With the implementation of the Gaza disengagement plan on September 12, 2005, and the evacuation of 21 Jewish settlements from the Gaza Strip, along with four smaller settlements in the northern West Bank, the Israeli policy of unilateral separation from the Palestinian population has shifted to what can be called "Disengagement - Phase II," which now constitutes the official policy of the new Israeli government formed after the elections of March 28, 2006, and concentrates on the occupied West Bank.
The plan entails, among other things, the evacuation of about 70,000 Jewish settlers currently housed in some 60 isolated settlements scattered across the West Bank to the east of the separation wall Israel built on confiscated Palestinian land, and relocating or "consolidating" them in the three major Jewish settlement blocs located to the west of the wall. The principal goal of Israel is to annex all the land along the western side of the wall (about 10 percent of the West Bank) in an attempt to de facto set its permanent borders with the Palestinians by the end of this decade.1
Although it is not yet fully known how this "consolidation plan" (also known as the "convergence," or "realignment" plan) will be implemented, and what precisely its final territorial outcome will be, the one-sided West Bank disengagement plan leaves little doubt that its impact on the battered Palestinian economy could potentially be devastating under whatever scenario.2
It is quite surprising that, of all the attention and media coverage that the official Israeli policy of unilaterally drawing the country's final borders with the Palestinians has received, the potential adverse consequences of such a policy on the Palestinian economy have received such little attention, discussion or analysis. Given the vital importance of the economic factor in the overall Israeli-Palestinian equation and the role of economics in any future final settlement of the century-old conflict, such an analysis is mandatory. The objective of this article, therefore, is to examine the impact a unilateral Israeli withdrawal will have on the Palestinian economy, and to present some preliminary thoughts on this subject.
Based on what is already known about the Israeli plan, the context in which it is expected to be implemented, and the recent experience of the Gaza disengagement and its tragic economic consequences nearly a year after its implementation, one could justifiably fear the outcome. The Israeli unilateral approach would not only deprive the Palestinian economy of the conditions needed to recover from its current unprecedented setback - let alone to grow and prosper - but there is good reason to believe that, in fact, the economic conditions in the West Bank and Gaza may very well continue their dangerous six-year-old nosedive, with adverse social, political and security ramifications for the Palestinian population and possibly beyond. This bleak projection of the expected adverse economic impact is predicated upon three main reasons developed below.

A. The Terms of the New Unilateral Disengagement

The future fate of the West Bank territory the Israeli government is planning to evacuate under the convergence plan is not yet fully known for certain as there are reported differences among political leaders and the defense establishment in Israel on how to carry out the plan. With the complete evacuation of about 60 isolated settlements east of the separation wall, Israel may decide to continue to maintain a military presence in these areas and not to turn the evacuated land over to the Palestinians.
This has happened before when Israel evacuated four small settlements in the northern West Bank in September 2005, but did not change the status of the evacuated areas from Area C (where Israel maintains overall military control, i.e., continued occupation of the land) to Area A (where civil and security responsibilities are in the hands of the Palestinian Authority).3 Should this turn out to be the case, then the evacuation of the Israeli settlements, in itself, will most certainly leave no positive change on the Palestinians' living conditions.

Israeli restrictions have fragmented Palestinian
economic activity (Photo by Mahfuz Abu Turk)

Another possible scenario is for Israel to relinquish military control over some parts of the evacuated West Bank land, but to maintain a dominant military presence in certain locations of major strategic importance. If this is to happen, it would result in a lack of territorial contiguity of the evacuated land and, consequently, will lead to the cantonization of the West Bank, dividing it into four enclaves, as is the case today. It is widely expected, at least among Palestinians, that this is what will happen after the new Israeli unilateral pullout. Another major concern is Israel's publicly stated intention to maintain control - irrespective of the scenario - of the entire Jordan Rift Valley and, by implication, of the international frontier and border crossings with Jordan.
The economic implications of all this should be very clear to anyone who has followed the Palestinian economy over the past decade and, in particular, the past six years since the eruption of the al-Aqsa intifada in September 2000. Under these possible scenarios of the implementation on the ground of the Israeli unilateral plan, the Palestinian economy is expected to remain subject to draconian Israeli restrictions on the movement of Palestinian people and goods. During the past years, these restrictions have fragmented Palestinian economic activity, raised the cost of doing business in the West Bank and Gaza, eliminated the predictability needed for normal economic activities, and discouraged private investment. They are largely acknowledged by the international donor community as the main detrimental factor causing the current Palestinian economic crisis and complicating economic recovery. This will almost certainly remain the case under a unilateral Israeli withdrawal from the West Bank.4
Furthermore, it is not only the status of the Palestinian land which Israel intends to evacuate unilaterally that is of importance to the analysis, but also the type of Palestinian land located to the west of the separation wall that Israel plans to permanently retain, which will have a detrimental impact on the future growth prospects of the Palestinian economy.
First, the land Israel is planning to annex is considered to be among the most fertile arable lands in the West Bank, and it is also where the main water aquifer is located. And as the agricultural sector constitutes a major part of the Palestinian economic output, providing desperately needed income and employment to a large number of the Palestinian workforce, taking this resource-rich land away is bound to deal a heavy blow to the Palestinian economy. Second, there is Arab East Jerusalem, considered by Palestinians to be the commercial and cultural capital of the West Bank. Under the separation, the West Bank is expected to be completely cut off from East Jerusalem. Furthermore, as the prospects for establishing a commercially viable territorial link between two geographically separate parts of the Palestinian land - i.e., Gaza and the West Bank - would be almost non-existent, the present suffocating isolation of the West Bank from both Jerusalem and Gaza will be further exacerbated, with enormous economic cost to the Palestinians.
Finally, the fact that the plan would be unilaterally implemented entails that political instability, continued conflict, and possible armed confrontation would remain the dominant reality for the foreseeable future. This is not the environment where private business activities can be conducted and where an economy can thrive. On the contrary, the most likely outcome would be still further Israeli-imposed restrictions on Palestinian freedom of movement and trade transactions, both within the West Bank and across borders with Israel and the outside world markets, resulting in continued deterioration in Palestinian economic performance and conditions.

