Introduction
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Recently, a significant improvement has taken place in the Palestinian economy. A number of economic indicators show that a marked improvement occured in the Palestinian Authority's economic condition in 1997 as compared to 1996, and that this improvement has continued into the first four months of 1998. The economic growth may be due, among other factors, to the relative calm which prevailed during this period - which supports the view that an atmosphere of security and political stability engenders a strengthening of the Palestinian economy.

It is worthy to note in this regard, that this year, there have been no security closures of the West Bank and Gaza, as compared to 63 days of closure in 1997 and 92 closure days in 1996. This positive growth trend in employment and private sector activity was detailed in the latest report submitted by the Special UN Coordinator to the territories (UNSCO) in April of this year. Among other trends, the report noted that in 1997, a 14.4 percent growth occured in the number of Palestinian employees working in Israel, as compared with the previouis year. The report also highlights the expansion of private investment, as evidenced in the growth of the construction sector, the rise in the registration of new corporations, and the increase in credit extended to Palestinian businesses.

Employment within Israel
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Income from employment within Israel constitutes a very significant element in the overall income of the Palestinian labor force (30-40 percent). A steady upward trend in the number of workers employed by Israelis has existed for some time now. While the average number of Palestinians employed by Israelis stood at 39,000 in 1996, that figure increased to 47,000 in 1997, and today stands at about 55,000. Of these, about 13,000 are employed by Israelis within the West Bank and Gaza settlements and industrial zones.

In addition, tens of thousands of workers are employed in Israel without permits, so the total Palestinian workforce in Israel is estimated at 100-110,000 individuals. The number of workers in Israel in 1997 exceeded the projections made by both the IMF and the PA Finance Department. The steady growth in the Palestinian workforce is even more significant when view in the context of the slowdown which is felt in the Israeli economy and the rise in unemployment among Israelis.

The growth in the number of Palestinian workers may be attributed to a number of steps taken by Israel, some with the cooperation of the PA:

- abolishing the quotas for Palestinian workers. The number of employees is now determined by market forces alone.

- lowering the minimum worker's age limit to 23 - a measure which opens the Israeli labor market to thousands of additional Palestinian workers.

- adopting a program to allow Palestinian workers to remain overnight in Israel, thus eliminating the need for several hours of daily communting. Today, over 4,000 workers are participating in this program.

- approving a program which allows 30,000 Palestinian workers to continue to enter Israel, even during times of security closures.

- organizing employment fairs in the construction sector, meant to bring Palestinian workings into contact with Israeli contractors. Other placement services are also being considered for this sector.

The above steps have brought about a significant improvement in employment, which has been recongnized both by foreign representatives and by PA officials in recent sessions of the Forum of Donor States.

Promoting Private Sector Development
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Israel has taken a number of steps to strengthen the Palestinian private sector, in recognition of this sector's central role in the future growth of the Palestinian economy as a whole.

Commerce and Merchants
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The number of West Bank and Gaza merchants granted Israeli entry permits has been expanded to 16,500, as compared with an average of 6,374 permits in 1997 and 3,420 in 1996.

A coordinated effort has been undertaken by Israel, together with the PA, to expand the number of permits allowing Palestinian merchants to enter Israel with their vehicles. Recently a number of meetings have taken place between Israel and Palestinian businessman, in order to forge a working relationship between the two business communities.

The continuing increase in the scope of trade finds expression in the number of crossings of trucks, which stands today at 15,500 trucks a month. (There are no limitations on the movement of trucks and this number reflects record activity.) Also notable is the increase, of tens of percentage points, in the Palestinian export of vegetables and strawberries in the 96/97 season, as compared to the 95/96 season.

The Karni Industrial Zone
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Israel continues to promote the Karni Industrial Zone, which is presently in the final stages of construction. In addition to a goods checking station on the Israeli side, whose construction is nearly completed and whose management will be transferred to civilians, Israel has recently acted to connect the infrastructure (water lines) of the industrial zone.

In addition, information activities which aim to encourage Israeli businessmen to invest in the Karni industrial zone have been undertaken.

Transfer of Funds
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The above steps have generated a significant rise in economic activity, which can be seen from the scope of transfer of funds to the Palestinian Authority. In 1997 Israel transferred some $540 million to the PA (for import taxes, VAT adjustments, fuel taxes, income taxes and health taxes), compared to $436 million in 1996, a increase of 24%! These funds, it should be remembered, constitute 63% of the Palestinian Authority's budget. In the first third of 1998, the funds Israel transferred some $182 million. The total sum transferred since 1994 is $1.5 billion.

 Conclusion
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Israel continues to invest much effort in improving the state of the Palestinian economy, recognizing the fact that this is an important Israel and Palestinian interest. Still, it is clear that progress is dependant, first and foremost, on a stable security situation as well as cooperation by the Palestinians and the international community. In this context it is fitting that all parties act in a manner that will advance cooperation between Israelis and Palestinians in the economic sphere (the principle that stands at the base of the Paris Protocol which regulates the economic relations between Israel and the Palestinians in the interim period) and not sacrifice important economic interests to political considerations.

Source: Israeli Ministry of Foreign Affairs