Amid Palestinian statehood push, a grim World Bank report on the West Bank, Gaza

But it seems to imply a dramatic reversal in fortunes is possible if the aid taps are turned down, or off. It says growth was from a low base and that while Israel eased restrictions on Palestinian trade in 2009, "there has been little further easing since."

US could withhold aid

The US is going all out to stop the recognition bid, and has threatened to withhold the roughly $550 million in annual aid that it gives the Palestinians.

Speaking at a Monitor breakfast this week, US Ambassador to the UN Susan Rice flatly said that it would work against Palestinian interests.

But the reasons for Palestinian frustration aren't hard to find. Settlements have expanded in the West Bank since the Oslo Accords, freedom of movement and trade remain severely restricted there by Israel, and Gaza continues to confront a crippling economic blockade.

If the Security Council blocks the Palestinians' bid for full membership, the UN General Assembly, which convenes Sept. 20 in New York, could upgrade the Palestinian mission to nonvoting observing status. But even that would do little to change things quickly. It amounts to an attempt by its supporters to redefine the terms of discussion from a peace process that seems no closer now to ending with a Palestinian state than it did a decade ago, to one in which in Israeli – and perhaps close allies like the US – are framed as the obstructionist party.

Maen Rashid Areikat, the Palestinian ambassador to Washington, told the Monitor yesterday that UN recognition is "an issue of national pride for a people who want to be independent and free.... I don’t think it’s the natural role for the US to block the admission of a state... (it's) not compatible with US principles.”

Israeli restrictions

While Israel has relaxed some security measures in the West Bank that have allowed for greater economic activity, other restrictions have increased, particularly in Gaza. The World Bank report says that since 2002, Israel "has progressively added materials, machinery, and equipment (including telecommunications equipment) to the list of items considered 'dual-use' ” in Gaza. Dual-use refers to materials that Israel deems a potential military threat. Israel "now allows most consumer goods and many intermediate inputs to enter Gaza. However, it restricts the entry of most construction materials. In addition, [Israel] still prevents all exports from Gaza except for a limited amount of agricultural goods."

The West Bank has severe restrictions of its own. Israel "still does not allow any Palestinian development in the 60 percent of the West Bank comprising Area C. In addition, [Israel] maintains strict controls on the passage of goods and people between Israel and East Jerusalem and the rest of the West Bank." (Area C is a term introduced by the Oslo Accords that refers to West Bank areas under Israeli control, including the major Israeli settlements.)

The whole report is worth a read. The takeaway is a simple one. A lasting peace between two real states side by side will rely, at least in part, on a much stronger Palestinian economic base. For the moment, the chances of real economic improvement remain slim.

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