Thirty years of Israeli occupation of the West Bank and the Gaza Strip (WBGS) have led to a steady deterioration in the political and economic conditions there. During that period, Israel succeeded in restructuring the Palestinian economy in such a way that it became dependent on the Israeli one. This led to a small and feeble Palestinian economy, with a limited capacity for job creation and labor force absorption. One-third of the Palestinian labor force depends on the Israeli work market.
This restructuring of the Palestinian economy can also be looked at as forced integration, since a small economy was integrated into a much larger one, causing tremendous economic imbalances, bottlenecks, unfair trade practices and the imposition of regional restrictions. For example, the Palestinians were able to sell their labor regionally, especially in the Gulf area, but not their commodities, because of the total integration of the Palestinian economy into the Israeli one.
The economic situation in the WBGS at present is somewhat unique. There is the dependency factor, as mentioned above. However, it is important to note that since the Palestinian National Authority (PNA) took power in the Palestinian territories in 1994, its main objectives were the creation of an independent Palestinian economy by decreasing this dependency through seeking new trade and commercial relations with its neighboring Arab countries, as well as with Europe, the United States and South East Asia.
It should also be noted that the PNA took over a complex economy constrained by a legacy of political restrictions imposed by the Oslo Accords and the various agreements signed between the PLO and the Israeli government which, in the absence of an implementation mechanism, worked to the detriment of the Palestinian economy.
Nonetheless, the PNA has maintained its high expectations for economic progress. Thus, on the economic level, the main proposition behind the peace process was to improve the living standards of the people in the region, particularly in the West Bank and the Gaza Strip. The basic concept was that peace would bring economic development and prosperity; economic development, in turn, meant increased support for the peace process. This unique situation where the political and the economic are so tightly intertwined laid a heavy burden on the shoulders of Palestinian decision-makers as they attempted to meet the high and, sometimes unrealistic, expectations of the public, especially in an environment where political issues impeded economic development.

Impediments to Economic Development

After the major partners in the Middle East peace process - the PNA, Israel, Egypt and Jordan - signed the peace agreements and, consequently, trade agreements among themselves, one of the major assumptions underlying those agreements was that there would be free movement of commodities and people among the four countries. However, when it came to a practical implementation of the trade agreements, a long chain of bureaucratic barriers was created that drastically affected the long-awaited fruits of peace.
A main impediment to development in Palestine and cooperation in the region is the collective punishment Israel imposes on the Palestinian people under the closure policy, causing tremendous hardships on the Palestinian population and economy as it restricts movement of people and goods and trade with the external world. Hence, a vast gap exists between the movement of commodities in real terms compared to what has been agreed upon in the peace accords.
A second trade impediment is the fact that the Israeli government has complete control of the border checkpoints and has the final word in the decision-making process regarding who is allowed residency in the Palestinian territories and who is not. This discourages potential investors from taking the necessary risks to invest in Palestine.

PNA Economic Policies

During the past five years of the Interim period, PNA policy aimed at the achievement of certain objectives:
• to give priority to the rehabilitation and reconstruction of the Palestinian economy in order for it to regain its strength and its ability to grow and to lay the foundations for sustainable development;
• to raise the standard of living of the Palestinian people and to improve their quality of life, through the efficient management of available economic resources (human and physical) and the proper administration of external economic relations;
• to promote the performance of the Palestinian economy on both macro and micro levels, expand its productive capacity, and enable it to benefit from the potential of regional and international cooperation;
• to work towards securing strategic storage of basic goods at fair prices to prevent shortages and avoid monopolies;
• to reform the Palestinian-Israeli economic relationship by focusing on renegotiating the Israeli-Palestinian Economic Protocol, which has been abrogated de facto because of the Israeli policy of closure and economic siege.
The PNA seeks to achieve the above objectives in several ways. First, it is abiding by free market economic principles, which enable an effective role in organizing economic activities and guaranteeing fair competitive opportunities for all members of the Palestinian society during the process of reconstruction and development. Second, it is working on the melting of the various components of the Palestinian economy in the West Bank and the Gaza Strip into a unified national economy to achieve economic and sectoral balance. Third, it is undertaking a full integration of the governmental sector through the provision of an investment environment. This must be supported by legislative and institutional frameworks. The public sector must play its role in the reconstruction and development of the urgently needed infrastructure, alongside the leading role of the private sector in the process of economic growth. The PNA plans to regain the necessary internal ties between the various components of the Palestinian economy, its supply and demand in the labor and goods market, as well as in production, consumption, savings and investments. And, finally, the PNA aims at the achievement of the economic stability necessary for the promotion of growth and sustainable development. This demands appropriate policies in the monetary and financial fields, in taxation and the management of revenues, in employment and the labor market, in the encouragement of savings and in an effective banking system.
Since it has taken power, the PNA has been focusing on the following main sectors:
Agriculture. PNA policy in this sector aims to increase PNA land holding and control over water and agricultural resources, which are at present under Israeli control. It will concentrate on agricultural produce requiring less irrigation for water conservation purposes. Finally, it plans to work towards maintaining the existing agricultural share in gross domestic product to expand employment capabilities and also to restructure the agricultural sector in order to meet the increasing local demand for basic food products on the one hand, and to bolster its exporting potentials on the other.
Industry. The PNA is working towards increasing the role of the industrial sector in the gross domestic product by increasing investment in this sector and diversifying production. The object is to support small- and medium-size industrial projects through financial backing and effective marketing, giving priorities to labor-intensive industries and to those that utilize domestic resources. By observing international standards, specifications and measurements, the PNA aims at enabling national industries to compete locally, regionally and internationally, while, at the same time, protecting the consumer by maintaining quality control over products and safeguarding against monopolies and bottlenecks.
Trade. The PNA is trying to increase the role of internal trade in the overall Palestinian trade activities; to adopt a foreign trade policy that would reduce Israeli hegemony over Palestinian foreign trade and expand trade relations with other countries; and to demand control of the borders and the various checkpoints.
Tourism. Palestine should be able to benefit greatly from its unique comparative advantage as the cradle of religions by improving the tourism infrastructure, including hotels, restaurants and transportation, and through regional tourism cooperation (package deals).
The PNA is aware of the importance of regional cooperation and integration, particularly in the era of globalization where no one nation can, regardless of its military power, geographic, demographic or economic size, achieve growth, sustainable development or progress by remaining in complete isolation. Recognizing international trends, the PNA is participating in regional economic activities, bearing in mind that only peace building will lead to the next phase - regional cooperation.


The PNA expects confidence-building measures through the implementation of the various agreements it signed with Israel. The challenges facing it are many. It has to provide potential investors with a secure and attractive investment environment. Upgrading the administrative and technical capabilities of PNA civil servants working in the economic sector, as well as improving the quality of a wide range of financial services to be extended to the various sectors and to the public at large are also matters that are under careful PNA consideration and planning.
On the other hand, Israelis have to accept the Palestinians as equal partners with whom they will have to share their destiny and future. After all, we share the land, the water, the air and all other fortunes and misfortunes that face the area.