The latest mission impossible embraced by those who would resolve the Middle East conflict is the effort to "democratize" the Palestinian Authority, an organization that has thrived on repression, violence, and aggressive irredentism. Meanwhile, a far more promising route to peace--the path of economic cooperation and development--is being neglected or given mere lip service. It's as if the only form of economic life possible for Palestinians were the one that has prevailed in the last ten years--the provision of foreign billions to huge bureaucracies that squandered or stole much of it, while lawlessness and corruption suppressed private initiatives. There was a time, however, when the slow growth of a Palestinian middle class with a real stake in peace was helping mitigate the conflict and make it manageable.
During the quarter century from the Six Day War till the Oslo Accords, from 1967 to 1993, political stalemate actually enabled a quiet peace. In those years, Israel maintained a modicum of law and order in Palestinian areas, and the Palestinian economy flourished, its GDP more than quadrupling. The Palestinian standard of living rose dramatically. Infant mortality fell, seven new colleges and universities were established (where none had existed under Jordanian rule), and the welfare of the people, especially of women and children, improved so much that the birth rate soared.
Most Palestinians seemed to prefer this slowly evolving peace to the political ambitions of their leaders. Thus, shortly after Oslo but before PLO incitement had infected their minds and provoked bloody clashes with Israel, the Palestinian inhabitants of East Jerusalem were asked to choose to receive either Palestinian Authority or Israeli identity papers. Over 95 percent chose Israeli. They did so despite disliking Israeli occupation and loathing Israeli bureaucracy (which drives even Israelis up the wall). They cared more about feeding their families and advancing their personal interests than grabbing for instant political gratification.
Already they were wary of Arafat's nascent Palestinian Authority. Real estate prices plummeted in Arab sections rumored to be destined for transfer to the Palestinian Authority. More recently, most "experts" predicted that an Israeli move to occupy the Orient House, the PLO's illegal stronghold in Jerusalem, would see the city's large Arab population erupt in bloody riots. The State Department sternly warned Israel not to take this step. Yet the takeover last year elicited only feeble protests by a few dozen employees of the Palestinian Authority and some peace activists and Quaker volunteers displaying signs in English for the benefit of CNN.
During the quarter century of relative peace, hundreds of thousands of Palestinians worked in Israel. Crossing through border checkpoints was infuriatingly slow and humiliating, but once inside Israel they had total freedom of movement. Had they been committed to the PLO struggle against Israel, they could have inflicted enormous damage. Yet only a very few of them, generally PLO hirelings, engaged in acts of terrorism.
Most Arabs were reluctant to join in Arafat's war. Most, after the occupation of the disputed territories in 1967, constituted a silent majority who preferred accommodation with Israel. Even now, when Arabs feel great anger about Israeli military incursions, few express their fury in violent actions. In Jerusalem, Arabs have remained moderate in the face of numerous PLO provocations because they benefit greatly from the commerce generated by tourism, which depends on peace. And in Gaza, the hotbed of radicalism, Palestinian workers last Thursday showed their priorities when tens of thousands mounted an unprecedented "Hunger March" against the Palestinian Authority, demanding that it stop violence against Israel so they could go back to work there and earn money to support their families.
The radicals have never extinguished this normal human wish to work and provide. During the first intifada, in the late 1980s, Palestinians opened informal markets on the demarcation lines between Arab and Jewish areas catering to Israelis who couldn't shop in Israel on the Sabbath except in kibbutzim. These markets were earning the Palestinians an estimated $300 million annually, half as much as they receive in foreign aid and about one-quarter of their GNP.
Eager to lure Jewish buyers, Arab shopkeepers did all they could to keep the peace and promote good relations with their customers. Arab merchants developed a lucrative trade with Israel. Palestinian agriculture, once primitive, became advanced and prosperous. The large surplus of workers this created found employment in Israel as unskilled labor. Gradually they acquired new skills, raising their income or opening new industrial and commercial ventures, many of which became quite prosperous.
Employment in and trade with Israel were major reasons for the dramatic improvement in the Palestinian standard of living. But they also had unintended consequences, some painful. They brought Arab traditionalists into intimate contact with a modern society and acquainted them with the workings of a boisterous democracy. This forced adjustments in Palestinian family and clan structure and authoritarian political frameworks. So did the violent struggle against Israel, which offered lower-class youths adventure and an avenue for rapid upward mobility through accomplishments in terrorist exploits.
The prosperity enjoyed by tradesmen stirred resentment among the Arab bureaucratic and intellectual elites. They had earned up to four times as much as workers under Jordanian rule, but now saw unskilled laborers in Israel earning far more than they could. Contact between the Arabs' almost medieval ethos of loyalty to location and clan and the Israelis' super-modern, sometimes brazenly liberal ethos exacerbated the religious and national conflict. Confronting modernity caused deep anxiety--notably among students whose parents could now send them to Israeli universities, where they were indoctrinated by radical leftist Israeli academics promoting Palestinian statehood with greater fervor than most Arabs. Soon, the newly established colleges and universities in the disputed territories were hotbeds of radicalism, first Marxist, then Islamic fundamentalist.
Concurrently, among the older, more settled Palestinians, a more moderate middle class was gradually developing. It held out the hope that some accommodation could evolve in time, as Arabs and Jews found it mutually advantageous to work and trade with each other.
