West Bank

The Israel-PLO Declaration of Principles on Interim Self-Government Arrangements (the DOP), signed in Washington on 13 September 1993, provided for a transitional period not exceeding five years of Palestinian interim self-government in the Gaza Strip and the West Bank. Under the DOP, Israel agreed to transfer certain powers and responsibilities to the Palestinian Authority, which includes the Palestinian Legislative Council elected in January 1996, as part of the interim self-governing arrangements in the West Bank and Gaza Strip.

A transfer of powers and responsibilities for the Gaza Strip and Jericho took place pursuant to the Israel-PLO 4 May 1994 Cairo Agreement on the Gaza Strip and the Jericho Area and in additional areas of the West Bank pursuant to the Israel-PLO 28 September 1995 Interim Agreement, the Israel-PLO 15 January 1997 Protocol Concerning Redeployment in Hebron, the Israel-PLO 23 October 1998 Wye River Memorandum, and the 4 September 1999 Sharm el-Sheikh Agreement.

The DOP provides that Israel will retain responsibility during the transitional period for external and internal security and for public order of settlements and Israeli citizens. Direct negotiations to determine the permanent status of Gaza and West Bank that began in September 1999 after a three-year hiatus, were derailed by a second intifadah that broke out in September 2000. The resulting widespread violence in the West Bank and Gaza Strip, Israel's military response, and instability within the Palestinian Authority continue to undermine progress toward a permanent agreement. Following the death of longtime Palestinian leader Yasir ARAFAT in November 2004, the election of his successor Mahmud ABBAS in January 2005 could bring a turning point in the conflict.

The West Bank - the larger of the two areas under the Palestine Authority - has experienced a general decline in economic growth and a degradation in economic conditions made worse since the second intifadah began in September 2000. The downturn has been largely the result of the Israeli closure policies - the imposition of border closures in response to security incidents in Israel - which disrupted labor and commodity market relationships.

In 2001, and even more severely in 2002, Israeli military measures in Palestine Authority areas resulted in the destruction of much capital plant, the disruption of administrative structure, and widespread business closures. Including the Gaza Strip, the UN estimates that more than 100,000 Palestinians out of the 125,000 who used to work in Israeli settlements, or in joint industrial zones, have lost their jobs.

International aid of $2 billion to the West Bank and Gaza strip in 2004 prevented the complete collapse of the economy and allowed some reforms in the government's financial operations. Meanwhile, unemployment has continued at more than half the labor force. ARAFAT's death in 2004 leaves open more political options that could affect the economy.