B. Lessons Learned from the Gaza Disengagement

In light of the devastating experience following the implementation of the unilateral disengagement from Gaza last summer [2005], the projected adverse impact on the Palestinian economy of yet another one-sided separation plan cannot be considered exaggerated or unrealistic. This should be fully understood if we are to objectively grasp the potential grave consequences of the unilateral approach, or if we seriously want to avert a replication of another economic and humanitarian calamity like the one currently unfolding in the post-disengagement Gaza Strip.
Nearly a year after disengagement, the economic, social, and security conditions in the Gaza Strip have rapidly deteriorated to an alarming level.5 The present disaster, however, was expected. This was quite evident in the World Bank report on disengagement which concluded that the "Israeli unilateral disengagement plan from Gaza, of itself, would have a very limited positive impact on the Palestinian economy."6
Based on the experience of the past decade, and an analysis of the terms of Israel's Gaza disengagement plan, this author reached an even more pessimistic conclusion in July 2004, a year before the disengagement took place:
"...It is highly doubtful that the Israeli pullout plan …will result in any tangible economic benefits for Gaza. Given the distinct demography and geography of Gaza, the plan is more likely to further intensify the economic squeeze on its 1.3 million inhabitants, driving poverty and unemployment rates (currently at 65 percent of the population, and 40 percent of the labor force, respectively) to higher levels, spawning… more despair among the predominantly young and fast-growing population. This is a sure recipe for the perpetuation of the ongoing conflict. That is precisely where the inherent danger of the one-sided Israeli plan lies. " 7

There is no good reason to expect a different outcome in the West Bank if the Israeli government goes ahead with its convergence or realignment plan, with total disregard for its adverse impact on the already bankrupt Palestinian economy. Successful disengagement has requirements:
"…If [post-disengagement] Gaza is to serve as an engine of future growth for the Palestinian economy, then two conditions have to be met... First, the [Israeli Disengagement] plan has to give Gaza a complete and unfettered access to the outside world. Without such access to global markets, it is almost next to impossible to see how Gaza can recover, achieve sustainable growth, and ultimately prosper. Second, the plan has to be an integral part of a much wider vision for peace and reconciliation between Israel and Palestine. Only a viable political process can restore stability and certainty, both of which are crucial for long-term private-sector-led investment and growth." 8

These two conditions for successful separation between the two populations and the two economies, which are the main lesson learned from the Gaza disengagement disaster, were valid for Gaza then, and are still valid for the West Bank now.

