REUTERS - When engineer Rami Bone goes to work each day at his company in the settlement of Maaleh Adumim, in the Israeli-occupied West Bank, he doesn't see himself as violating international law.
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A resident of Tel Aviv, Bone (Bon-eh) started his company over 25 years ago, before Israel and the Palestinians signed an interim peace accord. He said he was drawn to the settlement because he believed Israelis and Palestinians working together could help support peace.
More than two decades later, Aluminum Construction has $65 million in annual revenue from two plants in Maaleh Adumim, near Jerusalem, that employ 150 Jews and 400 Palestinians.
Israeli companies argue that they are helping Palestinians in the West Bank - employing about 36,000 - by giving them a far better salary than in Arab-owned businesses.
But in a report last month, titled "Occupation, Inc.", Human Rights Watch said the 1,000 Israeli businesses, mainly manufacturing plants, in the West Bank operate in violation of international law because they were built on occupied land, and it called on them to cease settlement activities.
"Settlement businesses depend on and benefit from Israel's unlawful confiscation of Palestinian land and other resources, and facilitate the functioning and growth of settlements," HRW said.
Israel disputes that its settlements are illegal and says the final status of the territories it captured in a 1967 war should be determined in peace talks with the Palestinians.
Most of the Israeli businesses in the West Bank are located in 16 industrial zones. They produce about $600 million of goods annually - a small amount in Israel's $300 billion economy.
Such industrial parks go back to the 1970s and 1980s and were aimed at bolstering Israel's West Bank presence, while providing cheap labor and giving jobs to a wave of Russian immigrants.
For Palestinians in the West Bank, where the jobless rate is 27 percent, economic concerns often trump politics when it comes to employment by Israeli plants built on land they seek for a state.
"Unfortunately, there are no alternatives," said Shaher Saed, general secretary of the Palestinian Workers Union.
Most of the world does not recognize Israeli occupation of the West Bank, and the European Union now requires origin labels on many goods produced in Jewish settlements - a measure Israel decries as discriminatory.
With pressure growing on settlement firms to uproot, Bone said he does not know how much longer he will be able to maintain his two plants in Maaleh Adumim.
"If there's a boycott against us and we can't export then we won't be able to work in this area and we'll have to move to the center of the country," he said.
Aluminum Construction also has two plants inside Israel, with exports the main growth engine. But Bone's last project in Europe ended three years ago, and while he blames a recession there, he said calls to boycott settlement products could also be a factor.
Many Israeli businesses in the West Bank receive Israeli government incentives if they meet certain criteria.
This is true for companies located in all "national priority regions" - which include Israel's northern and southern periphery and the West Bank. They pay a corporate tax rate of 9 percent compared with the standard 25 percent if they meet criteria that include exporting 25 percent of annual turnover.
Approved enterprises also pay below-value prices for land and the government subsidizes 20 percent of investments in fixed assets, said financial consultant Raffi Shlezinger.
Another reason Israeli businesses choose to operate in the West Bank is the availability of Palestinians more willing than Israelis to do labor-intensive jobs.
And while Palestinians often earn twice or three times the salary Palestinian companies would pay, they do not always receive health insurance or compensation for work accidents from their Israeli employers because of work permit issues.
West Bank businesses deny exploiting Palestinian workers and say they offer much-needed employment.
Near the settlement of Ariel, 5,000 Palestinians work in the Barkan industrial park, where international pressure forced companies such as Assa Abloy (ASSAb.ST) unit Mul-T-Lock, pretzel maker Beigel & Beigel and Barkan Winery to relocate to within Israel's pre-1967 lines.
After a high-profile battle, carbonated drinks maker SodaStream (SODA.O) moved from Maaleh Adumim, while Dead Sea cosmetics producer Ahava has said it may pull out from the West Bank.
"Once we stop selling or move from here like other companies did, the Palestinian workers have nowhere to go," said Moshe Lev-Ran, head of exports at Barkan's TwitoPlast, which makes air conditioner parts and whose plant is managed by a Palestinian.
Lev-Ran said his firm looked into moving from the West Bank but it was expensive and his clients aren't interested in where he is located. Nonetheless, Lev-Ran, said he wouldn't recommend opening an Israeli business in the West Bank now.
"Who needs the headache?" he said.