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On August 16, 2007, the Palestine-Israel Journal (PIJ) held a roundtable discussion on The Economic Dimension: Past, Present and Future at the American Colony Hotel in East Jerusalem. The Palestinian participants were Dr. Samih al-Abid Karakrah, former minister of public works and housing in the unity government and former deputy minister of planning, and Nasser Tahboub, a senior Ministry of Finance official and assistant to Prime Minister Salam Fayyad and a former negotiator of the Paris Protocol. The Israeli participants were David Brodet, the former Ministry of Finance director general who led the negotiations on the Paris Protocol, and Prof. Ephraim Kleiman, a Hebrew University economist who was also involved in the Paris Protocol negotiations. The discussion was moderated by Avi Temkin, head of the Israeli economic newspaper Globes' research unit, and was attended by PIJ co-editor Hillel Schenker.

Schenker: Unfortunately, PIJ Palestinian Co-Editor Ziad AbuZayyad is unable to be here, because the Israeli military authorities are refusing to renew his three-month permit to enter Jerusalem. We very much regret that this is the situation, because there is no logical reason why it should be delayed or not renewed. However, this roundtable is devoted to discussing Israeli-Palestinian economic relations, past, present and future, for our issue on the Economic Dimension.

Temkin: Let me start with one simple question: What was the vision immediately after the signing of the Paris Protocol and the October 1995 regional economic conference in Amman? What was the vision, particularly as it was written into the protocols, and where should have we been today, according to that vision?

Brodet: The vision of Paris was very broad - basically to establish for the first time a model for relations between Israelis and Palestinians that would lead, in the future, to normalization, or normal relations. The Paris Protocol was subject to some limitations and constraints: We chose the customs union, because this was the only model that could work on the political assumptions in 1993 and 1994. The political conditions were that we were not speaking of a state, but autonomy. There was no definition of borders: There were no political borders; therefore, there were no economic borders. We were not talking about the main issues of refugees or settlements, because these were postponed for the permanent status negotiations. At that time, we were a part of the interim agreement that was coming out of Washington, resulting from the Oslo Accords.
So our vision was to see how we could work together - Israeli and Palestinian economists - but the spirit was a spirit of normalization. Normalization means that the two sides create economic and political conditions for more economic cooperation, creating a relative advantage for the Palestinians by bringing their economy into a good position and, of course, seeing how Israel could benefit from this situation. And on top of this, the spirit was that if we can establish good economic infrastructure in the area, it will also serve the political environment and political target after five years for a permanent status agreement...

Temkin: From the Palestinian point of view, at the time, where did you envisage the Palestinian economy to be at the turn of the century? Where did you think it would be today?

Tahboub: At that time, there was a developmental plan that was drawn up by Prof. Yusef Sayegh. It was a very promising and optimistic vision of how the Palestinian entity should look. What we were trying to achieve was a framework for enabling an emerging entity of the Palestinians for the Palestinians. We started with the small things: an entity that can finance itself, an entity that would be able to continue economic relations with Israelis. And we thought at that time that Israel would be a good economic neighbor, meaning that it would continue employing Palestinians and continue providing bilateral relations. We knew that Israel would put many limitations on this agreement. Some of these were not to let the Palestinians have very ambitious expectations, and some became the reality of economic and trade relations today. In Paris we tried to accommodate our desires but also not to antagonize the Israeli business community, which at that time had overwhelming ownership over the Palestinian business sector.

Kleiman: Looking at Paris I would say that it was trying to legitimize the shotgun marriage of 1967, and to make the customs union more formalized and more equitable by making arrangements for the remittance of Palestinian taxes and the phasing out of quantitative restrictions on agricultural exports to Israel, etc. As to Sayegh's plan, it was written in 1992 along the lines of the old Soviet Five Year Plans, which were very influential after the Second World War in developing countries. It said how many power stations, how many cement plants will be needed. But not a word about monetary policy, trade regimes or customs, which were exactly the questions which were discussed in Paris. So Sayegh's plan was not a help; it was even a hindrance.

Temkin: What can still be saved and preserved from those accords, or is it all lost?

