All Roads May Soon Lead To `The Triangle'

The year is 2005. Your Palestine Airways flight from Heathrow lands at Gaza's sleek new airport. A 20-minute cab ride away, you check in at the Peace Palace Hotel, a new Israeli beach resort financed by Saudi and Kuwaiti investors. Next morning, you meet with loan officers from United Bank of Tel Aviv & Amman and are assured that arranging Jordanian-dinar financing for your new chip factory in Israel will be no problem. After all, Israel, Jordan, and Palestine signed a breakthrough currency union in 2004.

Fantasy? Yes. Impossible? No. Ask the 1,100 executives from Israel, Arab countries, and other lands who broke bread and talked deals at a three-day economic conference that ended on Oct. 31 in Amman, Jordan's hilltop capital just 80 kilometers from Jerusalem. It was, for many, a first meeting between former enemies. And it could be the launching pad for a new era in the region.

One who attended, Jordanian Samir M. Kawar, has already had a taste of the future. Weeks after last year's signing of a peace agreement between Israel and Jordan, the telecommunications entrepreneur became one of the first Jordanians to travel openly to Israel. He's now negotiating with several Israeli high-tech companies to bring technology to Jordan. "Within one year," predicts Kawar, "we'll see a change in attitude that will make this kind of dealmaking normal."

BENELUX MANTRA. What Kawar and others like him are pioneering is probably the Middle East's most promising new frontier: the emerging economic partnership of Israel, Jordan, and Palestine. With its skilled workforce and strategic location, the Triangle--as the area is being called--"could take off quickly," says Henry Azzam, chief economist of Saudi Arabia's National Commercial Bank.

The U.S. and its regional allies are determined to reap an economic payoff from the Middle East peace process. That is why Israeli Prime Minister Yitzhak Rabin, Chairman Yasser Arafat of the Palestine Liberation Organization, and U.S. Secretary of State Warren Christopher went to Amman to bless the meeting, chaired by Jordan's Crown Prince Hassan. Unlike the Egyptian-Israeli peace process, which has been buttressed by tens of billions of dollars of U.S. aid, the plan this time is to rely largely on private business initiatives. "The paradigm has changed," says Joan Spero, U.S. Under Secretary of State for economic affairs. "Governments have to start getting out of the way."

That is happening in Jordan. It recently liberalized its tax and investment laws and signed a bilateral trade pact with Israel. Now the Arabs and Israelis are trying to coordinate policies on everything from finance to tourism through the Amman-based Regional Economic Development Working Group and other forums. Also in the works is a $5 billion regional development bank to be based in Cairo.

Melding policies and businesses will be most feasible in the Triangle because the countries are small and contiguous. Israel and Jordan already enjoy 6% to 7% annual economic growth. If the Triangle takes off, nearby Syria and Egypt could be left in the sand. That, say U.S. officials, is why Egypt's Foreign Minister complained recently that Jordan was expanding ties with Israel too fast.

What opened the way for the once preposterous idea of Israeli-Arab economic coordination was the series of political agreements over the past year between Israel, the Palestine Liberation Organization, and Jordan. "We've all paid a very high price over the years for planning separately," says Israeli Economy & Planning Minister Yossi Beilin.

Now, three-way development is providing a framework for Israeli and Jordanian policymakers. And when Israelis call on PLO Chairman Arafat, he talks of forming an economic union like that of Belgium, the Netherlands, and Luxembourg, despite the yawning income disparity between Israelis and Arabs. "Arafat repeats the same mantra all the time: `Benelux, Benelux, Benelux,"' says one senior Israeli official.

Already on the drawing boards are billions of dollars' worth of joint projects, such as a Jordanian-Israeli airport to serve the twin ports of Eilat and Aqaba and tourist facilities on the Red Sea. "If we market our products together, we should be able to develop all sorts of synergies," says Nabil Shaath, the Palestinian Authority's Planning Minister.

With political risks receding and hot-growth prospects beckoning, multinationals are rushing in. Sprint Corp., for one, announced a deal last month to launch Internet and E-mail services in Jordan. And Chicago's Amoco Corp. is working with Italy's AGIP on a proposed $300 million pipeline to bring Egyptian gas to the Triangle (table).

Other big players are on the prowl. Dallas-based Electronic Data Systems Corp., for example, has a 50% stake in a software unit of Israeli technology group Tadiran. "There is great potential in the Jordan, Israel, and Palestinian triangle," says Richard A. Galen, EDS vice-president for emerging market development.

None of this means there will be no outbursts of political tension in the next few years. Palestinians and Jordanians fear Israeli economic domination: They seem likely to become low-cost manufacturing platforms for Israel, as Mexico is for the U.S. And many Palestinian entrepreneurs say they won't deal with Israelis until Israel relaxes its controls in the West Bank and Gaza Strip. "Until the political problems are solved, there is no way for Palestinian companies to embark on any real cooperation with the Israelis," says Yousef Ghanem, general manager of investment company Palestine Telecommunications. Still, Ghanem concedes that the company will have to work with Israel's telecommunications company, Bezeq, to set up its planned local telephone service.

LURING BACK CASH. There are fewer barriers between Israel and Jordan. Tadiran is hiring Jordanian programmers in Amman to develop Arabic software, for example. And Israel's Delta Galil Industries is setting up a joint venture in Jordan with Amman-based Century Investment Group to make garments for sale in the West. "We have a beautiful combination here," says Omar Z. Salah, Century's 28-year-old CEO. But he is taking heat from other Jordanians for dealing with Israelis. "If the Israelis are predatory in their business practices, there is going to be a backlash," he warns.

The political progress is also luring back some funds stashed abroad by wealthy Palestinians. Amman's Zara Investment, led by Palestinian tycoons Sabih Masri and Khalil Talhouni, plans to cash in on booming tourism by building five hotels in Jordan, including an $80 million Hyatt hotel-and-business complex. And West Bank-based Arab Hotels Co. is building a $25 million luxury hotel in Ramallah in the West Bank.

All the dealmaking is a far cry from 1972, when Lova Eliav, a leader of Israel's Labor Party, was virtually ostracized politically for advocating a Palestinian state and Israeli-Jordanian-Palestinian cooperation. As it turns out, he was merely ahead of his time.

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