Can you give our readers a view of the current Palestinian economic situation, from the ground?

I would start by putting that question in some context. After the year 2000 and the outbreak of the Second Intifada, you had a major deterioration in the economic situation in the West Bank and Gaza. And when you talk about the economic situation and the impact that it has on people, you cannot fully disaggregate it from the larger political and security situation, because the macroeconomic figures don’t always tell the whole story. To give an example: you can have a situation in which statistical indicators may actually indicate that things are getting better, but if other elements of the entire situation are not improving, for example, the security situation, the rule of law, the sense of the weight of the occupation, then the perception continues for Palestinians that life is not getting better. So we are in a situation now where clearly there is an improvement taking place in the West Bank, but that isn’t always perceived as such in certain areas, in large part because the other elements haven’t come to fruition or haven’t improved in the same way.

If you take the situation in Nablus, for example, there’s a lot taking place there in terms of economic improvement, but the original concept whereby the Palestinian security services would take over has not been fully realized. So the perception about an improvement in the economic situation hasn’t caught up with reality because people still do not believe that they are in control. In Jenin, in contrast, you are starting to see the situation improving and the perception is starting to catch up with the reality at the micro-level. But we must remember the context: you have a situation where you had a prolonged period of tremendous violence and bloodshed, where the economic situation had deteriorated significantly. That deterioration has been arrested, and we are now seeing a gradual improvement in the situation and we’re pulling out of that protracted dip.

So you are seeing signs of improvement in different places. In Bethlehem, tourism has picked up significantly. In Jenin, where there’s been a big international effort put forward, you now have some 120 projects that are funded by the international community, worth about $95 million, in addition to the significant number of micro-projects that the Palestinian Authority is putting into place. This effort extends throughout the northern West Bank. So there is now a growing recognition among Palestinians that things are changing and that the Palestinian Authority is improving the conditions and the lives of people. But, that has to be married with a perception that Palestinian leadership is taking control over Palestinian peoples’ lives in all spheres. That’s not just an economic issue but it’s also an issue of providing law and order and, ultimately, security. That’s why you can’t disaggregate the economics from the security.

What role has your team staked out within that context? Tony Blair was sent out as special envoy for the Quartet with a primarily capacity-building mandate, but he has also, as you just mentioned, always talked about the connection between economic, security and political progress.

The role of the mission here is to help the Palestinians in their efforts to create the conditions for an independent and democratic Palestinian state living side by side with Israel in peace and security, which is quite a large agenda. You have on one track political negotiations between the top leaderships in Israel and the Palestinian Authority, talking about political issues related to final status. That track represents the top-down element of the state-building process. But to complement that is the bottom-up approach, which involves actually changing conditions on the ground and helping to build Palestinian institutions and capacity. We see our role as providing that bottom-up support to the Palestinian Authority in its efforts to reform, build capacity and exert its leadership.

This will then help the negotiations, because it shows Palestinians that things are actually changing. Without that change, it’s hard for people to believe that negotiations in closed rooms are actually going to succeed and lead to an improvement in their lives. There is a great deal of disenchantment and cynicism about the prospects of a negotiated peace. In order for people to have greater confidence that those negotiations can actually produce an improvement in their lives they have to see the changes in their day-to-day lives. That is why this kind of bottom-up approach helps support the negotiations.

But it also helps create the reality. So when the negotiations are ripe and there is an agreement on the terms for a Palestinian state, the infrastructure, and I use that term broadly, will be in place for Palestinian institutions to take over ruling the state of Palestine. At the broadest level, that’s what we’re trying to do.