Al-Abid Karakrah: We cannot say that it is all lost, but I think that the change in the environment obliges us all to look back and to evaluate the measuring rods that were built into the agreement. One of the issues that was missing from those agreements is the fact that it was not tied to the political advancement on the ground or what was going on in relation to the agreements. For example, the Paris Protocol and the Oslo II agreement, both agreed upon in 1995, created a new reality on the ground.

Brodet: When we designed the Paris Protocol, we were not looking only at Gaza and Jericho; for the first time, we were looking at the West Bank as a whole. This was our approach.

Al-Abid Karakrah: That was your approach, but the result of 1995, Areas A, B, C and so on, had an impact on those agreements, so it was far from the reality on the ground today. It was as if it were a model built for an area where the reality was different, so how do you make this applicable to reality? That is why we need to revise all of this in order to see how we can accommodate ourselves to the new reality on the ground.

Tahboub: First of all, in 1994 there was no economic entity called the Palestinian Authority; everything was within the Israeli Ministry of Finance. We are talking about fiscal consequences or trade and economic consequences. After six or seven years of implementing Paris - although it was not the perfect aspiration for us - we succeeded in establishing the PA as a trading partner in the world. Palestine is not accepted, but we have established a trading partner with a volume of $1 billion worth of direct importation, which means we enabled Palestinian businessmen to have direct dealings with the external world. If the second intifada had not erupted in 2000, more things would have been transferred from Israeli importers importing for the benefit of Palestinians to direct Palestinian importers.
The second issue is the fiscal consequences of Paris. In 2000, we were able to cover all the expenditures of the PA with a surplus of 10-15%. In 1999 and the beginning of 2000, we were an economic/fiscal entity that was able to finance itself with its own domestic revenues. So a Palestinian entity was emerging. I think we were heading towards creating mutual economic interests with the world and with Israel. We were speaking of joint industrial zones. All these Paris would have enabled, with all of its limitations - and I know there were great limitations, some for political reasons, some because of security issues, but the majority because of business considerations.
Temkin: To move to today's situation, how would you go about reviving the Palestinian economy that is really paralyzed now because of political and military developments? And to the Palestinian participants, a second question: Would reviving the Palestinian economy be conditioned on waiting for Gaza to join, or should it be a two-track development, where you support the West Bank somehow and leave Gaza as a separate geographical place to be dealt with only in humanitarian terms, which will have to wait for better days?

Kleiman: Gaza and the West Bank are practically separate economies. The other question is whether we are talking about the very short run or the long run. In the long run a small economy like the Palestinian economy has to trade, period. The question of movement and access is crucial. In the very short run, and especially in Gaza, there is only one industry that can immediately create income, and that is construction. If it takes the form of upgrading the refugee camps, for example, it does not raise the question of the right of return. More importantly, this does not require new infrastructure: There can be very nice plans for building high-rises, but the infrastructure in terms of sewage and so on, that's a story of two years at least, while here we can start immediately. There was in Gaza, and to a lesser extent in the West Bank, besides workers with experience in construction, a whole industry producing inputs such as floor tiles, simple electrical installations, solar heaters. All these things can be revived, and then you will be providing two things simultaneously: immediate income and better housing. The disadvantage is that in the long run this produces only housing services, something you cannot export and that will not create resources to pay for imports. There are other things, like improving the road network - which were damaged during the intifada - but I recommend mainly focusing on construction. Usually construction is a very bad idea because it is a short-term palliative. It does not provide the resources that the economy needs later.

Al-Abid Karakrah: I agree that construction is a starting point. It's manageable, and we can start with it immediately. The only problem with building new towns in the West Bank is that they will not allow us to use parts of Area C, where the land is less expensive than in Area A. There is a demand for building. For a short time when I was minister, our aim was to build at least five small towns, three in the West Bank and two in Gaza, and to revive the coastal area of Gaza, which could be a great support for the economy. In the present situation, I think it is very dangerous, and it will not contribute anything to the peace process.
I am not in favor of the model of West and East Germany - that the West Bank is now West Germany and should have a good economy, while the other side will be the fool, so it will learn that they have to be quiet in order to gain the same benefits. I don't think this will work at all. On the contrary, this will create more violence in the future. There is a potential for building both, not necessarily to help or support those who carried out the coup in Gaza, but at least to support the people of Gaza, because the way to remove those people from power now is the same way they came to power: through democracy.

