When Israel completed its withdrawal from the Gaza Strip and the northern West Bank in September, the Palestinians and their backers hoped there would be immediate economic gains. Palestinian officials named economic development in Gaza and the West Bank as their top priority. International donors stood ready to contribute billions of dollars in aid and investment to the territories.

Those dividends have yet to materialize. After militants launched rockets from Gaza, Israel retaliated and clamped down. The Strip is more isolated than ever, and freedom of movement in the West Bank is limited. With legislative elections in January, President Mahmoud Abbas needs to show economic results to the Palestinian public if his Fatah movement is to win. In a recent survey by pollster Khalil Shikaki, for the first time a majority of Palestinians polled cited the economy as the top concern -- even over ending Israeli occupation.

Halting Progress

Optimists had hoped for a surge in cross-border agricultural trade after Israel dismantled its Gaza settlements. That can't happen without an Israeli decision to allow freer movement of goods and people in Gaza and the West Bank. On Nov. 1, Israeli officials provisionally agreed to open a border crossing between Gaza and Egypt, provided it is monitored by international observers. Palestinians are also pushing for an end to restrictions on the more important border between Gaza and Israel in time for the harvest season.

The Israeli government is also weighing whether to establish an overland link between Gaza and the West Bank, which are separated by 50 kilometers of Israeli territory. While Vice-Premier Shimon Peres favors easier movement, the military is wary due to security concerns, and Prime Minister Ariel Sharon is backing the military. In mid-October, former World Bank President James D. Wolfensohn, now a Middle East envoy for "the Quartet" of the U.S., European Union, Russia, and the U.N., accused Israel of dragging its feet. Secretary of State Condoleezza Rice is expected to press the issue when she visits the region soon.

In the meantime, truck traffic carrying produce and textiles to Israel is down to a trickle. The World Bank says the number of trucks entering Israel must increase to at least 100 a day -- five times the current level -- for the Gaza economy to get back on track. "There will be only limited growth unless the border [is] opened to allow for the free movement of exports," says Palestinian Planning Minister Ghassan Al-Khatib. Per capita gross domestic product among Palestinians is down 50% since the intifada began in 2000, to $950 a year. Workers need to be able to travel, too. Some 50,000 Palestinians cross from the West Bank into Israel, down from 140,000 five years ago. Gazan workers have been barred from entering Israel since the disengagement.

For Abbas, there are two dangers. One is that he'll have little to show for his year as President. Then, the militant Hamas movement, which provides social services, could make big election gains. "Right now Hamas is doing more for the people of Gaza than the Palestinian Authority," says Edward S. Walker Jr., president of the Middle East Institute and former U.S. Ambassador to Israel. A bigger danger, adds Henry Siegman, a Middle East expert at the Council on Foreign Relations, is that "the intifada will return and be more violent than in the past." Steps to revive the Palestinian economy are urgently needed. zz

By Neal Sandler in Jerusalem

Edited by Rose Brady

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