A Cliff Hanger Called Gaza

Looking out from the beach at Gaza City, you might imagine for a moment that you were at a seaside resort as the afternoon sun paints the waters of the Mediterranean a delicate blue-green. But a landward glance quickly jars you back to reality. Mounds of trash mar the scene, and just behind the high-tide mark looms a mass of corrugated metal shacks--the outskirts of a huge, teeming refugee camp.

This is the Gaza Strip, the centerpiece of the interim agreement just signed by the Palestine Liberation Organization and Israel. Under the pact, the PLO next month gains administrative responsibility over the tiny 140-square-mile sandy rectangle wedged between Israel and Egypt's Sinai Peninsula. But Gaza is at best a dubious prize. Creating the conditions for economic growth--which the PLO considers its main task--will be far from easy.

About half of Gaza's nearly 800,000 people are packed into tiny cement-block houses in the refugee camps. They are poor, violence-prone, and radicalized. When the PLO takes over, it will have to launch an infrastructure-spending program quickly to ease Gaza's unemployment rate, which may exceed 50%. Other schemes include a new Gaza port and even a free-trade zone that would make use of the Strip's cheap labor. But the PLO will have to deal skillfully with the Israelis, whose control of the borders gives them a virtual veto over Gaza's economic future.

TOUGH TEST. For PLO Chairman Yassir Arafat, gaining political control of Gaza will also be a tough test. Unlike the West Bank, where Arafat's mainstream Fatah faction has the upper hand, in Gaza the Islamic militant group Hamas has control and seems capable of mounting a strong challenge to Arafat.

Still, Gaza isn't quite as bleak as it seems. The close-knit business community is energized by the prospects of getting Israeli troops off the streets and of loosened Israeli regulations. And Gaza has some assets. Its coastline could be attractive to foreign tourists. It has a small fishing industry. The proximity to Israeli population centers as well as the Jordanian capital of Amman might make a port feasible. Farouk Abu Shark, an architect and chairman of Arab Consultants Group, says he is already getting nibbles from international investors interested in building "very sophisticated, high-standard hotels."

But bringing industrial development to Gaza depends largely upon tricky negotiations soon to begin among the Palestinians, Israel, and Jordan. Despite their hostility toward Israelis, most Gazans still work for them in one way or another. Nearly all of Gaza's roughly $200 million in exports go to or through Israel, with Jordan permitting only about $10 million in goods to cross the Jordan River. Greater trade with Jordan depends on Israel's permitting Jordanian products into the territories. Samir Holeileh, who is emerging as a key economic policymaker for the Palestinians, envisions a deal in which Jordan liberalizes its trade regime with the territories while preserving its financial clout there. Jordanians want their banks to become the territories' chief financial institutions, and they want the dinar to keep circulating along with the shekel.

GRUMBLING MEN. But in economic terms, Gaza will probably remain closer to Israel for some time. The Israelis are already stepping up their use of cheap Gaza labor to shore up key industries such as textiles, clothing, and flower production. According to economist Salah A. Shafi, director of the Gaza office of the European Community-funded Economic Development Group, 3,000 to 4,000 Gaza garment makers are producing textiles for Israeli companies. Some neighborhoods are packed with small sewing mills that mostly employ young men, including bearded Muslim fundamentalists.

Other Israeli companies will beef up existing ties in the Strip. In fact, Gaza sources report that Israeli construction companies are already lining up Gaza partners to bid on the big infrastructure contracts likely to be generated by international assistance funds. The PLO will probably adopt a flexible approach toward Israeli business in Gaza because it cannot afford to turn up its nose at job-creating investments.

But 10 days after the signing of the agreement, whatever hope it generated among ordinary Gazans is fading, leaving a tinderbox for the PLO administration. At 2 p.m., a group of young men sit at the camp's edge, grumbling. The big problem in recent months, they say, has been the closure of the Israeli border, which alone deprived one-fourth of the 120,000-strong work force of jobs. One man had just sold his wife's jewelry to buy food. Several had done prison time for rock-throwing and other protests against the occupation. If Arafat does not deliver, they may soon be flinging stones at him.