Temkin: In everyday life you have to offer the population of the West Bank solutions for livelihood, work, health, education and roads, and this brings me to my next question: You have to give answers to the everyday realities of living, so how do you go about it? Would you say: "I am not going to implement any kind of policy until Gaza returns"?

Al-Abid Karakrah: No, I am not saying that. There are certain policies that we can implement in the West Bank right now, but without help and support from the Israeli side, this will not do any good. If you keep the area under closure and maintain all the obstacles to movement, nothing will happen. We need to create a good economy, or assistance to the people there, not only through humanitarian assistance, which I was personally against. We need a quality of life, more than just humanitarian assistance programs. The quality of education and of health will create a new attitude among people there - that they can change their attitude, can work in a better way and a better atmosphere, and can contribute to assisting the democracy that we are looking forward to. If you just feed them and tell them, "Settle and live in one place," it's not going to work. This has been the case in Gaza; that is why many people became radicals, because there is no quality in those living conditions. In Gaza there is something we can do in order to help the people. The quality of education and health will not harm anything, and businesspeople do not belong mainly to the other group.

Tahboub: I tend to agree with Samih. You are asking how we can revive the Palestinian economic situation. There are two new realities on the ground. We do not accept them, we don't like them, but these are the realities. The first one is the coup in Gaza, and the other one is the separation wall. In order to have a Palestinian economy, two significant involvement factors are needed. The first is to have employment opportunities, and the second is to find markets for production. Without them you will have no Palestinian economy - robust, surviving and sustainable. It is true that we have Areas A, B, C and the Jordan Valley. Regardless of any political agreements or security arrangements - even if Israel expresses goodwill towards the Palestinians - if it doesn't provide and expedite these two things, there will be no Palestinian economy. I am afraid that Israel has a sophisticated policy that is contrary to the face value of policies declared by Israel. I tend to agree that Mr. Olmert is expressing all the gestures of goodwill but is not acting according to them. Without Israel enabling significant Palestinian employment in Israel - and there are so many ways to have employment in Israel security-proof - we will have problems.
In one of his speeches Uzi Arad [head of the Herzliya Interdisciplinary Center's Institute for Policy Strategy] expressed the real policy of Israel towards the Palestinians: that the intention of the State of Israel is to lower the per capita income of the Palestinians to the extent that they will look east and not look west. He was speaking about the geopolitical dynamics in this area. If Israel creates crossings modeled on Karni in the West Bank - I am speaking of Tarkumiya, Jalame, Sha'ar Ephraim in Tulkarm - on these six main entrance points, or passages, then what Arad declared in 2001 is being implemented in 2007-08. I am trying to push our policy negotiators to work hard with Israelis to make sure that these gestures, these good intentions of good neighbors, lead to well-being, as the new president of Israel used to say, for without these two factors, there will be no well-being for either side.

Temkin: David, I want you to add to the equation something that will bring us to the longer term: Is a resolution to the current situation possible without bringing the Jordanians into the equation, because it seems to me that trying to find a resolution between the Israelis and Palestinians alone is like a dog going after its own tail.

Brodet: I remember in Paris in some private talks in-between the official talks, Abu Ala (Ahmad Qurei), who at that time was the head of Palestinian delegation, told me that strategically, the Palestinians should coordinate with Israel because it is better to be with the west than with the east. That was his policy. Why support the customs union? Because in 1993-94 the customs union was a case of $1,000-1,500 per capita income for Palestinians, versus $15,000 for Israelis. So this was his rationale for why it was better to work with Israel, because Israel pushes them more towards the west, not only through agreements like the Free Trade Agreement with Europe or with the United States but with Israel's other trade partners.
About Arad, it's true, but it's not a conspiracy. After what happened in 2000, the sentiment now in Israel is unilateralism. This was the Gaza disengagement. This was what Olmert said - "convergence" - in 2006 when he won the elections. This was declared by many officials in Israel. And the sentiment is that after what we have experienced in the last several years, we don't want any connection with the Palestinians; we want them to have a state, and maybe for them it's a new phenomenon and for some people in Israel, too. For the time being we need a "cooling period," and maybe after the cooling period, we shall establish, gradually and slowly, economic and political relations, etc. I am not saying that this is my policy; I am trying to give you the perspective of the sentiment and other developments in Israeli society and economy to understand the issue.

