The Mideast: Peace May Mean Economic Separation

Were the prospects of Arab-Israeli peace too good to be true? Just weeks ago, Israeli Prime Minister Shimon Peres' peace program looked to be winning the hearts and minds of war-weary Israelis. Yassir Arafat, fresh from victory in the December Palestinian election, was consolidating his power while Israelis and Syrians were finally sitting down near Washington to talk seriously about a peace agreement. And multinationals began flocking to the area, scenting a mounting peace dividend: Last month, for example, Citibank opened its first regional office in Tel Aviv in a bid to cash in on the expected peace boom and multibillion-dollar wave of internationally financed projects for the Palestinian areas.

The suicide bombs that ripped through Jerusalem and Tel Aviv with such murderous fury in late February and early March seem to have shattered that rosy vision. Peres looked like a shoo-in in the May elections; now, the stunned Israeli public could well throw him out. Declaring war on Islamic militants, the embattled leader has moved quickly to seal off the Palestinian territories. But this, too, could have dire consequences. "We are now threatened with the collapse of the entire peace process," says Nabil Shaath, the Palestinian Planning Minister.

HIGH FENCES. But what is collapsing is not necessarily the peace process itself, but Peres' vision of what peace would look like. In place of his program of increasingly knitting Palestinian areas into a common market, Israel is veering toward total separation of Israelis and Palestinians. On Mar. 3, after a suicide bomber on a Jerusalem bus killed 19 people, Israel rushed approval of a $100 million budget to build cold-war-style high-security fences around Palestinian areas. The U.S. is planning to supply high-tech bomb-detection equipment.

Israel was already moving toward separation. The numbers of Palestinians employed in Israel has dropped from 170,000 two years ago to barely 20,000 today as the Israelis try to reduce potential terrorists in their midst. Cheap labor at booming Israeli construction sites today comes from Poland, Thailand, the Philippines, and even China. The death of four Romanian construction workers in the Mar. 3 Jerusalem blast underscores this reorientation of the economy. The Israeli government is expected to give the green light for an additional 30,000 foreign workers.

But the risk is that these moves will worsen the grim economic conditions in which Hamas thrives. More than 60% of the gross domestic product in areas under Arafat's control is connected to trade with Israel or comes from earnings of Palestinian workers in the Jewish state. Separation, says Israeli consultant Gil Feiler, "could lead to even worse terrorism because there will be no safety valve"--meaning the option to work in Israel.

There could be some pluses in separation for the Palestinians over the long run. It could force greater self-sufficiency and even lead more rapidly to the formation of a Palestinian state. If Israel is set on separation, for instance, then Jerusalem will have to stop opposing independent port facilities and airports in Palestinian areas.

But first, the Palestinians will have to put their house in order. If Arafat and public pressure can't stop terrorism, Arafat's fledgling Palestinian entity is going to be a failure, with a moribund economy--and the Israelis reasserting control instead of granting more autonomy. Already, several top-level international aid missions have been canceled, although no one is yet talking about cutting off funds. Peace may still come to the Middle East, but it has suffered a huge setback.

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