It's the (Palestinian) Economy, Stupid

Palestinian prosperity promotes peace; Palestinian poverty nurtures war. That logic was one of the foundations of the Oslo peace process, which is why one of its key authors on Tuesday raised the alarm over the state of the Palestinian economy after more than two months of the new intifada. And the World Bank, which seldom acts without a nod from the U.S., on Wednesday made an unprecedented donation of $12 million to the beleaguered Palestinian Authority for immediate job-creation programs.

Norwegian U.N. envoy Terje Roed-Larsen, who played a leading behind-the-scenes role in brokering the Oslo agreement, urged Israel on Tuesday to reopen its borders to the more than one fifth of the Palestinian work force who've been unable to reach their jobs in the Jewish state — and warned that the precipitous decline of the Palestinian economy was planting the seeds of a regional war. The Israeli blockade has quadrupled Palestinian unemployment, and the two months of the uprising have seen income losses to Palestinians totaling more than $500 million dollars. Indeed, the World Bank's $12 million donation is primarily a gesture to alert the international community to the problem — after all, the Palestinian economy's losses as a result of the uprising are estimated to be growing at $9 million a day.

While Israeli leaders such as Ariel Sharon and Benjamin Netanyahu are pressing Prime Minister Ehud Barak to ratchet up the economic pressure on the Palestinians — for example, taking advantage of the fact that Israel still controls water and electricity supplies to the territories under Yasser Arafat's control — others share the concerns of international monitors over the long-term effect of such a strategy. After all, the declining economic circumstances make it a lot easier for Hamas to recruit young men as suicide bombers, its promise of the paradise of martyrdom holding considerably more allure amidst squalor and hopelessness than it would if those same young men could measure it against a more promising future. And the impoverishment of the incipient Palestinian state darken the already diminished prospects for harmonious coexistence with its Israeli neighbor.

But "it's the economy, stupid" is unlikely to be the mantra of any of the candidates in Israel's forthcoming election campaign. Barak is still desperate to cobble together an eleventh-hour peace agreement with Arafat to take to voters, although prospects for such a breakthrough are receding almost daily as new waves of violence wash away progress toward a cease-fire. Indeed, parallel with his election track, Barak is still pursuing the option of sharing power with Likud leader Ariel Sharon in a national unity government — a handy tactic for both men to postpone the challenge of the election's undisputed front-runner, Benjamin Netanyahu. Either way, that's unlikely to usher in a bull market on the tiny Palestinian bourse.