In the complex transfer of power between Israel and the Palestine Liberation Organization (PLO), the world’s focus has been on the difficult, often violent issues of security that surround the creation of limited Palestinian autonomy in Gaza and Jericho. In this atmosphere, the economic agreement signed by the two parties in Paris on April 29, 1994, was hardly noticed. Amid the humdrum details, however, a conventional wisdom came to be shared by participants and observers alike, that a high degree of economic cooperation between Israel and the evolving Palestinian entity was a panacea for the region’s problems. Close cooperation between Israel and the nascent Palestinian economy has been universally heralded as a harbinger of a wider regional structure of economic cooperation, if not integration. The European Community is the model.

Like all conventional wisdom, however, this hypothesis should be tested, and the analogy with the European Community should be looked at more carefully. Even a superficial glance at the main ingredients of such a vision raises doubts about its applicability.


A Middle Eastern common market was a concept often used by the discussants during the Paris talks. It was premised on what appeared to be the obvious: shared economic interests, a high degree of cooperation and mutual interdependence, and a desire to raise living standards, especially among the Palestinians, all of which were viewed, almost without demurral, as the best guarantees of stability and peace in the area. Did not the French and Germans bury the hatchet, overcome generations of strife and build, on a foundation of coal and steel, a durable peace in Europe? If so, why not Jews and Arabs?

In its most poetic, if not utopian, version, this vision of a future Golden Age, based on Arab and Jewish ingenuity, has been voiced by Israeli Foreign Minister Shimon Peres. Urbane, tolerant, forward-looking, steeped in the best traditions of the Enlightenment, Peres is one of the more attractive symbols of the new spirit of conciliation and the most successful salesman of the Oslo accords in Israel and abroad. Since Israeli Prime Minister Yitzhak Rabin and PLO leader Yasir Arafat signed the limited autonomy agreement in Washington, D.C., on September 13, 1993, dozens of conferences on economic cooperation have been held, some academically serious, others more oriented toward commercial hype. All, however, assume that close Israeli-Palestinian economic cooperation is the key to regional stability and to anchoring the Israeli-PLO accord in the realities of what the Marxists once called "economic infrastructures."


European economic integration started with economies that were at a comparable stage of industrial and technological development and enjoyed similar political institutions and traditions. Their economic histories had followed similar lines since the beginning of the Industrial Revolution two centuries before. Only after the formation of this nucleus could the European Community broaden to include less-developed countries like Spain, Portugal and Greece, and this expansion was possible only at a cost of enormous subsidies and transfer payments to the weaker countries, which will continue for years to come.

By contrast, Israel and the Palestinian territories are at very different stages of economic development. Palestinian GNP per capita is a fraction of Israel’s; wages, land prices and living standards are enormously disparate. Infrastructure, especially in Gaza, is virtually nonexistent. Political traditions and institutions, as well as the nature of public discourse, are as divergent as those of France and Algeria.

Moving toward uncontrolled economic integration between Israel’s relatively developed economy and the Third World economy of Gaza and the West Bank would mean creating a new mode of dependency. It would be an unequal partnership, providing Israeli employers with cheap, nonunion Palestinian labor and a market for Israeli products. The uneven and unequal relationship that has developed during 26 years of Israeli occupation would be perpetuated. A virtual Bantustan would develop on Israel’s doorstep. Although it might benefit some Israeli industries and businessmen, it would be detrimental to both the development of the Israeli and Palestinian economies and the quality of the overall Israeli-Palestinian relationship.

Economic dependency has political consequences. Unbridled Israeli economic hype about an "economy of peace" has already made thoughtful Palestinians wary. Given their suspicion of Israel, they see their former occupiers plotting to perpetuate economic control after withdrawal. Even if these suspicions are unfounded, dark hints about Israeli economic neocolonialism can be discerned in Palestinian political discourse, and they certainly do not contribute to confidence-building or a new edifice of trust. Nothing similar has characterized the development of the European Community.


