I see a problem. But the problem is not so much whether the property should be returned unconditionally to a virulently anti-semitic nation that stole it. It shouldn't. The problem is that an agreement to return it unconditionally should never have been arranged in the first place.
Regardless of how the present custodians came to be in possession of the property and regardless of any ill-advised agreement to return it unconditionally to Iraq, the property rightfully belongs to the Iraqi Jewish community. That factor trumps anything else. There are only two ethical options:
- Return the property to the Iraqi Jewish community. Since literally only half a dozen or so members are still precariously living in Iraq and the main cultural centres of the exiled community are now based in Israel or the US, the property should go to one of those centres.
- Return the property to the Iraqi government under certain conditions. It would need to be appropriately and securely curated, perhaps in a dedicated memorial candidly explaining its origin, with the provision of unhindered access to anyone (including those people living in Israel or the US) with a right to see it. That provision would of course entail a complete renouncement and reversal of the current anti-semitic attitude prevailing in Iraq, including a clampdown on all racist actions and propaganda - not unlike the policies in Germany after the Holocaust.
There are no other ethical options. Both options are fraught with difficulties and potential repercussions but that is often the nature of acting ethically. To take the easy course and simply go along with the original agreement no matter what is not only irresponsible, it is abetting the racist oppression of a cultural minority.
(To pre-empt any silly semantics: I think we all know that Iraqi Arabs are ethnically Semitic too. The word "anti-semitic" here is used in its traditional sense, referring specifically to Jews.)