More immediately, we’ve identified a few core areas where we can lead that effort, which reflect the different elements that are part of the Palestinian state-building agenda. One element of it is economic and social development. A second element is helping to lift the access and movement restrictions, which are so critical to there being any kind of economic improvement to the situation on the ground. If you look at the studies produced by all the various international institutions that look at this problem, be it the World Bank, the United Nations, the IMF, everyone comes to the same conclusion, which is that the access and movement limitations and restrictions place a tremendous burden on the abilities of the Palestinians to improve their lives. A third area that we have focused on is that part of the territory of the West Bank that in the Oslo framework is referred to as “Area C.” Israel retains military and civil control of Area C, which makes up some 60 percent of the West Bank. We have focused on a number of steps that have helped place Area C, which has long been neglected, back on the international agenda. And the fourth element has to be helping Palestinians to improve their security capabilities and performance. And to do that, since we are not in the business of security training, we are working very closely with General Dayton and his team, who are focused on training and reforming the Palestinian security forces so that they are in a position to, if you will, retake control of parts of the West Bank, with reformed and newly capable Palestinian security forces.

And again that takes me to the whole issue of Jenin and the northern West Bank, where it all has come together as a type of pilot project. The goal is for the northern West Bank to be an economic and security area in which the Palestinians retake control of their lives. This then allows the Israelis to pull back and return control. So that’s why Jenin and the northern West Bank have been an area of particular international focus. Because rather than try to take on the whole West Bank at once—although there are things we are doing throughout the West Bank—by focusing on the northern West Bank, an area where you have very few settlements, it’s an easier and simpler proposition than in other parts of the West Bank where Israeli and Palestinian population areas are co-mingled.

Aside from Jenin, which you’ve given as a big example, what other progress has your team made, or have you made in concert with other envoys on the ground? And what do you think are the main challenges that you face?

There are a number of tracks we are pursuing. In May, the Quartet representative, Mr. Blair, reached a series of understandings with the Israeli government on steps that the Israelis could take to help improve the conditions on the ground for the Palestinians without harming Israeli security needs. This encompassed a range of activities, and we have seen some real progress.

If you take it topic by topic, if you look at the issue of checkpoints for example, we all know that there are hundreds of checkpoints and roadblocks that are interspersed throughout the West Bank and many in the international community have focused on those numbers. What we have tried to do is focus on an overall concept of how do you improve the flow and movement of peoples and goods within and throughout the West Bank. And what we came to realize is that if you identify a few key checkpoints that are real chokeholds and remove them, then you can actually improve significantly the flow of goods and people without affecting Israeli security.

Part of the agreement we reached with the Israelis was the removal of a few key checkpoints within the West Bank. One of them was Shavei-Shomron, which is now open during the day, and the result of that, although it is only one of hundreds, is strategically important because it means that the flow between Nablus and Jenin is now open and trade and people can move unimpeded. We’ve also seen the opening of Kvasim, another important checkpoint, and the checkpoint at Halhul Bridge. So one basket of issues in which we’ve seen improvement is the increased flow within the West Bank. This was recognized in the recent meetings of the Ad Hoc Liaison Committee in New York, where international organizations acknowledged that the situation has improved. However, this is just the beginning, and I don’t want to overstate it, as there are still significant steps that need to be taken and some of the checkpoints that the Israelis agreed to remove have not yet been removed.

Secondly, within that basket of checkpoints, there are a few checkpoints where we asked the Israelis to improve the flow because these had become real bottlenecks for the movement of people. So if you take a checkpoint like Hawara, which blocks movement in and out of Nablus, expanding capacity there can have a significant impact on the economic situation in and around the city. So, we reached an agreement with the Israelis that the throughput at Hawara would be improved. This is something that we don’t expect the Palestinians to welcome because they don’t want to see checkpoints improved, they want to see them removed and that’s completely understandable and that is the long-term goal. But as a short-term goal, if the movement of goods and people can improve, then this can have a significant impact on the overall situation.

Another area that was part of this package was the agreement between the Palestinian Authority and the government of Israel to allow a second mobile operator, Wataniya, to begin operations. This has already brought badly needed revenues to the Palestinian Authority. It also breaks the monopoly on cell phone usage in the Palestinian territories, will reduce tariffs and create many jobs. So this is an important development.

We are also making continued and significant progress on the North Gaza sewage project, which the Quartet office has been working very hard to help facilitate. Within a few weeks, the work on phase one of the project will be completed, and it will become operational prior to the rainy season. Once it becomes operational, it will begin to divert the sewage away from the dangerous sewage lake that has previously flooded and killed several Palestinians.

