This is a summary of a paper that was recently published by the Peres Center for Peace and the Palestine Center for Strategic Studies.
'Economic peace' claims that economic welfare among the Palestinians will create hope, calm hostilities, weaken the tendency towards violence and create the "price of loss" – meaning decreasing the profitability of a confrontation, based on the fear of possibly losing economic assets already achieved, including an increase in revenues, increasing export, drawing investors and generally expanding investments in the area.
In the current situation, unemployment, deprivation and lack of hope for improvement, means that Palestinians see no benefit of peace and tend towards radicalism. Assymetry between Israeli and Palestinian quality of life breeds discontent. Netanyahu believes that economic stability will preceed a political solution.
However, there was economic prosperity in the Palestinian authority before both the first and second intifiadas, with GNP growing steadily.
Some examples of improving the economic relations between Israel and Palestine include building a joint Eilat-Aqaba airport, joint tourism projects and creating a Palestinian industrial zone.
So what state is the Palestinian economy currently in? According to the Palestinian Central Bureau of Statistics, from 2007 to 2008 the GDP grew healthily. Tourism in the West Bank increased greatly in the last few years, giving a boost to the economy. However, unemployment in the West Bank is approx 19%, and over 40% in Gaza. This has risen steeply since Palestinans were denied permits to work inside Israel. Between 1996 and 2000, around 30% of the Palestinian workforce was employed inside Israel.
It is in Israel's interest to begin employing Palestinians once again to help stabilise the Palestinian economy and to promote normalised relations between Israelis and Palestinians, as well as dealing with the problem of foreign workers settling in Israel.
Can improving the Palestinian economy be a path to lasting peace, or is this just a side issue necessary to support the political process?