Tahboub: The sentiment is working only one way. Israel will still be selling $3 billion to the Palestinians but will not be taking $1 billion from the Palestinians.

Brodet: I am only saying that in the 1990s the sentiment in Israel was towards cooperation and coordination, and the west. Since 2000 there is a sentiment towards unilateralism and the east.

Temkin: Is there a way to bring the Jordanians into the equation?

Brodet: If there is to be cooperation between the Palestinians and Jordan, it is not something that Israel will oppose. But I am not sure that there can be a good match between the Palestinians and the Jordanians, not because of the political aspect, but because they are competing with each other. Their per capita income is $1,500 or $2,000; there is not much difference between the two. They are not complementary markets like Israel and the Palestinians or Israel and Jordan. Therefore, as a professional economist I cannot see a good match that can produce something that will create phenomenal growth on both sides. And this is not relevant only for Jordan: There is no good match between the Palestinians and Egypt or the Palestinians and Syria, not even between the Palestinians and Lebanon. If I am taking an economic interest, trade interest, market interest and growth, the greatest interest for the Palestinians is to go to the west, namely to Israel. The political situation is now to go to the east, and here we have a mismatch from the political and economic aspects, and therefore we are in a bind.

Kleiman: First of all, the idea to go to Jordan is on the political level. On the economic level it doesn't solve anything. I will remind you that before 1967 there were Jordanian restrictions on the exportation of agricultural produce from the Palestinian economy - under the guise of enforcing the Arab boycott, but the real reason was to prevent competition with the Jordanian economy. So that is out.
About this idea of separation: In 1967 there was a great debate on what attitude Israel should take towards the Palestinian economy. On the one hand, there was Dayan, who was in favor of cooperation; on the other hand, there was Sapir, the very powerful finance minister, who wanted a Chinese Great Wall, period. And life, not so much Dayan, won because of the pressure of events - people started crossing the border and goods started flowing. Now there is more and more of a tendency to separate, and two things contributed to this: I was amused by what David said about the Israeli attitude and the cooling period; this used to be the Palestinian argument - "Let's first separate, then we will grow, and then when we are equal we will be able to cooperate." This, of course, doesn't make sense. Once you separate you go different ways, and structural changes occur that preserve this situation. It will be very sad if that happens, and the separation wall makes it more possible. Once there is a physical barrier, it is much more difficult to cooperate. Shortly after the Oslo agreement, for a variety of reasons that have nothing to do with the Paris Protocol, the security and economic situation deteriorated. But people blamed the economic deterioration on Paris. There was a tendency in Palestinian society to say, "We want separation," and a lot of Israeli leaders were saying: "That is what the Palestinians want, so why do we force ourselves on them?"
In the Israeli government's original statement of their intention to disengage from Gaza, it was said that in order to encourage the Palestinians to build up their own economy, Israel will gradually reduce the employment of Palestinians in Israel. This was taken straight from a World Bank document. Now, with the separation wall being almost fully built and with the experience of the last years - it does not come from economists, it comes from people who do not understand economics - we are reversing what has happened since 1967. We are in a different situation, but reversing.

