Abu Gosh is somewhat special, of course. Involved in centuries long blood feuds with neighboring Arab villages, its clans allied themselves with the Jews (one clan even supported the Jewish underground fighting the British) even before the 1948 war that seven Arab states and the Palestinians launched against the nascent Israel. Their village was therefore spared during the bitter fighting to lift the deadly Arab siege of Jerusalem, which resulted in the ruin of most Arab villages in the area and the flight of their inhabitants. They have greatly prospered in Israel, as is evident from the beautiful villas that have replaced their former small stone structures and mud hovels. They mostly manage their own affairs and live largely in peace and quiet, except for internecine political fights, another sign of their integration in Israeli society.

While not as smooth or idyllic, until the recent Arab attacks, peace also prevailed in East Jerusalem, and in the large open air “shopping malls” that sprung up along the demarcation line between Israel and the Palestinian Authority, fifteen minutes drive from Tel-Aviv.

Every Saturday (daily, in Jerusalem) tens of thousands of Israelis and tourists would crowd the picturesque Arab market in East Jerusalem, or browse among the dozens of stalls set by Arab merchants in these “malls”. They spent, excluding Jerusalem, an estimated 300 million dollars in cash annually, the equivalent of about half of the foreign aid the Palestinian Authority receives annually, and about a fourth of its GDP!

Because of this spontaneous economic interaction there was not one attack against Jews in all these markets. Even in Jerusalem, the epicenter of the Palestinian-Israeli conflict, where Arabs and Jews (including many extremist Moslem fundamentalists) come into close contact, peace generally prevailed. This despite a great cultural, religious and national divide, and despite intense incitement by the Palestinian Authority and assassination of “collaborators”. Even intensely nationalistic Palestinian Arab residents of East Jerusalem elected to accept Israeli identification papers, and those not eligible tried to pay thousands of dollars in bribes to secure them. They do so because under Israeli rule they prosper, and also enjoy �’�€�“ despite obvious discrimination and tensions arising from dangerous terrorist threats �’�€�“ far greater civil and human rights. When it was rumored that certain predominately Arab neighborhoods would be ceded to the Palestinian Authority, real estate prices plummeted, a sure market indication of the residents’ preferences.

All this affirms that the banal truth that economic interests are often more powerful than political divisions is also valid in the Middle East. Had Israeli, and especially American policy makers, paid attention to this truism and encouraged first economic development that permits the emergence of a civil society that has a stake in peace; had they not imposed on the Palestinians a repressive and corrupt regime that destroyed their economy; and then recklessly tried to impose a premature political solution on an impoverished and angry population (in large part, presumably, so that President Clinton could take credit as peacemaker), a lot of suffering and loss of human life could have been avoided.

True, the Olso process was based on the hope that it would gradually establish trust between the people. There was also talk, and even agreements reached, about economic cooperation. But in effect, Oslo created conditions averse to economic development. Since Oslo, the standard of living of the Palestinians has been cut in half (!) and unemployment has risen to over 15%, and in certain areas a terrible 40%, especially among the young (which explains why there are always youngsters available to participate in riots).

Oslo put 90% of Palestinian Arabs under Palestinian Authority’s control (that Palestinians revolt against Israeli “occupation” is therefore propaganda). But instead of establishing a rule of law (largely observed under Israeli rule) to facilitate economic development, Arafat, and his imported PLO Tunisian entourage, established a corrupt and repressive regime, ruled by terror, kidnapping and torture. Expatriate Palestinian businessmen who tried to help were forced to take “partners”, and were soon scared away by all that lawlessness.

Little of the more than billion dollars the Palestinian Authority received in aid was spent on development. The bulk was squandered on paying tens of thousands of the Authority’s operatives and hangers-on (those who now incite the riots), plus an army of 40,000 (masquerading as “police”) and seven competing security services (that, amazingly, struck deals with Israeli monopolies to enforce their monopoly rights, for a share of the take, over many basic commodities such as flour, cement, petrol etc.). Ten of millions dollars were squirreled away, according to Palestinian parliament sources (who were later silenced or bribed) in foreign bank accounts of Arafat’s fat cats, or used to build multi-million dollar villas in Gaza and Ramallah and purchase fleets of luxury cars.

Israeli governments have also retarded economic development, in Israel and even more so in the Palestinian areas. While former Prime Minister Peres and his colleagues talked about (and raised a lot of funds for) economic “cooperation”, they did little to alleviate the hardships of Arab workers, farmers and small businessmen by opening Israeli markets to their products (agricultural produce, building materials, clothing and footwear), by streamlining security arrangements so that people and goods could move more freely, and by restraining the harassing Israeli bureaucracy that has provoked great anger and further inflamed the situation.

Can economic development still encourage peace? Yes, even after all the unnecessary conflict and pain. Most Palestinians want first to provide bread for their families, as is evident from their overwhelming opposition to a transfer of their villages to the Palestinian Authority as part of a territorial swap.

But first the American officials managing the peace process must finally realize that economic development is a major means for defusing the conflict (maybe this is why Arafat so resists it!). They must insist that Arafat cease immediately using violence, and make sure he is not rewarded for it, so that he does not repeatedly incite it for political gain. Then, instead of working almost exclusively on the diplomatic track, they must devote much more effort to the creation in the Palestinian territory of a rule of law and of a framework conducive to economic development. Donor countries should refuse to subsidize Arafat’s regime unless he liberalizes his rule and economy. Israel should fully open its markets to the Palestinians and disband its damaging monopolies so as to offer both Israelis and Palestinians greater opportunities.

To focus on economic development is more arduous than the endless routine of glamorous meetings and conferences. But it was economic development that has finally brought peace to Europe. There is no reason why it should not also promote peace among Arabs and Jews.

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