Policy papers and recommendations
/ Gaza
The Palestinian economy is in collapse. Hamas is regaining control over the limited existing resources and assets in the Gaza Strip, after the war destroyed Gaza’s economic system. In the West Bank, the Palestinian Authority (PA) is struggling to survive amid deliberate Israeli government policy that is exploiting the former’s dependence and advancing unilateral coercive measures to cripple the Palestinian economy and the PA itself.
This policy reflects a dangerous escalation of the Israeli approach that viewed Hamas as an asset and the PA as a burden, an approach whose beginnings predated October 7, 2023. The collapse of the PA and the Palestinian economy are openly touted by Israeli ministers as elements of a strategy designed to advance annexation and prevent the establishment of a Palestinian state, even at the cost of a stronger Hamas and critical damage to Israeli security.
This paper proposes a new policy and includes pragmatic recommendations for action that will mend Israeli-Palestinian economic relations while supporting progress on a phased process toward two states and stable, long-term security. The proposed strategy is based on reform and socioeconomic stabilization of the PA within regional collaborative arrangements.
The paper illustrates the strong link between Palestinian economic growth and the security relations between Israel and the Palestinians. On this foundation, the paper proposes a three-stage road map whose goal is gradual building of a strong Palestinian economy; which will function as an independent system, while maintaining close cooperation with Israel and other countries in the region. That will contribute both to Palestinian and Israeli stability and prosperity.
A necessary condition for implementation of this road map is a political will in Israel to change its approach toward the Palestinians and to make strides in a process directed at socioeconomic and political stabilization. Therefore, the plan can only be implemented under an Israeli government that is willing to adopt a policy that is entirely different from the current government’s policy.
Nevertheless, even under the current government, there are several critical steps that can be performed almost immediately. These steps are proposed in the first stage of the road map, concurrently with Stage 2 of President Trumps’ 20- point peace plan. These steps will be part of US-led measures to implement UN Security Council Resolution 2803 with respect to Gaza.
The concrete measures proposed for the first stage are: Resolution of the PA’s protracted fiscal crisis in order to allow full and timely wage payments and orderly delivery of public services; gradual re-entry of Palestinian workers into Israel for employment while implementing agreed changes to improve security arrangements; suspension of measures that impair the Palestinian banking system and application of new arrangements that will stabilize this critical system; as well as measures that would leverage the rebuilding of Gaza to jump-start the Palestinian economy, with emphasis on trade and logistics. The execution of these steps will be contingent on a comprehensive, effective reform of the PA, cessation of payments to prisoners and “martyrs” (shaheeds), and tight security coordination that ensures demilitarization in Gaza and the marginalization of Hamas.
In the second stage, additional set of measures that can be promoted under the umbrella of the Oslo Accords and the Paris Protocol. These measures will include: convening of the joint Israeli-Palestinian economic committee and the additional joint subcommittees defined in the Paris Protocol and accompanying agreements, for development of agreed future plans; phased promotion of economic links between Gaza and the West Bank, contingent on accepted security arrangements; establishment of special-economic-status industrial zones and free trade areas; signing of preferential trade arrangements with the UAE and Saudi Arabia, the EU,
and the US; promotion of Palestinian and Israeli integration into regional economic projects, primarily the reconstruction of Gaza and the India–Middle East–Europe Economic Corridor (IMEC).
The third stage will focus on a new Israeli-Palestinian economic agreement, under US-international-regional aegis. The new economic agreement will be negotiated as part of an agreed path to the future establishment of a demilitarized Palestinian state, and as an integral element of a regional settlement. This economic agreement will replace the Paris Protocol and its accompanying set of agreements as well as the multiple unliteral arrangements that have evolved over the past 30 years. This stage, which is proposed to take place over a longer term (3–4 years), will include issues such as a permanent trade regime, the currency of the PA, and other significant changes in the structure of the Palestinian economy.
Implementation of the proposed plan will drive the Palestinian economy forward, strengthen the moderate actors in the Palestinian arena, and support the socioeconomic stability that is a necessary condition for a stable settlement and long-term security.
The proposed plan also offers a set of additional significant benefits for Israel:
The plan will lead to a strong and stable PA that maintains effective rule in the West Bank, that constitutes an effective alternative to Hamas in the Gaza Strip, is committed to peace with Israel, and is a partner in effective anti-terror measures. Implementation of the plan will dilute the power of Hamas and other extremist groups in Gaza and the West Bank.
The gradual nature of the process, which is directed toward a clear political horizon and its progress based on the achievement of clear milestones, will build confidence and trust and create a system with long-lasting stability.
Economic collaborations with regional partners will position Israel as an important actor in the geo-strategic and economic system of the Middle East. These joint projects will also become significant elements of Gaza’s rebuilding, as well as the PA reform and stabilization process.
Israel’s integration as an important actor in comprehensive regional initiatives, such as IMEC, is expected to be an important growth engine for Israel’s economy for decades to come.
