07/28/2014 04:22 pm ET Updated Sep 27, 2014

Peace Through Unity: Merge Gaza Into Israel

As the conflict in Gaza rages on, it seems that opinion is divided about whether Israel or Hamas maintains the majority of the responsibility for the death, devastation and despair. Though both sides seem more unwilling to compromise their views than ever, and anti-Israel proxies attempt racist pogroms in the West, one thing is clear to every rational party to the conflict: it's going to be much harder to solve this problem than argue about who's at fault.

Neither the "kill all the Jews" nor the "kill the Palestinians" views are (hopefully) likely to prevail, so there has to be another way forward. Cease fires always seem to get broken, and as long as Hamas is in power and doesn't stand down from it's anti-Jewish rhetoric, there isn't much chance that Israel -- or Western powers -- will change their zero tolerance policy toward the terrorist group. Of course, Hamas could engineer a massive IRA-Sinn Fein style 180 and become a peaceful political organization, but that seems beyond their capability and Iran's interests at present. So what to do?

Most of the serious solutions center on the idea of a two-state solution with the 1967 borders as the starting point, some obvious territorial gives to the Israelis (e.g. Jerusalem) in exchange for defined borders, a halt to settler activity, and some economic/political control being given to the Palestinians -- usually centered on borders, airports, seaports and the like. This obscures the more urgent and serious issue: the Palestinian economy is still very rudimentary as a result of incredibly poor management, high corruption and the risk of instability.

Despite the billions of aid and FDI that have gone to the Palestinian Authority in the past decades, their current GDP and productivity, along with inflation and real cost of capital, put them in a very weak starting position. Even if hostilities were to cease tomorrow, Hamas were to disappear/reinvent itself as a peaceful group and Israel were to give the PA full authority, it might take generations to bring some economic vibrancy to the area -- and once aid money dried up (or Iran's illicit Hamas support went away with the violence) -- it will be even harder to reinvent the Palestinian economy.

So the medium-term solution will not only require political stability but -- whether people like it or not -- Israeli direct investment and job creation. Much as the maquiladoras of northern Mexico helped create an entire middle class in under a generation through NAFTA, so too Israeli champions will need to ramp up their operations in Palestinian areas to give people good jobs. The company's motivation will be to take advantage of cheaper labor and duty/transport advantages.

This is largely why I believe the movement to disinvest from Israel been so fruitless and silly. No matter what happens, a vibrant Israeli economy will be necessary to lift the Palestinians from their current situation in a material way. Certainly, this will not come from Jordan, Egypt, Lebanon or Syria -- each of which struggles mightily with its own economic development today. Hampering Israel's economy (which is unlikely in any event) will honestly just retard Palestinian growth further, and people who genuinely care about Palestinian welfare should be encouraging companies like Sodastream -- who seek to create meaningful work for this highly underutilized workforce -- not punishing them.

In this reality there is a glimmer of hope for solving the problem of Israel and the Palestinians in a durable way, though it's probably not what most people think. It seems the best solution for both sides in this conflict would be to merge the West Bank and Gaza into Israel subject to a vote of its inhabitants. This obviously must include a guarantee of Palestinian liberty, property protections, education and political representation, similar to that which Israel's other minorities receive.

Entrenched interests on both sides will probably hate this plan -- but I'd posit that's a good thing - and I think the time is ripe for proposing this kind of option to the Palestinian people, especially if recent surveys are to be believed. The Palestinian leadership is economically feckless and corrupt, and they will oppose this idea because of their fear of losing power. But in the Israeli political system -- where there is increased freedom of ideas and a wide raft of small, splinter parties -- the best Palestinian leaders across the spectrum would be allowed to flourish. This would permit a moderate Palestinian movement to take hold, and key factions might even wield increased power in a reshaped Knesset. It's not crazy to imagine West Bank parties holding the keys to a unity government aligning Jews, Israeli Arabs and Palestinians - who would eventually be assimilated into an Israeli Arab community of greater influence.

Israeli right-wingers will oppose it because of the long-standing fear of Arab population growth overtaking Jews in the Holy Land. But this fear is overblown demographically, especially with the Jewish ultra-orthodox having huge families. Moreover, if Palestinians in Israel were able to participate in the country's economic miracle -- and its engine would only grow from their willing contributions -- their family structure might shift to be more in line with higher income/status. But heck, if the Israeli right-wing is a little afraid of a demographic shift, that might not be the worst thing ever.

The rub is this: Israel has the highest standard of living, education and opportunity of any country in the region -- and with continued skyrocketing growth of its key exports (mostly technology), it will continue to outpace its neighbors. If the Palestinians remain independent they will be significantly poorer than Israeli Jews and the Arabs that have chosen to live as citizens of Israel for decades to come. But if they join Israel and get the right to property, safety, education, economic opportunity and personal freedom, the Palestinians would have a chance to see their kids not just survive -- but thrive. Of course, life as an Israeli Arab isn't perfect, but minority life is tough in most of the developed world... and the addition of more Arabs to the mix, especially those with a passion for advocacy may only help to strengthen and improve the lives of all people in the Holy Land.

If the Palestinians can be assured of their right to culture and autonomy -- and examples of this exist throughout the world in once-fraught places like Quebec, Kuna Yala, or the Basque Country -- along with freedom and economic opportunity, what's not to like? Obviously, any decision to merge the territories should be preceded by a vote, and true anonymity would be essential in such a contest, but I think moderate residents of the West Bank and Gaza might just want something more stable and less fraught than what they have today. Polls increasingly show that Palestinians want economic opportunity in Israel -- not Hamas extremism -- so why not make that possible for them?

In 1967, when Israel was attacked by Jordan and Egypt in the Six-Day War, it captured many territories as part of its defensive victory. Though it offered the West Bank and Gaza to Jordan and Egypt in exchange for peace, neither country wanted the territories, and so they have been left to fester in this in-between place. Perhaps one of the greatest mistakes Israel's made in its great experiment was to not annex those territories then. And perhaps one of the greatest mistakes the residents there made was not to join Israel when they could. Today, they would have been part of a great economic success story, with the right intellectual and financial capital for 21st century challenges.

This can be fixed. Let's give the people a chance to consider this option. Let's use the peace and democracy of Israel as a tool -- not a shield -- to enrich the people of that region. Let's encourage a democratic and pluralistic Israel to thrive as an example of ingenuity and tolerance. I think moderate voices can use such a referendum to unseat Hamas and the corruption of the PA in the privacy of the voting booth, while doing the same to the Israeli right wing. First a cease fire, then a chance for unity.

H/t Stephen Suess for this insight.