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The Regional Economics of Peace

I recently wrote in these pages about the need for Israel to stop settlement construction in the West Bank, and for the Arab world to take real responsibility in ending the Israeli-Palestinian conflict. While immensely important, additional measures by all parties need to be undertaken as well. This final article of a four part series (see here, here, and here) will highlight some of the other issues that peace requires, primarily a regional approach to peacemaking.

A peaceful resolution to the Israeli-Palestinian conflict will likely depend to a great extent on the economic development of a future Palestinian state. As I have argued before, private sector investment -- especially in the West Bank -- is going to prove crucial in creating the right political and social context for peace.

However, both a political resolution to the conflict as well as economic reform among the Palestinians are going to require a regional approach. In this, the Arab world needs to play a much larger role than it has, primarily as an import market and as a positive influence on the overall regional business environment.

The question needs to be asked, what kind of relationship will a future Palestinian state have with its Arab neighbors? The Palestinian economy is, and will likely continue to be, highly reliant on trade. And yet, trade between the Palestinian Authority and the Arab states is extremely limited. Trade with Jordan and Egypt, for example, makes up just over 3 percent of total Palestinian exports.

Moreover, the Palestinian economy, as currently constituted, is approximately 60 percent service-based. This is not only unsustainable, but also a poor model for future growth. What the Palestinians need is real economic reform that creates goods for export, and an obligation from their Arab neighbors that they will in fact provide a ready market.

The place to start, arguably, is in the Palestinian agricultural sector. As an already important part of the current West Bank economy, agriculture and agriprocessing should be used as a base upon which to build on. Agribusiness could provide an opportunity for joint Israeli-Palestinian projects, spurred on by Israeli technical expertise in this field. In addition, agriculture -- as opposed to other industries like manufacturing and construction -- would likely prove less sensitive to Israel in security terms.

Increased Palestinian agricultural production could thereby assist in providing a more solid foundation for the economy of a future state, providing jobs, joint investment projects with foreign backers, and goods for export. In this instance, land could be a catalyst for peace, and not the overarching impediment it has been historically.

Another area where additional regional assistance is needed is with the mitigation of uncertainty and risk. What every potential private investor demands above all else is security and stability for his (or her) investment. At present, though, this is still sorely lacking in the Palestinian arena. While much of the instability is a direct result of the conflict between Israelis and Palestinians as well as between the Palestinians themselves, outside forces also play a destructive role.

Rockets are still being smuggled into Gaza via Egypt's Sinai Peninsula, and Lebanon's Hezbollah still supports Palestinian terror groups (while continuing to threaten Israel's northern border). In addition, Hamas still rules the Gaza Strip, providing both a physical and ideological impediment to a comprehensive resolution of the conflict. In all these cases, the Arab states have an important role to play in resolving disputes, discrediting extremists, and laying the groundwork for a real Middle East peace.

It is simply baffling that at a time when Israel has taken concrete steps to help the Palestinian economy improve (removing checkpoints and increasing freedom of movement in the West Bank), and is contemplating taking additional difficult measures (like halting settlement construction), and while the Palestinians under Mahmoud Abbas and Salam Fayyad have signaled their intention to improve governance and security, the Arab states receive a free pass.

For years we have been told by Arab leaders that resolving the Israeli-Palestinian conflict should be the foremost concern of everybody involved in the Middle East. For years, however, they have failed to take steps on their own which would ease both Israeli security concerns and Palestinian suffering.

With a regional peace initiative reportedly the ultimate objective of the new US administration, now is the time for the Arab states to be part of the solution. Matching their rhetoric for a future Palestinian state with tangible economic development projects would be an extremely positive and necessary move. The world is watching, and waiting.