The bleak prognosis will be discussed by key donors in London this week, but quick solutions are unlikely.
The Palestinians say only U.S. pressure on Israel to ease movement restrictions could turn the situation around. However, the U.S. has refrained from such steps in the past, pointing to Israeli security concerns.
Israel says Palestinian militants still pose a threat best contained by the network of hundreds of roadblocks, gates and dirt mounds covering the West Bank, and that a hasty removal of these obstacles could lead to more attacks that will only hurt peace efforts. Illustrating the point, a Palestinian gunmen killed two Israeli guards at an industrial park straddling the Israel-West Bank boundary on Friday.
Under a U.S.-led plan, progress in peace talks was to have gone hand in hand with improved living standards for the Palestinians, at least in the West Bank, which is controlled by moderate President Mahmoud Abbas.
The launch of Israeli-Palestinian peace talks at a U.S.-hosted conference in November was followed a month later by a Paris donor meeting that netted $7.7 billion (4.9 billion) in aid pledges to the Palestinians over three years. The money was earmarked both for the Palestinian budget and reform and development programs.
But initial optimism has long dissipated.
First of all, there has been no tangible progress in the peace negotiations.
And a World Bank report released Sunday forecast just 3 percent growth in the Palestinian economy this year. That would mean either stagnation or a downturn when factoring in Palestinian population growth.
The Gaza economy has sharply contracted because of the virtually complete closure of the area by Israel and Egypt after the violent Hamas takeover there last year. Even in the West Bank, GDP growth was only modest, the bank said.
The report warned that "future aid requirements ... will therefore be even larger in the absence of improvements in movement and access restrictions."
A senior Western aid official said frustrated donors will find it difficult to sustain the current level of aid to the Palestinians, let alone increase it. The official, who spoke on condition of anonymity because of the delicate subject matter.
Palestinian economist Mohammed Ishtayeh, whose PECDAR agency is in charge of some infrastructure projects, said the international community has to push Israel harder if it wants to get its money‘s worth.
"Somebody has to tell Israel that `enough is enough, you are blocking the political process and progress on the ground‘," said Ishtayeh, who is also involved in the peace talks. "Somebody has to tell Israel that all the donor money has no impact because of your measures."
Israeli government spokesman Mark Regev said Israel wants to ease Palestinian trade and travel in the West Bank, but can‘t take too many risks. "If tomorrow, we were to remove the roadblocks, we might get a nice headline in the newspapers," he said. "But on the day after, we could well have a whole series of attacks by terrorists ... and this could well be the end of the current positive momentum in the peace process."
A failure of the international aid program could have other dire consequences. Abbas‘ public approval ratings have fallen as the peace talks crawl forward. Without economic gains, his standing could be further eroded, hurting his ability to implement any future peace deal.
Mideast envoy Tony Blair has been trying to get several large economic projects off the ground, including three West Bank industrial parks, shuttling between Israeli and Palestinian leaders in recent months.
However, progress on the parks has been slow, largely because of disputes over movement and access.
One park, near the city of Hebron, is frozen because Israel won‘t allocate land on its border with the West Bank, said Hebron Mayor Khaled Osaily. For Palestinians, a park inside the West Bank is not feasible because products would have to be shipped through time-consuming Israeli border crossings instead of going directly from the park to Israel, the mayor said.
Israeli Defense Minister Ehud Barak recently promised visiting U.S. Secretary of State Condoleezza Rice to push that project forward.
Blair returned to the region Sunday for another round of talks ahead of next Friday‘s donor meeting in London. Asked about the grim economic prognosis, his spokeswoman, Ruti Winterstein, said: "Our intention is to continue working with the Israelis and Palestinians to make sure they (the projects) are implemented."
On the upside, the Palestinian government has invited hundreds of business people from around the world to an investors‘ conference in Bethlehem next month and plans to present some $1.5 billion (1 billion) worth of projects.
The organizers have not unveiled the projects, but the emphasis is expected to be on housing, a relatively safe investment because of high demand even at a time of continued movement restrictions.
Still, critics say the international community‘s attempt to foster Palestinian economic development separately from progress in peace talks was misguided from the start.
Blair has taken on an impossible task, Israeli legislator Yossi Beilin, an architect of Israeli-Palestinian peace interim deals in the 1990s, told reporters earlier this month.
"You cannot have intensive economic development, which would make it easier for future political processes, at a time when there are no changes on the ground," Beilin said.
By KARIN LAUB,
AP
Posted: 2008-04-27 12:33:44
RAMALLAH, West Bank (AP) -