Economics Are Now A Key Mideast Factor

THE delusion of Jewish extremists that the murder of Yitzhak Rabin could block or delay the peace process was just that. With the signing of the "second stage" accord between Israel and the PLO, the option of turning back no longer existed for either side. Economics rather than nationalist politics or ideology are now a key factor in the Middle East equation.

Economic necessity was a significant force in the initiation of the peace process in the first place. The PLO's and Jordan's loss of outside support for siding with Iraq during the Gulf war created a budgetary squeeze for both, exacerbated by the collapse of the Soviet Union - a major ally. The Israel-PLO negotiations have persuaded leaders on both sides that without the promise of a decent economic future for the Arab masses, there could never be political stability in the region.

Largely overlooked by media preoccupied with political and diplomatic melodrama, major economic changes are already under way. Breakthroughs are taking place, not only in Israel- Palestinian negotiations, but in multilateral talks involving other Middle East states as well. There is a new recognition of the advantages of dealing with common problems on a regional basis.

For Israelis, peace dividends are already tangible. The de facto demise of the Arab boycott has opened up new trade and investment opportunities with nations like Japan, China, and South Korea that formerly avoided doing business with Israel.

In 1994, Israel's gross domestic product rose by a stunning 6.8 percent. In the last three years, its exports grew cumulatively by 40 percent. Inflation fell to an annual low of 5.1 percent for the first six months of this year.

Israel has mounted a $13 billion infrastructure program. Intel, the giant microprocessor corporation, recently announced that it is building a new $1.6 billion plant near Kiryat Gat. An invasion of American banks and other financial service agencies accentuates the rapid expansion of foreign investment in Israel.

The Palestinians, too, look forward to reaping substantial economic benefits, despite their inadequate infrastructure and administration. Private meetings between Israeli and Palestinian entrepreneurs to discuss joint projects date back almost to the start of the peace process itself. Deals have been struck and cooperative ventures formed to take advantage of the new climate. One result has been the start of limited-scale economic development in Arab self-rule areas.

The Palestinians' joint plans with Israel include the development of water sources and environmental projects; the establishment of an agricultural school for Palestinian farmers; development of eight industrial parks; and Palestinian access to Israeli ports and freedom to import and export products crossing Israel.

Yasser Arafat is well aware that an improved economy would reduce political instability by providing meaningful work for thousands of unemployed youths who now have nothing but free time to participate in protest demonstrations, stone-throwing, and, at the extreme, suicide bombing.

In the so-called "multilateral" discussion on regional issues, the promise of economic benefits for the entire Middle East appears to signal the start of a new era of accommodation. Consider just a few of the developments:

*Israel and Jordan are participating in a survey to determine the condition of railroads in both countries so transportation between the two can be improved.

*Israel, Egypt, Jordan, and the Palestinian Authority plan to link the region's electricity grids.

*Israel and Oman are cooperating in joint projects involving agriculture, telecommunications, water development, and health.

*Egyptian authorities, reversing previous policy, now facilitate the movement of businesspeople in both directions. Shared ventures between Israelis and Egyptians are increasingly common.

Syria, at a standstill in negotiations with Israel, has refused even to participate in the multilateral talks. But President Hafez al-Assad, overwhelmed by money problems, knows he can't afford to be permanently left out.

The ongoing peace process must still contend with hot-button political issues. Nonetheless, the dramatic events of the last two years have projected a future in which economic development will be a principal factor in exorcising the demons of hostility, fear, and poverty that have haunted the Middle East for decades.