And as I said, the international community now has about 120 projects that are active or in train in Jenin and the northern West Bank area. And here, as a result of discussions with the Israelis, they are now allowing Israeli Arabs to visit and to go through the Jalameh crossing into Jenin. This is bringing some commerce and business back to Jenin from Israeli Arabs who had played a major role in the Jenin and northern West Bank economy prior to the outbreak of the Intifada, when that connection was cut off. However, Israeli Arabs are still prevented from taking their cars into Jenin and this limits the potential economic benefit. So we are now in discussions with the government of Israel on ways in which Israeli Arabs can bring their cars in and out of the northern West Bank and we believe that this will have tremendous economic benefit.

We have also had recent success in persuading the Israeli government to allow hard currency to move into Gaza. There’s been a monthly problem in which there has been a shortage of cash reserves in banks—not controlled by Hamas—in Gaza, which has made it difficult for Prime Minister Fayyad to pay Palestinian Authority employees in Gaza. If the cash reaches below a certain threshold the banking system throughout the Palestinian Authority is put under threat. This is understandably a real problem for the Israelis in that you have a situation in which Hamas has taken over Gaza and there is a perception on the Israeli side that allowing the cash to go into Gaza helps Hamas. Our analysis is that, because of the "alternative" economy that Hamas has put into place in Gaza with the tunnels, cash shortages actually benefit Hamas because they allow Hamas money changers to take advantage and to actually arbitrage the gap in the exchange rate to their benefit. So by bringing cash into Gaza we’re actually trying to take that tool away from Hamas and put it back into the banking system that still falls under the authority of the Palestinian Authority. These are a few of the positive changes that we have helped to effectuate recently.

And what are the challenges that you find in working towards these goals or on these projects?

Probably the biggest challenge is the fact that after a prolonged period of violence and a breakdown in contact between Israelis and Palestinians, there’s a profound lack of trust on both sides. Both Israelis and Palestinians have lost a lot of the hope that they once had about the possibilities for change and the possibilities for peace. And so one of our biggest challenges is overcoming that psychological barrier and trying to demonstrate that, in fact, the connective tissue that had existed and had been very effective can be reconnected, if you will. It’s completely understandable, given the violent experience, that such skepticism exists. But what it leads to is a tendency on both sides to ascribe the worst intentions to every action the other side takes, even at times when that isn’t the intent.

For Israelis, there is a core need for a sense that the Palestinians are addressing seriously the issue of security. It is important for Israelis to have a sense that law and order exists and that they can trust a future Palestinian state to be a peaceful neighbor.

Similarly Palestinians are very skeptical that the occupation actually can end, and will end, and that peaceful coexistence will lead to the realization of their political aspirations, and that that they will be entrusted with real authority to run their own lives. And so the biggest challenge we face is simply keeping both sides focused on the work that needs to be done and helping them see that taking the steps that need to be taken will actually lead to a benefit for each of them in the future.

And how do you go about getting that kind of buy in?

Well, there’s no shortcut. It’s part of the day-to-day dialogue that you have with both sides. Often times, it is simply a function of passing messages between the two sides or trying to get one side to understand what the other side’s core need really is. At times it’s been as simple as getting one side to actually pick up the phone and call the other side, at which point some problems have been solved. For me personally, here as the head of the Quartet mission, as someone who has been dealing with this issue for a number of years, I’ve been struck by just how important it is to have a third-party presence at times to facilitate contact between the two sides. Sometimes, when left to their own devices, those contacts would not be established. Again I can’t overstate the psychological and real physical scars that the Intifada has left on both sides, such that there’s a great deal of reluctance to really engage the other, and sometimes it just requires some basic encouragement from trusted third parties.

Considering that there’s going to be a political transition in the United States, there’s one taking place in Israel now and there will be some future transition in the Palestinian Authority, how do you ensure the smooth transition of these efforts?