C. The Impact on the Viability of a Future Palestinian State

Ever since the question of the economic viability of a future Palestinian state started to appear in the political and economic writings of the Middle East, the underlying assumption was that the future state would be established on the Palestinian land occupied by Israel in the 1967 war; i.e., in the Gaza Strip, the West Bank and East Jerusalem.9 This land, which constitutes about 22 percent of historical Palestine, was considered to be the potential economic base for the Palestinians of the occupied territories in the context of a two-state solution to the Israel-Palestine conflict. The assumption entailed a host of other sub-assumptions, all deemed crucial for the economic survival of the future Palestinian state: full control over water and other natural resources, complete control over land, air and sea access to the outside world, and a sovereign unfettered territorial link between the geographically separate Gaza Strip and the West Bank. All this, of course, within the context of a comprehensive and lasting peace deal with Israel that would put a negotiated end to the conflict and provide the stability, security, and certainty necessary for the conduct and sustainability of economic activities.
It was further understood that such a condition would constitute the bare minimum for the proper functioning and the long-term survival of the economy of the future Palestinian state and its continued ability to provide its rapidly growing population with jobs, adequate social services, and decent standards of living. A bare minimum because, without it, as the recent experience of the post-Oslo years has sadly proven, it would be next to impossible to make a meaningful use of the following four major factors that would help sustain the viability of the state in the short run, and secure its continued survival in the long term: (1) utilizing efficiently international financial support necessary to build the physical infrastructure and public institutions of the nascent Palestinian state; (2) taking full advantage of the geographic proximity to a much advanced and stronger Israeli economy, based on fair and interdependent economic relations and terms of trade; (3) developing strong trade relations with regional and international markets, crucial for the growth and development of the small economy of Palestine; and finally, and probably most importantly, (4) upgrading, building and capitalizing on the skills of the one and only asset the future state of Palestine will have, and that is its young and rapidly growing human resources.
The above rationale of the factors underlying the economic viability of the future Palestinian state was true then and is still very much true today. The present Israeli policies of control over the Palestinian people and their land are very costly, unsustainable, and could very well have very devastating consequences in the not-so-distant future. Unilaterally leaving parts of the occupied Palestinian land, while maintaining full control over its resources, internal access roads, and international borders, as was the case with the Gaza disengagement, is not a viable alternative either, as the Gaza disaster could very well reproduce itself in the West Bank disengagement enterprise.
The notion of economic viability as a sine qua non condition for any future Palestinian state, thus rests on the vital consideration that, once guaranteed in any future negotiated peace deal, it will offer the Palestinian people the necessary means to recover from the present economic setback, and to proceed after that with the challenging task of building a modern economy that can enhance the long-term prospects of peace and stability in the region. Failing that, the future Palestinian state would face a major threat to its very existence and, by extension, so would the prospects of lasting peace in the region. That is why the viability question, and its determining elements like land, borders, and resources, continues to figure prominently in any serious debate over Palestinian statehood.

Concluding Thoughts

The present Israeli policy of attempting to unilaterally set the terms of the final settlement to the Palestinian-Israeli conflict is mainly driven by a demographic factor, and the deep-seated fear on the Israeli part that in the not-so-distant future, the Palestinian population between the Mediterranean Sea and the Jordan River will constitute a majority, thus depriving Israel from being simultaneously a democratic and a Jewish state. But this same demographic factor also has an equally important Palestinian dimension that could prove a decisive element in the manner of settling the conflict.
With a 4 percent annual population growth rate, the nearly 4 million Palestinians in the West Bank and Gaza will double in less than 20 years. With half of this population under the age of 15, the need for decent jobs and basic social services will be mounting each year. These young Palestinians could be the engine of reconstruction and growth in the right political setting, but could also very well be the seeds of further instability if they continue to be denied this opportunity.
The Palestinians today are facing dire living conditions that call for urgent measures to mitigate their suffering and provide them with life's basic needs. Emergency measures are needed to deal with the present humanitarian crisis. However, to create the right enabling environment for future Palestinian governments to create productive employment and achieve sustainable growth - something the economy was not able to provide or experience during the last four decades - nothing short of a real negotiated political settlement that puts an end to the 39-year-long Israeli military control over the Palestinian people and their land will have the chance to work.

1 These major Israeli settlements blocs are Ariel, Maaleh Adumin, and Gush Etzion. For information on maps showing the exact location of the blocs in the West Bank and on the route of the separation wall, see the PLO Negotiations Affairs Department (
2 For a Palestinian account of the possible scenarios of Israel's unilateral convergence plan, see the Jerusalem Fund, "Israeli Unilateralism: An Illusion of Peace," No. 255 (Washington, D.C., June 1, 2006).
3 The four small settlements (Ganim, Kadim, Sanur, and Homesh) are located in the Jenin governorate in the northern West Bank.
4 On the nature, number, and impact of the Israeli restrictions on Palestinian free movement in the West Bank, see the United Nations Office for the Coordination of Humanitarian Affairs in the Occupied Palestinian Territory (OCHA), Territorial Fragmentation of the West Bank (May 2006). Also see various reports by the World Bank on Palestinian economic performance over time, e.g., The Palestinian Economy and the Prospects for Its Recovery - Economic Monitoring Report to the Ad Hoc Liaison Committee, No. 1, December 2005.
5 See recent report by the Association of International Development Agencies (AIDA), Humanitarian Situation in Gaza Six Months after Redeployment (May 4, 2006) (
6 The World Bank, Disengagement, the Palestinian Economy and the Settlements, (Washington, DC.: June 23, 2004)
7 Mohammed El-Samhouri, "Pessimism Pervades a Gaza Pullout," The Daily Star, July 30, 2004.
8 Ibid.
9 For good references on the subject, see Emile A. Nakhleh (1979), The West Bank and Gaza: Toward the Making of a Palestinian State (Washington D.C.; American Enterprise Institute for Public Policy Research); George T. Abed (1990), The Economic Viability of a Palestinian State (Washington D.C.: Institute for Palestine Studies); and Leila Farsakh, "Economic Viability of a Palestinian State in the West Bank and Gaza Strip: Is It Possible without Territorial Integrity and Sovereignty?" The MIT Electronic Journal of the Middle East Studies, Vol. 1, May 2001, pp. 43-57.