Tony Blair: Israel, PA in sync on repairing Palestinian economy

The Quartet's envoy to the Middle East, Tony Blair, met Thursday in Jerusalem with Defense Minister Ehud Barak and Palestinian Prime Minister Salam Fayad for talks, and the former British premier said he found the two men in tune on plans to repair the Palestinian economy.

"I think that the two of them are absolutely on the same track in making sure on the one hand we get some real change in the Palestinian territory and on the other hand that Israel's security is fully guaranteed and properly protected," Blair told reporters after the meeting. "I think that if this dialogue continues in this way we've got the prospect during the course of next year of not just having a political negotiation but also real and positive change on the ground."

The World Bank on Thursday warned that the Palestinian economy will continue to deteriorate, regardless of large international aid donations, if Israel does not ease Palestinian movement and trade.

The meeting between Blair and the Israeli and Palestinian officials did not produce any announcement on easing of roadblocks.

The World Bank report, released Thursday, endorsed a Palestinian reform plan that requires $5.6 billion in international aid over three years. The Palestinians will ask for the aid at a conference of donor countries to be held next week in Paris.

The World Bank said the plan is a process around which the Palestinian Authority, Israel and the international donor community can coalesce.

Government spokesman Mark Regev said Israel supports the donors' efforts. "We understand that a healthy, successful, prosperous Palestine is in the interest of the state of Israel," he said. "Living next to a failed state, a failed economy, would only be a recipe for further violence."

He said Israel has already eased some restrictions and planned to do more. However, he said, militants still pose a danger. "Our ability to move further will be a function of the Palestinian security services taking effective control," he said.

The World Bank, however, said that "if Israel's closures remain in place, these large [aid] sums would at best slow a downward cycle of crisis and dependence."

By contrast, a considerable easing of Israeli restrictions could help the Palestinian private sector recover and lead to double-digit economic growth, the World Bank said.

Defense officials have been reluctant to remove roadblocks and barriers, first set up after the outbreak of fighting in 2000 to keep attackers from Israel. Security officials say the moderate Palestinian government in the West Bank is still too weak to rein in militants effectively.

In its development plan, the Palestinian government pledges to cut government spending and reform institutions. About 70 percent of the aid would go to budget support and 30 percent to development projects, such as boosting tourism. The balance would gradually shift development as the Palestinian government narrows its budget deficit.

The plan predicts an annual economic growth of about 5 percent, provided that Israel gradually eases its restrictions on travel and trade. The Palestinian population grows by almost 4 percent a year, and such modest economic growth would initially have little effect on per capita income.

The World Bank said Palestinian reforms alone will not reverse economic decline. "They must be fully supported by both the large increase in aid and the relaxation of the [Israeli] closure regime ...," the bank wrote.

"If donors pledge the full amount requested, but Israeli restrictions remain in place, the Palestinian economy would keep shrinking by about 2 percent a year," it wrote.

In the worst scenario - less than full donor support and continued Israeli restrictions - growth will fall sharply and the already growing poverty levels will rise dramatically, the report said.

By contrast, if there is full donor support and considerable easing of movement, it revive the private sector and drive growth rates to even double-digit levels, the bank said.

The government of Palestinian President Mahmoud Abbas has tried to rein in militants, focusing in recent weeks on the West Bank city of Nablus. The Palestinian security forces say they've made progress in Nablus, and complain that continued Israel Defense Forces raids in the area are interfering with their efforts.

However, Israel Defense Forces roadblocks have been making it increasingly difficult for manufacturers to ship goods, even within the West Bank. The West Bank and Gaza are cut off from each other, and Gaza has been largely isolated since June when Hamas seized control by force, and Israel and Egypt responded by virtually halting border traffic.

Ninety-five percent of Palestinian trade is with Israel, the bank noted, but shipping goods from the West Bank has become more difficult with the building of Israel's separation barrier in the West Bank.

Ron Pundak, head of Israel's Peres Center for Peace, said the donors should be cautious, making sure the Palestinians carry out promised reforms and that Israel eases restrictions.

"Otherwise, if you are investing in a factory or an agricultural center and the goods cannot move from one place to another, it's a waste of money," he said.

	Quartet's Mideast envoy and former British prime minister Tony Blair. (Reuters)