Al-Abid Karakrah: Between theoretical things and the realities on the ground, there are two things I would like to speak about: First, about the new era of unilateralism advocated by Israeli policymakers. The damage of that unilateralism is: Look what happened in Gaza, you left it but kept control over everything - borders, crossings, movement of people and goods, the economy, even water and electricity. You control their entire lives, even though you are not there. And you want to implement the same thing in the West Bank. I don't know what unilateralism means in the West Bank, beyond what it is in Gaza. In terms of geography, I don't know how the Israeli policymakers are going to do it. Are they going to build a wall around a small territory and keep the Palestinians in a ghetto there, but with the same Israeli control over going in and out, air and water, environmental issues, everything in your hands? I cannot envision how this is going to help support the economy, politics, security or in any other way. I can see that thoroughly damaging the situation. How can people separate and then join, doing what you are doing on the ground for the people there? I don't know how the economy can develop there. It is different from the theory that they are talking about. What is the value of trade that we have now?

Tahboub: With Israel? More than $500 million.

Kleiman: In 2005 the total Palestinian export of goods was something like $355 million altogether; to Israel it was even less, about $300 million.

Al-Abid Karakrah: If you can control or put more constraints on the entry and exit of goods, what is the benefit for the Palestinian economy? What is the benefit for the Palestinians even in political terms, or socially, or for security? Since the year 2000, when the negotiations started, the aim of the Israelis has been to facilitate the relationship between the occupier and the occupied, to continue things as they are. It was never in their minds to have a real two-state solution, to have good relations between the two sides. And the unilateralism in Gaza is the same. Whenever you want to allow people to leave Gaza, you allow it, when you don't want to, you don't. The same thing will happen in the West Bank. How could this allow for any economy there, or for social life or security? At the same time, you are not meeting your obligations resulting from the occupation, to provide us with basic support, humanitarian or otherwise.

Temkin: The next questions relate to the way we could bring together the short term and long term. There is talk of a new political agenda/international conference/the Arab League initiative, and I was wondering why the economic side of things were not brought into the discussion. Is there a way of linking that political agenda with an economic agenda, and is there a way of linking that economic agenda with what the long-term solution should be?

Schenker: I would like to add another question, in particular to the Israeli participants: Can the Israeli economy continue to grow and flourish regardless of what happens in the West Bank or Gaza, or is there also an essential Israeli interest in seeing a resolution that moves beyond the current situation?

Kleiman: Unless Qassams start flying from the West Bank into Israel, I don't think it makes a difference to the Israeli economy.

Brodet: It's more complicated. From a more comprehensive perspective, if Israel is still in conflict in the region and our defense expenses vis-à-vis our GDP continue like the last few years, we can maintain sustained growth of about 4-5%, but to my view Israel should grow 6-7%. So Israel has paid a price from the point of view of growth, even if the world now perceives the risk in Israel as the same as in the rest of the world. So in case of peace or good relations in the area, Israel could benefit from it. It's true that we've learned in the last 60 years how to manage our businesses and economy even in a conflict situation. There was a time in the 1970s and 1980s that we paid a very high price in our expenditure for our defense, but taking out this period we have managed very well; but we can manage better.
The Palestinians didn't make such strategic economic plans and decisions, because they were fighting for their independent state and nationalism. It is very understandable from their point of view, but they paid a very heavy price for this situation: They missed the economic opportunity of the 1990s. There was a period when they continued to bring their national case to the international podium but didn't continue their efforts with the internal economy and internal arena. Personally, I am more pessimistic about the Palestinian situation, even if a Palestinian state is established in the near future. They lost the Israeli case. Even if in November there is a conference with Bush and in December they declare a Palestinian state, and Israel is evacuated from 95% of the territories - let's dream of such a scenario - it will not be the same as in the 1990s. They will lose the Israeli market, and for them it's a heavy price. Because even if they are in a situation where there will be a state, they can get good aid and assistance from the international community - Tony Blair will give them $3 billion - but even that will not compensate for relations with Israel. Economic relations with Israel are worth more than $3 billion a year in the long term.

Kleiman: You were asking if the situation would deteriorate compared to the current one, and I don't think it will. I completely agree with David on the effects of an improvement in security, except for one thing: We may have peace with our neighbors, but if there is something like Iran somewhere, these could require very heavy expenditures; David knows this better than I.