I think for the Quartet mission, our agenda is clear and in many ways unaffected by political developments. Our agenda is to continue the day-to-day engagement with both sides to lead to the changes on the ground that need to take place. And it is all the more important, at a time of transition, that those efforts continue. What we’re doing is helping to keep the forward momentum that exists moving. And so we will be here and we will work through this transition with all the parties.

You work for one Quartet, but essentially it consists of four different players who don’t always see eye-to-eye on everything. How do you handle that challenge?

I think one of the remarkable things about the Quartet has been the degree to which, despite the Israeli-Palestinian issue being one of the most contentious in international politics, there is unanimity in the Quartet about the core goals and pathways. I mean, there is an international consensus now that there should be a Palestinian state living side-by-side with Israel in peace and security. The Road Map has been adopted by Israel, the Palestinian Authority and the vast majority of the international community, as the appropriate way forward. These are the core building blocks established by the Quartet. It has been remarkably pleasant to be part of an international body in which there really is a lack of contentiousness, even between parties where on other issues there are fundamental differences. But on this issue it’s the absence of disagreement that is really striking.

If there is basically a consensus about what should happen, what can the different actors in the international community, be it the United States government, the Europeans or the neighbors, do to improve the situation?

What’s remarkable is how many interested parties there are. This is a conflict that people throughout the world care about seeing resolved, seeing the situation improved. So you have an outpouring of good will that exists and the desire on many parts to help. And so the question then is, how do you synchronize that good will in a way that is most effective? That’s probably one of the biggest challenges we face—to try and take all that good will and coordinate it and mobilize it and channel it toward the goals that we all share. But this is an embarrassment of riches. You have countries from the West, from the East, from the immediate neighborhood, all of whom are taking increased interest in providing increased political as well as economic support towards changing the conditions on the ground.

If I can just come back to the northern West Bank and Jenin once again, this is, I think, one example of where the international community has come together in a very positive way to provide support and to help facilitate a changed reality and a changed way of doing things, both for Israel and the Palestinian Authority. You now have a situation where Palestinian security forces have moved effectively into the northern West Bank. And you have on the Israeli side recognition that something fundamental has changed— that the Palestinians have begun to demonstrate that they’re capable of handling the security challenges that exist there. If you recall, Jenin and Nablus had been two of the biggest centers of unrest and sources of violence during the Intifada. So these are not insignificant areas. These are large challenges. And yet the Palestinian Authority has demonstrated that it is up to the challenge and the Israelis recognize it.

But all recognize that there’s no magic formula or one step towards expanding that effort towards the rest of the West Bank. It’s a slow, painful, step-by-step process of building capacity across the board—be it in electricity, be it in water, be it in sanitation, as well as in the areas of security, politics, governance, rule of law. So it’s a large task, but the international community has shown an admirable commitment to helping the Israelis and the Palestinians try to realize a peaceful outcome and a peaceful change to what is a very difficult situation on the ground.

You have Tony Blair, a very high-profile person at the head of your mission. What kind of an advantage do you think that gives, to have such a person who is so high-profile? What does he do when he’s on the ground and what does he do when he’s not there?

He is engaged on this issue daily, whether he is in the region or not. He is in constant contact with Israelis and Palestinians, as well as with his team, asking what we are doing and ensuring that we are following through on the things that he has set in train when he visits the region, which is about, on average, a week of every month. Having been prime minister of Britain for ten years and having established close relationships with both the leaderships in Israel and the Palestinian Authority, as well as throughout the Middle East and the international community at large, he is uniquely placed to help bring about change and encourage people to take positive steps. He is a huge asset to the Quartet, along with a group of very talented and dedicated people from the international community. But more than anything, Tony Blair has the access, the knowledge, the experience, in dealing with this issue, in dealing with conflict issues, in dealing with the leaders throughout the world that are interested in seeing the situation improved and helping to use all those tools at his disposal to making things happen on the ground. And, as I said, he is in daily contact with us and with people in the international community and on the phone with the leadership in Israel and the leadership in the Palestinian Authority on a regular basis to that end.