AFTER 23 years of seeking to stifle economic activity in the occupied West Bank and Gaza Strip, Israel has begun to encourage local business, as rocketing unemployment threatens to increase political violence. Palestinians say Israel's recent decision to issue more business licenses may be no more than a public relations ploy, but local entrepreneurs are hoping to use the new policy to erect the framework of economic autonomy.
``The civil administration is encouraging investment in order to create places of work for Arabs'' in the territories, says an Israeli military source. New licenses have been granted to 55 businesses in recent weeks, the largest number in such a period since the occupation began, and last month the government authorized the creation of the first Palestinian-owned bank since the start of the occupation. Meanwhile, business licensing procedures have been streamlined.
``This is extremely important for us,'' says Ghassan Kattib, a West Bank economist. ``But the areas being eased up are not enough for viable economic development... A license by itself is not sufficient for a successful business.''
Since the start of the occupation in 1967 Israel has sought to retard economic activity, both to keep the territories weak and to limit the production of cheap Palestinian goods and agricultural products that could undercut Israeli competition.
In addition to making it difficult for Palestinians to start new businesses, Israel has denied access to raw materials from abroad except through Israeli agents, making it harder for Arab concerns to compete.
Until recently, Palestinians have also been denied direct access to all foreign markets except Jordan. In addition, Israeli-imposed curfews and commercial strikes called by Palestinians as part of their uprising against Israeli occupation have interfered with business activity.
Israeli officials say the new shift in policy is designed partly to create work for the thousands of Palestinians now losing their jobs in Israel and in the Gulf states.
Israeli employers are laying off Palestinians in the wake of a recent spate of stabbings of Jews in Israel. This violence has sparked growing support for the idea of ``disengagement,'' separating Jews and Palestinians. At the same time, 1 million Soviet Jews are expected to migrate to Israel over the next two years, and they will be looking for jobs.
Most of the 120,000 Palestinians now working in Israel ``will be phased out in the end,'' says a top Israeli official. ``If we gradually could reduce the number it would be good. Maybe it would be better if we employed Jews.''
Exacerbating the problem is the return of thousands of Palestinian workers who have been forced home from the Gulf since Iraq invaded Kuwait in August. The result has been higher unemployment in the territories, now at least 25 percent.
Both Israeli and Palestinian analysts expect the increased joblessness to create political problems. ``The assumption is that if someone has a job and is happy, then he is quieter,'' says the Israeli official.
``There is a feeling that sacking thousands of Palestinian workers from Israel will create a violent backlash,'' says Dr. Kattib. ``Throwing workers into the street will cause instability.''
The new licensing policy represents Israel's latest attempt to reconcile conflicting economic and security objectives in the territories. Israel's economic policy in the territories has been highly protectionist, but the likelihood of increased political trouble has forced the reappraisal.
Ironically, the new policy hints at a convergence of Israeli interests with the longstanding goal of Palestinians to develop the economic infrastructure needed to sustain an independent state.
A key element of such an infrastructure might be the Palestinian bank that Kamal Hassouneh, a Hebron businessman, has just been authorized to establish.
Although Mr. Hassouneh insists that the bank is ``a purely economic project,'' its name, the National Arab Bank, has nationalist political overtones.
With $14 million in capital and proposed branches in the West Bank cities of Ramallah, Nablus, and Bethlehem, the bank will increase investment and stimulate new commercial ventures in the West Bank, Hassouneh says.
Palestinians say the opportunities provided by Israel's new licensing policy could be maximized with new markets and a major infusion of outside capital.
Last year the European Community forced Israel to allow Palestinians to sell agricultural products directly to European markets rather than through Israel's state-run export company. This year, the EC is expected to make a similar effort to open its markets to Palestinian manufactured goods.
Palestinians, meanwhile, express cautious hopes that following the Gulf crisis, Gulf states will lend greater financial support to fledgling Palestinian enterprises, despite the cutoff of aid to the Palestine Liberation Organization because of its support of Iraq.
But there is widespread skepticism among many Arab and Western observers about the real impact of the more liberal licensing policy, given the other obstacles to economic development.
The fundamental problem is that Palestinians do not control the basic factors of production. Under its military occupation, Israel controls the region's utilities and water supplies and claims the legal right, which it has used frequently, to expropriate Palestinian lands. After 40 years of Jordanian and Israeli occupation, Palestinians have been unable to develop the infrastructure needed for economic growth.
``It doesn't matter if we have 5,000 new licenses,'' says Palestinian editor Hana Seniora. ``We cannot expect development under the present political conditions.''