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Bottom line for Palestinian entrepreneurs: Reinvent the economy

Israeli restrictions and dependence on foreign aid have stifled the all-important business sector.

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Israeli measures taken under the 2007 Annapolis initiative to ease movement in the West Bank have had only a "marginal" effect on the economy, said the World Bank report. It also warned that the Palestinian economy won't be a viable one if Gaza remains cut off.

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It's an open question how much Mr. Netanyahu is willing to push Israeli security authorities to relax restrictions. Under pressure from Mr. Mitchell, Netanyahu's security cabinet met Wednesday to discuss a possible easing of the Gaza blockade, which was designed to undermine Hamas.

Ray of hope in Ramallah housing project

Palestinian entrepreneurs such as Abdeen, hobbled at home, are looking to expand in other countries. The number of industrial businesses in Gaza, for example, has dropped from 3,900 from before Israel's 2005 withdrawal to 200 at the end of last year. Unemployment stands at 26 percent. Trade is virtually nonexistent.

"There's no trade. It's risky and dangerous because only the banks do business," says Jamal Hadad, a business adviser at the Palestine Investment Fund (PIF), an $850 million investment vehicle of the Palestinian Authority.

A pair of Palestinian investment conferences last year have failed to translate into infusions of foreign capital. The World Bank said that a series of projects aimed at kick-starting the economy – promoted by former British Prime Minister Tony Blair, an envoy for the Quartet (a four-nation team spearheading peace efforts) – have failed to take off. One of the projects, establishing a new Palestinian cellular carrier, is frozen because Israel has yet to release the telecommunication frequencies.

Meanwhile $4.5 billion in reconstruction aid promised after the January war between Hamas and Israel has been held up over concerns that the money could be funneled into Hamas hands and help shore up the militant group.

In 2008, the Palestinian economy grew at a rate of 2 percent, a respectable pace given the economic crisis.

Indeed, the Palestinian economy remained relatively stable compared with those of the rest of the world because it's largely cut off from it.

"We are a drop in the sea," said Mohammed Amin, the chairman of the Ramallah district Chamber of Commerce. "We don't have billions of dollars in foreign investment that others have."

Still, Mr. Hadad, the business adviser, remains optimistic. PIF is gearing up to lay the cornerstone on a 2,000-unit housing project in the Ramallah region that could bring in hundreds of millions of dollars in investment. But the economy won't reach its full potential unless Israel and the Palestinians free up trade from the West Bank and Gaza, he said.

"We need to trade like any other country," he said. "I'm not talking about politics."