campaign. The officials said they also wanted help from Turkey, which has military bases that could be used to support an effort in Syria." More here.

Foreign Policy Initiative’s Bobby Zarate now works in Republican Mark Kirk’s office in the Senate. Zarate, a former House staffer, started in Kirk’s office this week as national security adviser. "I’ve very much enjoyed my 3+ years at the Foreign Policy Initiative, and I look forward to working with you in my new capacity," he wrote to friends and colleagues in an email a few days ago.

Situation Report corrects – Yesterday in an item referring to a story about the Chinese jet fighter’s intercepts of an American Navy jet earlier this month, we inadvertently referred to the PLA’s fighter as "Japanese" in the same sentence. Of course we meant Chinese. But you shouldn’t have to figure that out on your own – apologies for the confusion and the early morning brain cramp.

Parts of the Arab press are claiming that Washington invented ISIS – and the proof is in Hillary Clinton’s memoir. The NYT’s Robert Mackey: "…According to the theory, which appears to have started in Egypt and spread rapidly across the region, ISIS was created by the United States as part of a plot orchestrated by the former secretary of state Hillary Rodham Clinton to replace the region’s autocratic rulers with more pliant Islamist allies. The evidence cited to back up this claim sounds unimpeachable: passages from Mrs. Clinton’s new memoir in which she describes how a plan to bolster the Muslim Brotherhood in Egypt was foiled at the last moment when the Egyptian military seized power on July 5, 2013, and deployed submarines and fighter jets to block an American invasion.

"If that plot sounds like the stuff of fiction, that’s because it is. The passages described by supporters of the Egyptian military on Facebook as quotes from Mrs. Clinton’s memoir were entirely fabricated and do not appear anywhere in the text of her book, ‘Hard Choices.’" More here.

USC journalism professor Philip Seib writes on where exactly the intelligence community should focus its efforts in tracking groups like ISIS. Read it on HuffPo, here.

ICYMI – What Baghdad and Detroit have in common. Maj. Jaron S. Wharton, a former White House Fellow and Iraq and Afghanistan veteran, for ARMY Magazine, here.

An editorial in Lebanon’s Daily Star blasts Syrian Foreign Minister Walid al-Moallem’s comments on fighting terror, here.

The Islamic State was born from a warped theory of war. Faisal Al Yafai for the National (in the UAE), here.

Did you know Joe Dunford never wore his combat boots when he visited Karzai? The Economist profiles Dunford, the ISAF commander, as he leaves Kabul and returns to Washington to become the Corps’ top Marine. The Economist in "Farewell to a Fighting Diplomat": "Each time the commander of the foreign forces in Afghanistan, an American general named Joseph Dunford, visited the country’s presidential palace he first made a quick dash to the wardrobe. He went to switch out his camouflage fatigues and combat boots and into his full-dress uniform, pressed and creased down to the buffed shoes.

"It was a tactic that did not go unnoticed. Palace insiders, rightly or wrongly, had long believed they were being treated like a doormat in their own country. The same people were quick to note and appreciate the ‘special sharp suit’ that Mr Dunford wore to greet President Hamid Karzai. Mr Dunford says he made the decision to do so out of respect for the highest office in the land."

Dunford to the Economist: "When I go visit my own president that’s the uniform I wear, so it was natural for me to wear the same uniform when I see the president of Afghanistan." More here.

Afghan presidential candidate Ghani pulls observers from election audit, Reuters this hour, here.

Abdullah Abdullah walks out. The NYT’s Rod Nordland: "One of the two presidential candidates in Afghanistan’s hotly disputed election pulled out of an internationally supervised audit of the results on Wednesday. Aides to Abdullah Abdullah, a former foreign minister, walked out of the Independent Election Commission’s headquarters here after a series of technical demands about the audit, made by his campaign aides on Tuesday, went unmet.

"United Nations officials supervising the process then asked Mr. Abdullah’s opponent, Ashraf Ghani, to also withdraw from the audit so it could continue with only international and independent observers present, giving neither campaign an unfair advantage.

Awkward: Putin and Poroshenko meet amid Ukrainian claim that Russian paratroopers had entered the country. The WaPo’s Karoun Demirjian and Annie Gowen: "Ten Russian paratroopers captured on Ukrainian territory made for an awkward summit Tuesday evening between the presidents of the two nations. Hopes for a breakthrough at the meeting between Petro Poroshenko of Ukraine and Vladimir Putin of Russia already had dimmed, but when Ukraine announced early in the day that it had seized the Russian soldiers in the Donetsk region – and had video evidence – it led to what the summit host called a ‘difficult’ discussion." …Afterward, Putin said he had told Poroshenko that Kiev must take the initiative in working out a peace agreement with pro-?Russian separatists in eastern Ukraine." More here.

Former Georgian president Mikheil Saakashvili says we’ve seen Putin’s show before, and Ukraine must stand strong: Saakashvili, writing in FP: "…Putin knows that Poroshenko is likely not in a position to yield to this pressure and accept his ‘peace plan’ in Minsk. So the Kremlin has its own follow-up scheme on standby — blame everything on the unconstructive stance of the Ukrainians and attack them with the full extent of Russian force. Once again, this was what happened in Georgia after we rejected the unacceptable conditions put forward by Moscow.

"The only way forward — even if it is complicated and costly — is to stand firm at Ukraine’s side and help pursue a decisive victory. For that, the Europeans need to stop trying to tie Poroshenko’s hands and undermining Ukrainian morale. They also need to be ready to impose additional sanctions against the Russians and provide more economic assistance to Kiev." More here.

With the U.S. winding down its European footprint, and both the UK and France overstretched, NATO’s future depends on Germany. Emily Cadei for OZY, here.

Former US Ambassador to NATO Kurt Volker tells FP how NATO can defeat the Putin doctrine in Ukraine and Eastern Europe: Read David Francis’ story for FP, here.

Back to Israel: Former Palestinian negotiator Ghaith al Omari and former deputy U.S. Mideast peace envoy Mara Rudman write for the Hill on opportunities in rebuilding Gaza:  "…The United States has the resources, skills, and interests at stake to lead.  But leading does not mean monopolizing. We are more likely to succeed working alongside partners from Egypt, the UAE, Saudi Arabia, Jordan, Europe and other stakeholders, and with Palestinians and Israelis on the ground. Regional dynamics now provide more willing players who share U.S. interests. If the United States fails to step up, others will fill the void and reap the political benefits." More here.

The psychology behind Israel’s Gaza war and the truce that followed. Yael S. Aronoff for FP: "Most people probably think of Israeli Prime Minister Benjamin Netanyahu as a pugnacious hawk. In interviews with the media, his stern baritone insists on the dire threats to Israel’s security.

"…This image of a combative Netanyahu, however, is misleading. Operation Protective Edge, as this summer’s Israeli military venture was deemed, goes against everything that typically makes Netanyahu who he is. Far from the public image, Bibi is innately cautious and risk-averse. Those characteristics, combined with his conservative Likud ideology, are most important in understanding how the stage was set for the current conflict." More here.

Obama announces veterans mental health efforts, but most aren’t new. Military Times’ Patricia Kime: "In his speech before the American Legion on Tuesday, President Obama touted new initiatives intended to improve mental health treatment and support for service members and veterans. But many of the 19 ‘new executive actions’ aren’t as novel as presented; just over a quarter represent fresh efforts while the remaining either have been in the works for months or were introduced by Congress and now have White House support. Since 2009, Obama has pledged to make veterans issues a top priority. He has increased the VA budget by more than $50 billion in the past five years and promised to ‘dramatically improve services’ for mental health treatment." More here.