Is The Mideast Mortally Wounded?

Why peace prospects are bleak

For the motorists trapped in traffic at an Israeli checkpoint on the road from Ramallah, in the West Bank, to Jerusalem, it was a bizarre and frightening scene. On one side of the street, Palestinian youths, springing up from behind signs on the roofs of buildings, hurled stones at Israeli military positions below. Most of the missiles fell short, striking cars or the asphalt. But that didn't stop Israeli soldiers, crouching behind Jeeps, from firing back with booming rifles as drivers frantically maneuvered for safety

Such clashes have become a daily ritual in the occupied West Bank and Gaza. And it is going to be hard to stop them despite pledges to do so by Israeli Prime Minister Ehud Barak and Palestine National Authority President Yasser Arafat at the emergency summit that ended at Egypt's Sharm el-Sheikh resort on Oct. 17. The fact that President Clinton's latest, frantic diplomatic effort produced only a vague, unsigned declaration has many observers thinking that the peace process that followed the 1993 Oslo agreements between the Palestinians and Israel is close to dead. "Things are getting grimmer by the hour," says a close associate of Barak.

OMINOUS MOMENTUM. Although Barak and some Palestinians still harbor hopes for renewed talks, the most likely outcome of the crisis appears to be a prolonged standoff. Both sides are talking of separation, but it is questionable whether that is possible. Instead, complete abandonment of talks is likely to lead to heightened conflict between Palestinians and Israeli settlers and the regular military and, possibly, renewed terrorism in Israel.

That would be bad news for the region and the world. Such failure might have an impact on the U.S. Presidential election and leave a huge unsolved problem for the winner. Continued tensions in the region are also likely to keep oil prices high, fueling world inflation, cutting growth, and roiling financial markets.

Some of the markets' fears of the Middle East situation may be overblown. In recent days, Saudi Arabian officials have repeatedly ruled out using the oil weapon to aid the Palestinians, and doing so would be against the Saudis' long-term interests. Instead, the impact of battles between Israelis and Palestinians is likely to be felt closer at hand--in such moderate states as Egypt and Jordan, which have signed peace agreements with Israel, and in Syria and Lebanon, which have not.

While there is little question of the Egyptians and Jordanians going to war against Israel, there is a chance they could be pressured by their increasingly restive constituents into taking measures against the Israeli state--such as freezing economic and diplomatic relations. That would be a major setback to the three-decades-old American efforts to improve ties between Israel and the Arabs.

Many recognize the dangers of prolonged conflict, but events on the ground have taken on an ominous momentum of their own. Soon after the summit, gun battles erupted in the West Bank town of Hebron, and a battle between youths and Israeli troops raged in Gaza. The last three weeks have considerably hardened attitudes on both sides, making any resumption of negotiations difficult to contemplate.

Among the Israelis, many, possibly including Barak, think that Arafat cynically orchestrated the recent fighting to improve his bargaining position in the peace process. Many Israelis feel that Arafat has given Barak a rude slap in the face after the Prime Minister went a long way toward satisfying Palestinian demands at Camp David in August. While Barak's associates say he is still trying to hold the door to talks open, growing public anger at the violence and his own political weakness is working against that option.

Faced with a possible vote in November to disband the Knesset and hold new elections, Barak is flirting with forming a national emergency government with Likud leader Ariel Sharon. That would serve both as a warning to the Arabs and would help shore up his own position. Any inclusion of Sharon, who is demanding that Barak renounce the concessions he offered at Camp David, would appear to make peace talks impossible. In fact, it was Sharon's provocative Sept. 28 visit to the Temple Mount in Jerusalem that sparked the recent troubles.

It may be politically easier for Barak, the former commando leader, to play his current role of security chief than that of daring peacemaker. Similarly, Arafat is finding more support for resisting Israel than for cutting a deal that would leave the Palestinians with at best a small, severely restricted state in the West Bank and Gaza. "It is clear to me that Arafat has very little room to maneuver," says Khalil Shikaki, director of the Palestinian Center for Policy & Survey Research, a Ramallah-based polling organization. "Both sides have very little left to give."

Shikaki says that a growing number of Palestinians believe that violent conflict will assist their cause. They are increasingly looking to the example of Hezbollah guerrillas, who drove the Israeli army out of southern Lebanon early last summer. That attitude is especially prevalent among Palestinian youths. For them, jousting with the Israelis has become a ritual that wins them status among their peers and approval of many of their elders, including businesspeople and other pillars of the community.

