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The real message sent by the Caesarea Conference, which drew to a close last Thursday in Jerusalem, was not the prime minister's announcement of a secret understanding which he supposedly reached with the U.S government about principles of an agreement with the Palestinians. Rather, the true message of the conference was a consensus displayed by its participants: They all agreed the economy could not be rescued from its current stagnant state unless a dramatic diplomatic-security breakthrough comes about. Laden in this diagnosis is the key to breaking the vicious circle of violence which has plagued Israeli-Palestinian relations for the past 22 months.

In the best possible case, question marks hover over Ariel Sharon's diplomatic message. Has he really put together a plan that has a chance of being accepted by the Palestinians? Does he mean it when he says the Bush administration has accepted his plan? Does the plan have sufficient teeth to serve as a long term agreement, or is it merely a ploy which will survive only for a brief period? Can a leader who declares that the Netzarim settlement in the Gaza Strip has the same status as Tel Aviv really produce a proposal that meets Palestinian expectations and thus promises viability?

Meanwhile, all participants at the conference - the finance minister and the governor of the Bank of Israel, economics professors, bankers and industrialists - concurred that without a major change in the conflict with the Palestinians, Israel's economy will not recover. This Caesarea Conference consensus was not comprised of statements about secret understandings or hints about global plans. Instead, participants were fully aware of palpable, unequivocal reality: Almost two years of intifada violence has caused losses of NIS 36 billion and mired the economy into a state of deep stagnation.

It is no coincidence that the only person at the conference who denied this grim economic analysis was the prime minister. He asked participants to hope for the best and to believe the sun is about to rise. The economy is fundamentally sound, Sharon claimed, though there is a danger that gloomy forecasts could turn into self-fulfilling prophecy. Due to this danger, Sharon called on participants to shake away their pessimism.

Ariel Sharon is one content prime minister. His term is sweet compensation for the injustice which, he believes, was served to him in the past. He looks proud and pleased; he is happy about his tactical gains, and ignores his basic, continuing failure to extract the state from its woes.

When Sharon acknowledges that security and quiet is needed to attract investors and tourists, one fears he is yet again hoping to notch up a tactical victory. Perhaps he seeks a cease-fire, but not a fundamental solution; he might be trying to stamp down the Palestinian uprising by force, instead of seeking a stable agreement. Such tactical results (assuming they arise) would not clear away the primary factors which now prevent economic growth.

Grim analyses regarding the country's economic state are not foreign to the prime minister and the finance minister. They have heard such forecasts in recent weeks, in closed discussions of the socioeconomic cabinet. They learned that security expenditures grew NIS 6 billion in the last year, and that another NIS 3 billion will have to be allocated to this sphere next year. They have been told the conflict with the Palestinians has eradicated a decade of economic growth potential.

Five weeks ago, Sharon didn't believe holding a cabinet discussion on the economy was worth the trouble. Three weeks ago, he changed his tune when he was apprised of the financial crisis, and blunt positions voiced by Bank of Israel Governor David Klein. So too did Finance Minister Silvan Shalom surrender the pose of serene confidence regarding the economy.

These are commendable developments. They show that both Sharon and Shalom understand there is an economic reason to bring about real change in the security-diplomatic situation. Such knowledge doesn't guarantee there will be immediate change in the approach toward the Palestinians, but there is always hope that when morality and wisdom fail, economic incentive might breed better policy.