The best route to a new chapter in Israeli-Palestinian relations would allow the painful process of Palestinian nation-building to proceed with a minimal Israeli presence.

The Palestinians should be empowered to develop their economy and society with as few links to Israel as possible. Beyond the security arrangements now being negotiated between Israel and the PLO (complex and fraught with risks of misunderstanding and tension), Israel should keep a low profile in the West Bank and Gaza even during the envisaged period of transition.

The Palestinians need large sums in investments and loans to develop their economy. But these should not come from Israel. Nor should they come primarily from the United States or Europe; this would create dependencies and, given the historical Arab resentment of the West, increase friction.

The sums recently allocated by the World Bank to the Palestinian authorities are certainly welcome as important bridge money. The problem is, international agencies tend to be cumbersome in their bureaucratic procedures, and in the natural confusion of the first months of autonomy, it is doubtful whether the yet not fully operating Palestinian institutions would be able to live up to such stringent conditions. Nor should the Palestinians become the wards of the World Bank or any other well-meaning world institution. What they need is quick, readily available money that can be used immediately, so that the change on the ground, and clear economic possibilities, should be discernible.

Palestinian development and reconstruction should be a joint Arab project, symbolizing Arab solidarity with the Palestinians in their historic hour of hope. Saudi Arabia, Kuwait and other gulf states, which have supported the Palestinians for decades in their terrorism and effort to gain world sympathy, should now support the PLO in its peaceful effort.

These Arab investments should help create a Palestinian infrastructure, build housing, repatriate refugees and unleash the enormous energy needed for Palestinian nation-building under conditions of peace. Economic assistance from the Saudis, for example, would send a more forceful message of their support for the peace process than verbal statements. Assistance would mobilize Arab public support for the Israeli-Palestinian accord and legitimize the process as an overall Arab effort, not a mere political calculation on the part of Yasir Arafat and his faction of the PLO.

There is much opposition, both within the Palestinian community and in the Arab world, to the Israeli-PLO accords. Both sides have made far-reaching concessions, but it is natural that Arab radicals see only the concessions made by the PLO. Massive economic assistance from rich Arab countries will send a clear signal to those opposing the accords and to the many Palestinians who are skeptical about it that the change is genuine. By alleviating economic hardship in Gaza and Jericho such Arab investments and assistance will clearly suggest that something significant is happening, that the accords are not a political sellout by Arafat, and that the Israeli presence is truly being dismantled. Israeli economic presence in the territories, on the other hand, will only play into the hands of those who see dark Israeli intentions anywhere and everywhere.

A few years down the road, assuming the Palestinians have been able to create a more viable economy, economic cooperation with Israel could take place if the Palestinians desire it. Then there will be less inequality, more Palestinian self-assurance and less danger of dependency. Creating jobs for Palestinians in the West Bank and Gaza will also make fewer Palestinians dependent on manual work in Israel, decreasing friction, social inequalities and the kind of vulnerability to which Palestinians are currently exposed when Israel deems it advisable, for understandable reasons of security, to close off the territories.


Good fences make good neighbors. Israeli and Palestinian societies, thrown together through enmity, occupation and dependency based on economic inequality, should be uncoupled.

Both Jews and Palestinians have been traumatized by what Prime Minister Rabin referred to at the Washington ceremony as a "hundred years war." Let the healing begin by keeping the two entities as much apart as possible, politically and economically. Only when both peoples feel sufficiently self-confident and secure should they carefully start building economic bridges between their societies based on equality, not dependency with the danger of a new hegemony. In the meantime, the Palestinians should be allowed to rebuild their own house and find their place in the sun with no Israeli presence or patronage.

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  • Shlomo Avineri is Herbert Samuel Professor of Political Science at the Hebrew University in Jerusalem. He is former Director-General of the Israeli Ministry of Foreign Affairs.
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