Amid a fragile ceasefire in Gaza and ongoing confrontations in the West Bank, discussing economic relations between Israelis and Palestinians may seem premature. However, lasting stability and peace plans will inevitably require economic ties, and cooperation, or the lack thereof, will shape the postwar landscape and the region’s future.
Economic integration, investment, and trade could serve as stabilizing forces, while continued economic isolation may inflame tensions and fuel further conflict. Gai Hetzroni, CEO of the Israeli-Palestinian Chamber of Commerce (IPCC), told The Media Line that “economic stability and people knowing and interacting with each other reduces tension and elevates trust. This is a force against extremists and fundamentalists.”
While economic relations between Israel and the Palestinians remain contentious, they are not without precedent. The 1994 Paris Protocol, signed as part of the Oslo Accords, defined the current Israeli-Palestinian economic framework, creating a customs union where Israel controlled imports, tax collection, and financial transfers to the Palestinian Authority. Yet, three decades later, this arrangement, which was meant to foster cooperation, has, instead, deepened Palestinian economic dependence on and resentment towards Israel.
The Media Line asked experts whether a potential new economic framework might emerge or if the region will revert to past dynamics. Whether through a revised Paris Protocol or a new regional economic initiative, one thing is clear: ignoring economic realities will only prolong instability.
The Paris Protocol's asymmetrical structure meant that Palestinian imports, exports, and financial flows remained under Israeli jurisdiction. Dr. Roby Nathanson, CEO of the Macro Center for Political Economy, explained, “The Paris Protocol was designed to create economic stability, but in reality, it reinforced Palestinian economic dependence on Israel.”
Dr. Nemer Badwan, assistant professor of Economics and Finance at Palestine Technical University-Kadoorie, noted that Israel has maintained overwhelming economic control over the Palestinians. “The previous economic relations between Israel on the one hand, and the West Bank and Gaza on the other, were shaped by the Israeli authorities’ orders aimed at serving its interests. Any gains for the Palestinians were often unintended consequences,” he told The Media Line.
Dr. Naser Abdelkarim, professor of Finance and Economics at the Graduate School of The Arab American University, Ramallah, argued that the Paris Protocol has been largely ineffective for over two decades, particularly since the Second Intifada. “Since then, Israel has selectively applied certain provisions of the Paris Protocol while ignoring others,” he explained to The Media Line.
According to Dr. Abdelkarim, the protocol, once intended to provide a framework for Palestinian-Israeli economic cooperation, has now been overshadowed by Israeli military and political control as the IDF tries to curb threats from Hamas and other organizations. “Trade, investment, labor movement, and even clearance revenues, which are outlined in the Protocol, are now entirely controlled by Israel,” he stated.
This control has economic consequences for the Palestinians, with Israel frequently using financial leverage as a political tool. One example is Israel’s handling of clearance revenues—taxes collected by Israel on behalf of the PA. “Just recently, Israel transferred only 40% of the tax revenues for January to the Palestinian Authority after delaying the payment for two to three weeks,” Dr. Abdelkarim noted. “Due to this delay, the PA was unable to pay 70% of salaries to its employees until it secured a bank loan.”
Rather than fostering mutual economic growth and paving the way for a Palestinian state, the Paris Protocol has “institutionalized economic dependence, ensuring that key financial levers, such as tax collection, labor markets, and imports, remained under Israeli control,” explained Dr. Badwan.
Crisis over lack of Palestinian economic growth
While Israeli control over trade, taxation, and labor movement has constrained Palestinian economic growth, internal corruption, mismanagement, and a lack of a coherent economic strategy have also played a significant role in deepening the crisis. The PA has long faced accusations of financial mismanagement, reports of misallocated funds, patronage networks, and a bloated public sector that drains resources without fostering economic independence, forcing reliance on Israeli markets and jobs.
Dr. Badwan highlighted that “over 90% of Palestinian workers in Israel and the settlements were dismissed, cutting off a vital source of income for the Palestinian economy, which, alongside the war, has led to an unprecedented increase in unemployment and poverty, with sectors like construction and services, collapsing.”
According to Dr. Nathanson, “Until October 7, approximately 150,000 Palestinian workers were employed in Israel, primarily in construction, services, and agriculture,” says Dr. Nathanson.
Compounding these problems, the PA’s reliance on foreign aid, rather than sustainable development strategies, has left its economy vulnerable to political shifts and external pressure.
As Dr. Naser Abdelkarim argued, “True economic independence is impossible without both political sovereignty and competent, transparent economic management.” This would mean deep institutional reforms, anti-corruption measures, and commitment to a long-term economic vision independent of an improved economic framework with Israel.
Expanding economic ties with Jordan and Egypt, which would allow Palestinians to trade more freely without depending on Israeli-controlled routes, should also be part of an improved economic arrangement. Dr. Badwan noted that “Palestinians will continue to seek deep trade ties with Jordan and Egypt to reduce reliance on Israel.”
Given the gravity of this situation, “A ‘new Marshall Plan’ is needed for Gaza’s economic recovery, rebuilding, and revival,” added Dr. Badwan.
The Marshall Plan, launched after World War II, was as much about rebuilding post-war Europe as it was about denazifying Germany. By providing over $13 billion in aid, the US tied economic recovery to democratic reforms, ensuring Nazi officials were removed from government and industry while promoting a free-market economy. The plan also integrated Germany into the European economy, fostering cooperation with former enemies to curb a nationalist resurgence and lay the foundation for sustainable economic success.
A new Marshall Plan for Gaza would require unprecedented international commitment. A recent assessment by the World Bank, UN, and EU estimates that reconstructing Gaza and the West Bank will require $53.2 billion over the next decade, with $20 billion needed in the first three years.
However, the question remains: who will fund Gaza’s reconstruction?
Many Palestinians demand that Israel bear the costs, but Israel is unlikely to accept responsibility, as it would imply guilt.
Meanwhile, the US, one of the largest donors to the Palestinian economy, has recently cut aid under Trump’s new policies. The EU provided $20 billion over the years, but fatigue among European donors and shifting priorities may limit future contributions. The Gulf states, particularly Qatar, Saudi Arabia, and the UAE have expressed interest in financing postwar reconstruction, but often with conditions attached.
While economic cooperation could eventually pave the way for peace, experts caution that without addressing Palestinian sovereignty, economic prosperity alone cannot resolve the conflict. Dr. Abdelkarim warned that “as long as Israel controls key crossings, true economic independence remains impossible. Peace must come first—only then can economic relations thrive.”
If a path that balances Palestinian economic autonomy with security guarantees for Israelis can be found, “economies needs and opportunities could drive political change and security resolutions. High-tech cooperation is not even close today to fulfilling its full potential. Environmental projects should be worked on together, and there are few organizations that are working on them already,” concluded Hetzroni.
