The Associated Press
November 5, 2008 - 8:00pm

The Palestinian economy has "incredible potential" that could be unleashed if Israel eases restrictions on Palestinian movement, the area's World Bank chief said Wednesday, a day after a high-level World Bank delegation inaugurated a sewage storage facility in a rare trip to Hamas-ruled Gaza.

It took three years, rather than the scheduled nine months, to build the treatment basins meant to drain a sewage lake in northern Gaza. The delays were caused by an Israeli border closure of the territory, along with frequent flare-ups of violence that have made it difficult to get construction materials into Gaza.

In a new round of fighting late Tuesday and Wednesday, Israeli forces killed six Hamas militants and Hamas unleashed a rocket barrage on Israeli border communities, jeopardizing a five-month-old cease-fire. Gaza has been largely cut off from the world since the Islamic militant Hamas seized control by force in June 2007. Much of the world has joined Israel's boycott of Hamas, though international organizations have warned that the border closure causes severe hardship for Gaza's 1.4 million residents.

Daniela Gressani, the World Bank's vice president for the Middle East and North Africa, said the international community must not give up on Gaza.

"It is obviously very difficult to work under the current circumstances in Gaza. I don't think there is an alternative to remaining engaged," she told the Associated Press.

She said the bank would now push ahead with the second stage of the Gaza sewage project, a treatment plant. Untreated Gaza sewage is routinely pumped into the Mediterranean because the closure at times deprives Gaza of sufficient fuel to operate already overburdened treatment plants.

The delegation included senior officials of several World Bank branches, and the visit to the Palestinian territories was meant to give a boost to efforts to revive the Palestinian economy, participants said. The bank is trying to encourage investment, and on Wednesday signed a new agreement on political risk insurance.

A year ago, the international community pledged $7.7 billion (¤6 billion) in aid to the Palestinians, to be paid through 2010. The idea was to make Palestinians increasingly less dependent on aid, as the Palestinian private sector recovers from years of Israeli-Palestinian fighting. However, this scenario has not become reality.

The Palestinian economy has remained stagnant, largely because of the sharp downturn in Gaza and Israel's continued restrictions on Palestinian trade and movement in the West Bank.

Israel set up a network of roadblocks at the outbreak of the second Palestinian uprising in 2000, as a deterrent to Palestinian militants. The barriers have since become part of a complex closure regime that restricts Palestinian access to large areas of the West Bank.

David Craig, head of the World Bank in the West Bank and Gaza, said the Palestinian economy is down 30 percent from 2000. He said it has "incredible potential," comparing it to a coiled spring waiting to take off.

"What it really takes is for movement and access restrictions to be lightened up progressively, in some way that is compatible with Israel's security so that this takeoff can occur," he said.

Israeli government spokesman Mark Regev said Israel is doing what it can. "We have every interest in working with the Palestinians in helping to create a more healthy economic situation," he said.

World Bank officials and Palestinian economists, meanwhile, said there is growing concern that donor countries will fall short of pledges in coming months because of the global financial crisis.

Gressani said she doesn't expect a dramatic decline in aid to the Palestinians, but added that "I do expect it will be comparatively more difficult to get the funds mobilized, disbursed in time."

Palestinian Planning Minister Samir Abdullah said that even if donors were to scale back, there was still a cushion because they had pledged more than the $5.6 billion the Palestinians originally requested. So far in 2008, donor countries paid $1.6 billion of support the Palestinian budget, and $150 million for development projects, in line with Palestinian needs, he said.

Abdullah said the bank's programs will help spur the economy, along with an increase in construction, but that lifting restrictions is key. "Hopefully, we will convince the Israelis, by pressure and bringing multinational organizations here ... to dismantle the closure regime that makes no sense after many months of improvement in the security situation," he said.


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