Bishara Daoud has long run a successful travel agency and, hoping to reap a dividend from the 1993 Israeli-Palestinian accords, he recently invested in two new hotels here.
The travel closure imposed last month by Israel after two suicide bombings on July 31 has not only barred Palestinian workers from entering Israel, but also caused tourism here to take a nosedive: Conflict-leery visitors stay home, while others have been turned away or held up at checkpoints. Bethlehem's mayor says that as a result of the closure, the tourism-dependent city lost $12 million.
Mr. Daoud is furious about the larger state of the peace process and angry on a more personal level because his new hotels are empty.
"The Israeli government has declared war. It's an economic war," says Daoud, a member of the Palestinian legislative council, from a seat inside a khaki protest tent set up outside the Church of the Nativity.
Last week, Israel lifted what it calls an "internal closure" on Bethlehem - and Palestinians call a "siege" - which bars residents from leaving the city even to visit other Palestinian towns inside the West Bank. Israeli officials say the blockade was necessary because they suspected that the two bombers came from or received help in Bethlehem. But Palestinians insist that Bethlehem was targeted specifically to hurt them in the pocketbook.
A means of confrontation
What isn't debatable is that Israeli and Palestinian leaders have begun using money as a means to confront each other as never before. In contrast to the economic interdependence to which former Prime Minister Shimon Peres aspired - a "new Middle East" in which prosperity would feed peace - Israelis and Palestinians are trying to wage a kind of economic warfare on each other. Their interwoven economies are coming to be used more as weapons than as a way to peace.
In contrast to his predecessors, Prime Minister Benjamin Netanyahu does not claim that the measures enacted after the bombing are solely for security reasons. Foremost among these was the withholding of some $40 million in tax revenues due to Palestinian Authority (PA), one-third of which has just been released. Israeli officials say that there is a difference between the withheld money and the closure, which was eased slightly Sept. 2 as about one-eighth of the some 50,000 workers were allowed to return to jobs in Israel.
"The closure is not a sanction," says David Bar-Illan, a top aide to Mr. Netanyahu. "It is not a punishment like withholding funds, which is a sanction openly and clearly [and] ... is something we're doing because we felt there was not enough security cooperation."
Palestinians have responded with sanctions of their own, announcing a boycott on the purchase of Israeli goods in the Palestinian-controlled areas. The list of items that the Palestinians merchants are not to buy includes many consumer goods and foodstuffs that dominate grocery store shelves in the West Bank and Gaza. Already, some trucks trying to bring canned goods and soft drinks into Gaza have been turned away, though Israeli products are still seen in most Palestinian shops.
"If we remain under siege and we have no freedom of movement, then they will have no freedom of movement," says Salah Tamari, also a Bethlehem councilman, explaining the motivation for the boycott. "If they cut off our water, we'll cut off their water."
But Israeli economists say that the potential punch of the Palestinian boycott is much less powerful than its adherents would like to imagine, and that Palestinians themselves will probably bear the brunt of its effects. That is because in addition to lost income during the closure - UN and Palestinian officials estimate between $4 million to $8 million a day - and the PA's inability to pay salaries because of the withheld funds, a lack of Israeli products could cause shortages and drive prices up.
"The effect on the Israeli economy on the whole, I'm sorry to say, is negligible," says Ephraim Kleiman, a Hebrew University expert on the economic relationship between Israel and the Palestinian territories. A few specific food or soft-drink companies might suffer, for example, but the Israeli economy as a whole - 25 times larger than the Palestinians' - will not. He says that Palestinian purchases make up only about 10 percent of Israeli exports, and even that figure is swollen by exports that are actually just Israeli-processed products like coffee, which actually comes from somewhere else.
"It might be a development of economic warfare, but the dice are loaded in Israel's favor," says Professor Kleiman. "If it's economic warfare, the losers will be Palestinians because they're the smaller and poorer partner who gains most from economic relations."
But Israeli building contractors warn that the country could go into a depression if the government doesn't find a replacement for the Palestinians who worked in Israel before the bombing, many of them in construction. And Israeli officials say that while the closure has a much harsher effect on Palestinians, it does have an effect on Israeli construction and agriculture.
"Israel lost 1.5 billion in shekels [about $425 million] from this closure," says Bar-Illan. "We're not doing it for fun."
At the same time, the Israeli economy is far less dependent on Palestinian labor than it was a few years ago, and has moved toward employing foreign workers for manual and menial jobs instead.
Israel's stumbling block
But if the peace process crumbles, Israel could stumble in its entrance to the global marketplace as an emerging high-technology tiger. During Netanyahu's trip to Asia last week to forge new financial ties, Japanese leaders pressed him about his use of economic sanctions against the Palestinians. Netanyahu encouraged Asians to invest in business with Israel regardless of its state of relations with the Palestinians, but Japan insisted that greater ties would depend on progress toward peace.
It is perhaps in the most sophisticated conflicts that nations fight each other with boycotts, not bullets and bombs. But in the current state of relations between Palestinians and Israelis, economic belligerence is seen as a sign that renewed violence cannot be ruled out.
"We have to ask to what extent is the present Israeli policy going to bring about an eruption in which the PA is evolved," asks Kleiman. "If it will happen, this can come to a major conflagration."