Al-Abid Karakrah: David said that we lost the Israeli case, economically or politically. The Palestinians are saying that the Israelis lost the Palestinian case because we have not gained anything from the peace process. When they evaluate the peace process, they say, "We did not gain anything: not territory, nor independence nor an end to the occupation." On the contrary. They believe that the peace process became a disaster for us. You have to take into account not only public opinion on your side, but also on the other side, your neighbors, and unless you start to concern yourselves with your neighbors' opinion, I don't think we will get anywhere except to continue this circle forever.
Now, despite what happened in Gaza - it's a local crisis and in a way related to regional crises as well - there is an intention to hold an international conference. We believe that by having the Arab countries within that international conference with the Americans and Israelis, if we can use it in the right way and manage to come up with some model on the principles of finding the solution to the conflict, this will be an added value to the Palestinian leadership, in that they will have the backing of the international community and, for the first time, from the Arab countries as well. Then there will be a push for the future. Without any economic development, it will not be a success story; there should be a parallel effort. If the international conference succeeds, then you have to have a parallel economic package that will support the implementation of that peace process. Both can complement each other and can even be the missing link with security, as the third part of the triangle, the triangle of politics, economics and security. The three are interrelated. If we have the international conference and if we have the economy, it can influence the security issue and make it more manageable. We have to close that triangle, so that we can be optimistic in the future.

Kleiman: When the peace process started, there was this attitude that economic well-being would lead to political solutions, an attitude exemplified by Mr. Peres. It didn't work out like this. I think there is a certain asymmetry here. Economic deterioration could have an adverse effect on the political side; economic improvement does not necessarily assure that the politics will work out well.

Tahboub: Economic improvement is a prerequisite.

Kleiman: It's a requirement, but not sufficient. Now, I think that Mr. Blair's present effort will be the last time in a long time that the international community will be willing to cough up a large sum of money for the Palestinian case. That's my theory.

Temkin: I am asking about what can be done. Given the present situation, let's think about short and long term together.

Kleiman: I would say that Israel should gradually try to ease access of the Palestinians to the Israeli markets - the goods market. There is small chance in the labor market; you have to remember that it also depends on the employers, and they've discovered the joys of employing the Chinese.

Al-Abid Karakrah: I understand that they are looking to legalize 50,000-60,000 Palestinian workers.

Brodet: Never 50,000-60,000. The Israeli market does not have the capacity to absorb such a quantity.

Tahboub: I agree 100% with the description of the situation in Israel, the feelings towards Palestinians. Now, I don't care how much Blair will fund us; this is of the lowest relevance. The first thing we have to remember is that in the Arab countries now there is a surplus of petroleum money that is flowing to Jordan. Israel can decide to fully separate from us, like what happened in Gaza. Israel leaving 95% of the West Bank is a dream. What I am speaking of is the consideration of the face values versus the sophisticated policies.
And linking politics to economics, what we need this time as Palestinians, what we want the world to help us with and what we want Israel to do is to make a decision. They don't want to employ Palestinians? Well and good. They don't want to give market access for Palestinian goods? Also well and good. But you have to give us the enabling conditions to leave you: access to the world, flow between us and whichever direction you want us to go. I strongly support the idea that our best trading partner is Israel. But if Israel does not want us to be a trading partner, then let us have a full separation, not a one-sided separation - meaning not only preventing Palestinian goods from coming to Israel, but giving us the right to buy our $3 billion worth of goods from other markets.
Second, I expect lots of petroleum money, and I hate to say this, but if the separation wall is completed and if the Israeli security concerns are accommodated, then there should be no justification for Israel to prevent Arabs and Arab money from flowing into the West Bank. If we accommodate all of Israel's security concerns, and if we accommodate all of its political concerns, it's time for us to be free. Give us a chance to engage with whomever you want us to engage with, either west or east. If it is east, call it petroleum money for our aspirations, for solidarity - there is a $1 trillion surplus in the Arab world.
Israel has to make a choice how it wants to disengage from us, but this half-and-half disengagement should not continue. Israel will be benefiting from Palestinians. We will be the bridge for Israel to go to the Arab world, and I think this is more valuable than what you are giving us. In the future political scenario there should be a decision on whether Israel is considering us a good neighbor for economic cooperation. And, by the way, all the veterans of the Paris Protocol devised what we call an economic permanent status model. We understand what mutual interests will be gained.

