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Israeli and Palestinian Economies Get Caught in the Cross-Fire


JERUSALEM — Across Israel, the economic impact of more than a month of violent clashes between Israeli troops and Palestinian protesters is easy to see.

Normally busy tourist hotels stand empty, and some have even closed, laying off thousands of workers. The olive harvest is rotting on the trees, and construction sites have been idled because Palestinian laborers are forbidden to cross from the West Bank and Gaza Strip into Israel. Nervous investors have weakened the value of the shekel and caused the stock market to dip. The government estimates that the first month of unrest cost the economy about $1.2 billion, and some businesses already are asking to be compensated for their losses.

If the unrest continues much longer, said Gilad Soreq, an economist for the Federation of Chambers of Commerce in Israel, foreign investors could start pulling out of the Israeli market and there could be a further devaluation of the shekel.

"Investors will take back their money and look for more attractive, safer places to invest," he said.

But Israel's Ministry of Finance insists that the economy, fueled by a booming high-tech industry, remains healthy despite the collapse of Israeli-Palestinian peace negotiations.

"Our economy today is stronger than ever," said Finance Ministry Director General Avraham Ben Bassat. "The rate of inflation is around zero, and the budget deficit is less than 2 percentage points of the gross domestic product."

Israel expects that the growth in its gross domestic product this year will be just 1 percentage point less than it had expected--a still robust 5%--despite the unrest. Although Arab states have downgraded their relations with Israel, trade with those states is negligible, Ben Bassat said, and has so far been unaffected by the crisis. And the crucial high-tech industry--located in the center of the country, where there has been little violence--continues to thrive.

Never before has Israel faced a security crisis with its economy in such relatively good shape, Ben Bassat said. Still, he said: "If this goes on a very long time--more than another month or two months--the situation will be more serious. We are going to pay a price, but it is very hard to assess what that price is."

Palestinians Feel the Squeeze

A few miles from Ben Bassat's office in Jerusalem, Palestinian Authority officials in the West Bank city of Ramallah paint a sharply different picture of what a month of daily confrontations between troops and protesters has done to the economy.

"Our whole economic life has almost come to a stop," said Maher Masri, minister of trade and economy for the Palestinian Authority, speaking at a news conference Sunday.

Israel's blockade of the West Bank and Gaza is keeping about 120,000 Palestinians from their jobs inside Israel, preventing imports from reaching the Palestinian territories and strangling economic activity in the West Bank and Gaza, according to Masri and Mohammed Shtayyeh, director general of the Palestinian Economic Council for Development and Reconstruction.

Masri warned that if Israel continues what he described as its economic siege much longer, "it is a call for more violence in this land."

The Palestinian economy is losing about $10 million a day because of the disturbances, according to Shtayyeh, who said the losses are accelerating. The unemployment rate in the territories was about 13% before the unrest erupted, he said. Now, it is 45% in Gaza and at least 31% in the West Bank, while the GDP is down 4%.

The figures show "how dependent, how fragile our economy is," Shtayyeh said.

Noting that Arab countries pledged at a summit in Cairo earlier this month to provide $1 billion in aid to the Palestinian Authority, he pleaded with them to move quickly.

"There is an immediate need of quick cash to be injected into the economy," Shtayyeh said.

But in Gaza on Sunday morning, Palestinian Authority President Yasser Arafat told reporters that the Palestinian uprising will continue until "a boy or a girl raises the Palestinian flag above Al Quds [Jerusalem], the capital of our Palestinian state."

And there was no sign that the violence will abate soon. Five more Palestinians reportedly were shot dead in clashes with Israeli troops Sunday in the West Bank and Gaza, including a 14-year-old boy, and dozens were wounded.

Israel sent a column of tanks and armored personnel carriers lumbering into Gaza after troops clashed with demonstrators who blocked an Israeli-controlled road to the settlement of Netzarim, hurling stones and Molotov cocktails at soldiers. The Israelis fired machine guns mounted on the tanks at Palestinians who were shooting rifles, and the fighting continued for nine hours at the Karni crossing, where normally goods travel in and out of Gaza.

At least 10 Palestinians were wounded when troops fired rubber-coated metal bullets and live ammunition into the crowds, and one was killed. Palestinians also were wounded in clashes that erupted in several West Bank towns.

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