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NEWS ANALYSIS : Businesses See Peace Dividends in Signing of Israel-PLO Pact : Middle East: Israeli stocks hit highs on U.S. exchanges. And underdeveloped Palestinian areas may reap investments.


The politicians and diplomats may be tentative in their hopes about peace in the Middle East, but business people are openly optimistic.

Both Arabs and Israelis see benefits flowing from the agreement to be signed today in Washington between Israel and the Palestine Liberation Organization. Indeed, stocks of Israeli companies traded on U.S. exchanges have been hitting new highs for the past week.

The business perspective is broad, not narrow. "I think the most important effect will be in the international economy," says David Kaynan, head of the Los Angeles branch of Israel Discount Bank. Countries in Europe and Asia which have avoided doing business with Israel, for fear of losing supplies of Middle Eastern oil or upsetting trade with rich Arab nations, will now increase trade and investment.

Not only Israel will see investment. The Palestinian areas of the West Bank and Gaza, which are severely underdeveloped, may well get an infusion of $3 billion from a special fund of the World Bank--much of the money ultimately coming from wealthy business families among the 3.5 million Palestinians residing in the Middle East, Europe and the Americas. European investment managers are calling the special fund "Arafat bonds" after the PLO leader.

In addition, the European Community last week promised a $575-million aid package for the West Bank and Gaza.

Other areas of the Middle East will also benefit if peace is truly established. Joseph Jacobs, founder of Pasadena's Jacobs Engineering Group and a Lebanese-American prominent in Arab-American affairs, says a Washington conference in October will discuss U.S. help and investment for rebuilding Lebanon after two decades of strife.

The most immediate and specific effects of peace will come in Israel, a land of more than 4 million people with a developed high-tech economy totaling just under $60 billion in annual output of goods and services. Israel's defense budget, a hefty 17% of gross domestic product, won't decrease immediately.

But an agreement with its Arab neighbors should allow Israel to gain new customers around the world for its telecommunications, electronics and computer know-how. Even as initial agreements between Israel and the PLO were signed last Thursday, a dozen Israeli companies were addressing 150 U.S. institutional investors at a seminar in New York.

The companies--such as Elbit Computers, investment firm PEC Israel Economic, Tadiran Telecommunications, computer graphics firm Scitex and Gilat Satellite Communications--already have stock trading on U.S. markets. All were selling at or near new highs last week.

"The companies' message was that they are already growing fast but that peace will enable them to reach out to joint ventures in the Far East. Peace is the icing on the cake," says Joel Maryles, an analyst specializing in Israel for Furman Selz Mager Dietz & Birney, the U.S. investment firm that put on the seminar.

"The combination of Israeli know-how and Far Eastern market potential is a natural," says Art Berliner of Walden Inc., a San Francisco venture capital firm. Berliner is raising a $30-million venture capital fund for Israeli companies.

Business people are also realistic. "Things won't happen so fast," says Isaac Devash, who runs First Israel Fund, a New York-based fund that has $75 million invested in Israeli companies. "The Israeli military is supposed to pull out of Gaza and Jericho in eight weeks, but that's too fast."

Many recall that peace with Egypt in 1979 was supposed to produce a surge in commerce and trade. But little has come to pass other than some exchanges of agricultural know-how.

Still, promise could be fulfilled now that the Palestinian question, at the heart of Middle East unrest for half a century, is moving toward settlement.

Israel's trade with its Arab neighbors will begin with agriculture, says Howard Marguleas, president of SunWorld International, a La Quinta, Calif.-based producer of fruits and vegetables that contracts research help from Israel.

"Israel's knowledge of drip irrigation and growing techniques could help the Arab countries," says Marguleas. And such knowledge could be welcome because the countries of the Arab Middle East now have the highest population growth rates in the world--3.5% to 4% a year--and a great need to increase food production.

Israel's medical know-how will also be welcome in the Arab nations, says Jona Goldrich, a Los Angeles-based businessman who fought for independence in Israel in the 1940s.

Goldrich also sees opportunity in agriculture, of a different sort: "Egypt has cotton and a vast underemployed work force, while Israel has fashion," he says. "Maybe in the future, the clothing you see coming from China and Hong Kong can come from the Middle East."

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