Surprisingly, the Palestinian business community is also beginning to turn its back on ties with Israel. That's an important shift, since Palestinian businesses once thought they had much to gain through cooperating with their Israeli counterparts. Sam Bahour, a Palestinian-American who was lured back to the Ramallah area by the promise of the 1993 Oslo Agreement, says the Palestinian business community is "reevaluating" its ties to Israeli companies. The Israeli business community, he says, has "tried its utmost" to persuade Palestinian businesses to work under Israeli companies as subcontractors or subsidiaries rather than deal directly with multinational companies.

Such relationships mean higher prices and poor service for their customers because more middlemen are involved, Bahour says. Now, he adds, there is a growing movement among businesses to establish independence--for both political and business reasons. Bahour, who is managing a $10 million shopping center development now under construction, has posted a sign on his office door that declares: "No Israeli products are permitted here until the end of 33 years of illegal Israeli occupation." Notes Bahour: "We need to take economic steps to convince the Israelis that the occupation must end."

Some Palestinian business executives are already benefiting from such an independent approach. Ibrahim Barham, who is general manager of Safad Engineering & Electronics, a distributor for Hewlett-Packard Co. and 3Com Corp., took the lead in dealing directly with these companies through their head offices in Europe, rather than acting as a subdistributor for their Israeli distributors. He says that cutting out the Israeli middlemen has allowed him to slash his prices and triple the company's revenues to $11 million. "When you work for the Israelis, you are the third link in the chain," he says.

But this go-it-alone approach is only likely to work in a relatively calm atmosphere. That's because the Israeli government could easily squeeze Palestinian businesses to death if it so desired. The Israelis could stop all imports and exports to and from the Palestinian areas, turn off the electricity, shut down the phone system, and halt 70% of the water delivery.

Already, many of the 90,000 Palestinians who work in Israel have been shut off from their jobs as a result of Israel's early October decision to block their travel from the West Bank and Gaza. These workers could be replaced by Thais, Romanians, and other foreign guest workers. Since the violence broke out, the Palestinian stock market has been closed, and many businesses have come to a halt. Mohamad Salman, general manager of Bank Al-Quds, a Ramallah institution, says that many of his clients have stopped paying their debts, and the bank could soon face a severe liquidity crisis.

HARSH LIFE. The Palestinian economy was expected to grow by a healthy 6% this year. Now, analysts say, it could decline by 20% to 30% if troubles continue. By contrast, the Israeli economy has taken much less of a hit. The stock market has fallen by 10% since the start of October. But the economy is still likely to grow about 5%, just a percentage point or so less than expected. Per capita gross domestic product in Israel is now about $18,000, compared with just $1,400 for the Palestinians. "Full separation would kill the Palestinians," says Aaron Fogel, a former director general of the Israeli Finance Ministry who is now chairman of Ness Technologies, a high-tech services firm.

But that may well be where the two sides are heading. If no halt to the violence comes, the Israelis might pull back to less exposed and provocative positions. They might even order the abandonment of some of the less defensible Jewish settlements. Arafat might declare his long-promised state--though this would be a far less viable entity than Barak was willing to concede at Camp David, with no direct links between the West Bank and Gaza and Israel still controlling much of these territories. Life there would certainly be harsh. All this would create a more radicalized population in the Palestinian zones--a big headache for both Arafat and Israel.

Just look at Ramallah to see how local Palestinians have taken up extreme views. Ramallah is one of the more bourgeois of the Palestinian towns and the home to many Palestinian-Americans. But it also was the scene of the ugliest incidents in recent weeks when two Israeli reservists who were held at a police station were brutally killed by a mob on Oct. 12.

A few days later, a large crowd gathered outside a mosque for the funeral of Ra'id Yaacoub Hamouda, 30, a plumber killed in a clash with Israeli troops. After prayers, Yaacoub's body was carried through the streets by the crowd, which chanted praise of the radical Hezbollah and Hamas. Scores of youths, determined to give their "martyr" a fitting send-off, rushed to the Israeli checkpoint where he had been shot and, braving gunfire, hurled stones at the soldiers. When they returned to town, they were greeted by smiles of the older men lounging in doorways.

Not only the underclasses have been caught up in the fever. One Palestinian who owns businesses in New York and the West Bank speaks proudly of his son's having lost an eye leading an attack on a local Israeli settlement. "What the Israelis don't understand is that we are not scared of death," he says.

It all adds up to an ugly future for Clinton, Barak, Arafat, and other players in the region to contemplate. The only hope now is that it will scare them all into an unexpected burst of creativity. But that, unfortunately, seems unlikely.

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