ALL THIS, Oslo ruined by focusing primarily on politics. Conceived in the utopian hope that peace could be bought from a reformed Arafat and his Tunisian cohorts in exchange for territory, Oslo postulated that Arafat would turn his proven brutality against his more radical allies, Hamas and Islamic Jihad. Under the guidance of a messianic Shimon Peres captivated by a vision of a New Middle East where factories and hotels rather than armies would keep borders peaceful, the Israeli peace camp made a bargain with the devil, totally ignoring the realities of Israeli and Arab society. It was bound to backfire. Arafat fashioned his "Authority" after the only model he knew, repressive Arab regimes. He dedicated his regime not to civil order and economic development but to the waging of war. He oppressed not Hamas and Islamic Jihad, but the majority of Palestinians who for years had been quietly working out an uneasy but pragmatic modus vivendi with Israel, a real if informal peace.
Arafat's 12 security services and 50,000 soldiers engaged in summary executions, kidnapping, rape, and extortion, spreading corruption and poverty wherever they went. Some of the funds donated by the United States and Europe for economic reconstruction, especially among the refugees, were simply stolen; most were used to build a war machine, paying for weapons and soldiers, as well as for the Palestinian Authority's 140,000 bureaucrats. It did not matter to Arafat and his comrades if the war they waged--the second intifada, which began in September 2000--resulted in the almost total destruction of the Palestinian economy. The Palestinian standard of living fell by more than half, and unemployment soared to 60 percent, up from almost full employment before Oslo. The more miserable the Palestinians became, the easier it was for Arafat's relentless propaganda broadcasts to rechannel public rage against the Israelis.
Even as it grew evident that Arafat had no interest in peace, the international Peace Now camp, whose adherents dominate the State Department and many European chancelleries, plunged ahead, promising ever more international meetings at which ever more concessions would be made to terrorism, encouraging Arafat's regime to attempt further blackmail of Israel by the use of violence. Now it is reported that the United States is about to reward Arafat with a Palestinian state.
True, there is talk about the need to reform the Palestinian Authority. But reform cannot be only political. If the Palestinians are to have the slightest chance of repairing their system, arrangements must first be worked out to secure law and order. Then a civilian Palestinian leadership, presiding over a demilitarized administration, should be encouraged to employ pro-market economists and political scientists to inventory the institutions still operative in Palestinian society so as to reshape some, shut down others, and establish new ones. Only then will a civilian government be able to tackle the practical problems aggravating the conflict, especially the Palestinians' dismal poverty.
The United States and the European Union, which financed Arafat's criminal regime, must now help Palestinian moderates create a law-abiding government that facilitates economic growth. Such moderates will make themselves known once they cease to be terrorized by Arafat and his gangs. Their task is not an easy one, but if Germany and Japan could do it after World War II, there is no reason the Palestinians, a hard-working and intelligent people, can't do it now.
Once a Palestinian entity ceases to pose a threat to Israel, Israel will be able to reduce drastically the number of closures it imposes on Palestinian cities and villages. These closures, designed to prevent terrorist attacks, have punished Arab workers seeking employment, pushing some into the lap of Hamas. With more resources available for peace, Israel could quickly develop and deploy sophisticated detection equipment that would make security precautions, which now can delay the flow of goods by weeks, less onerous. This alone would remove a major impediment to Palestinian economic activity.
While Israel bears no moral responsibility for the refugee problem that resulted from deadly Arab aggression against it, it should do all it can to restore these unfortunates to normal life, as it has for Jewish refugees from Arab lands. Israel should provide housing to displaced Arabs once the stiff opposition of the Palestinian Authority, which nursed and exploited the refugees' plight, is gone. Government-owned land near the "camps" should be provided with infrastructure, and refugee families invited to construct dwellings in their customary cooperative manner. They could also be offered low-interest building loans or compensation for lost property when appropriate.
A massive building program would provide jobs and income for Palestinian construction workers and contractors. It would prime the pump in related trades and services and jump-start a Palestinian economic upturn.
The Palestinian Arabs have a comparative advantage in labor intensive trades. Israel should open its markets to their products. Israeli farmers unable to compete with Arab farmers growing vegetables should be helped to move to the production of upscale products--exotic fruits, vegetables and flowers, speciality cheeses, and wines. Similar arrangements could be worked out in the construction materials, apparel, and footwear industries and other sectors where Arab competition displaced Israeli workers.
The Israeli government must also cut its high taxes and red tape, which inhibit Israeli and Arab entrepreneurs alike and discourage joint ventures. Israeli policy should facilitate the construction of Palestinian-Israeli industrial parks, like the one built near the Gaza Strip (but unused since the intifada) by the Israeli industrialist Stef Wertheimer. Constructed where Palestinian areas and Israel meet, such parks could alleviate the security and logistical problems involved in busing tens of thousands of Arab workers to Israel daily. They could also provide Arab entrepreneurs a modern infrastructure for manufacturing and other business.
Israel must keep its hands off the informal markets that have sprung up along the edges of Palestinian areas, which have been extremely popular with Israeli bargain-hunters. These markets, in a sort of commercial no man's land, should be encouraged to flourish, as they provide the best environment for peaceful relations.
Prolonged national conflicts are not susceptible to quick fixes. It took Europe centuries to overcome intractable national and religious conflicts. Economic cooperation and growth were essential to resolving them. New interests and benefits created by economic integration helped people transcend the old barriers and made some of them irrelevant. This can happen in the Middle East.
Economic development may be more arduous and less glamorous than peace processing, but it has proved its ability to moderate the Israeli-Palestinian conflict. This is no small accomplishment, considering the violence and mayhem unleashed when leaders have pursued a political settlement first.
Daniel Doron is the president of the Israel Center for Social and Economic Progress, a private think tank in Jerusalem.