Brodet: There is a hidden assumption here. What he is saying is that there will be good political relations and good security, if this were to be fulfilled. But the situation is…

Tahboub: Close the doors of the wall and you will see.

Kleiman: It is not enough. If we close the doors of the wall and there are Qassam rockets, you will not feel safe for investors from Qatar or Kuwait or Jordan.

Tahboub: We will accommodate all your security concerns. We will bring international forces to the West Bank.

Brodet: I'm not the security person to give you the recipe for it, but whenever there is a long period of quiet, money will come not only from Qatar but also from Tel Aviv. It's not either/or.

Tahboub: It is either/or. I know this is what you usually like to give, a hybrid of everything that you are controlling. I don't think that any Palestinian political vision will accept living under the same political situation as Gaza. No Palestinian will sign or vote for no access for the Palestinians. If Israel wants to disengage, it is their choice, and a disengagement that keeps the door open for re-engagement in the future is OK, but we need to have access to wherever we want to go. I am speaking about surplus petroleum money that is extremely beneficial, and I am speaking about Palestinian diaspora wealth. Mr. Blair will not get anything, but the Palestinian diaspora wealth can do much for the Palestinians. The only question is how Palestinians or Arabs will be able to invest money in this area. We can go to a service economy, or to an agricultural economy; we can lower our per capita or standard of living. There are many options.

Temkin: Can we go to the issue which has been raised here, separation and integration, and if we are going to separate, let us separate gracefully.

Kleiman: If we can separate gracefully, there is no need to separate. That would mean that there is no fear of any violence from the Palestinian side, and in that case there is no particular need for separation, except for people with some specific ideology…

Tahboub: And why are you separating the West Bank now from Israel?

Kleiman: For security.

Tahboub: What security concerns do you have now?

Kleiman: If the situation is such that we can separate amicably, then there is no need for separation unless the Palestinians wish it for a political reason. I won't blame them if they say: "We had enough of this Israeli embrace; we want to get rid of it, even at a cost."

Tahboub: You mean the West Bank is not peaceful now?

Kleiman: No.

Tahboub: For the last three years? Why are you separating now?

Kleiman: When there is security, I don't think there will be any objection against people moving wherever they want or for money going in from wherever, as long as there is no suspicion that it is Iranian or Al-Qaeda money intended to finance certain people. The two things are not mutually exclusive; on the contrary, that was exactly what we spoke about in the 1990s.

Tahboub: You want me engaged to one, not to several?

Kleiman: Not at all, on the contrary.

Brodet: This is economics. In economics you can marry Europe, the U.S. and Japan.

Kleiman: If you go only to the east, then you are in trouble. You may survive but at a lower standard of living than if you go west, not only to us. For example, people used to complain that the subcontracting in Gaza was demeaning, etc., but some of them were accessing the world market. How? An Israeli firm sent them jeans for them to put on the back pockets, and then the jeans were sent to the U.S. and Gap or some other firm used to put its label on them. So these people in Gaza had to adapt themselves to international standards. Ideally the Palestinian economy should be facing the whole world.
Temkin: I want one minute from each of you on: Where is the way forward?

Brodet: On the political side, security, on the economic side, infrastructure and institutional building. This is what I wish for the Palestinians as the starting point for any direction, east or west. As a professional economist I am saying the way forward is to improve the infrastructure and the institutional framework.

Tahboub: I want the Israeli military forces to give up their military presence in Palestine in order to achieve peace and security for Israel, and to see how valid the theories of Ephraim Kleiman are.

Al-Abid Karakrah: Ending the occupation is the only way of creating a chance for the Palestinians to adopt any model that can be implemented in the region as a whole.

Kleiman: Ending the occupation might be a necessary condition; it is not a sufficient one. I would like to warn my Palestinian friends that they will discover that a lot of the problems that existed before will still be there after occupation has ended.

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