Today, nearly half of the 3.7 million Palestinians living in the West Bank and Gaza survive on less than $2 (Dh7.34) a day.
Unemployment is at 28.6 per cent, compared with 10 per cent in 2000. The jobless rate among youth is close to 40 per cent. The Palestinians' per capita GDP has plunged 41 per cent since 1999.
Despite all this, the Palestinian private sector is among the more vigorous in the region. Private sector activities have declined considerably since mid-2000, when the Palestinian economy plunged into a deep crisis.
Still, the Palestinian private sector needs help. The World Bank's June 2004 report titled Disengagement, the Palestinian Economy and Settlements warns of the potential complete disintegration of the Palestinian economy under sustained pressure of conflict and Israeli closure policies.
Up until October of this year, 12,537 Palestinians, or close to 2,242 families, have had their homes demolished by Israel. These do not include homes of activists and suicide bombers that were bulldozed as well.
Hundreds of small businesses and shops were also destroyed. Israel is still confiscating and destroying agricultural land and groves, deemed the only lifeline for many Palestinians, to make room for its wall.
As a result, the Palestinians' traditionally strong social cohesion has started to crack. This may spawn anarchy in the territories, with ruinous implications for the Palestinians, the Israelis and the whole region.
Israel intends to eliminate its permit system for Palestinians working in Israel by the end of 2007. It also intends to discontinue the Custom Union agreement that it has had with the Palestinian territories, after its withdrawal from Gaza in 2005.
The Palestinian economy must reduce its dependence on the Israeli economy, but creating a viable Palestinian economy will not happen overnight. It needs an orderly economic adjustment to help maintain the territories' political and social stability.
Today, there is a potential opening to address the root causes of the Palestinian territories' economic crisis. Israel is preparing for the first time to evacuate settlements established in Gaza.
The Palestinians are holding presidential elections on January 9 to be followed in May with parliamentary elections.
A new Palestinian leadership will soon take office and will have the legitimacy to represent the Palestinian people in negotiations with Israel and the rest of the world.
Israel will be safer if the Palestinian territories regain their economic stability. Israel needs to end its system of restrictions on the movement of people and goods in the West Bank and Gaza.
The more than 700 check points and barriers maintained by Israel are the main cause of Palestinian economic distress.
Israel also needs to reform its management of border gateways to allow goods and cargo to move in and out of the Palestinian territories in an orderly and fast way.
An easing of closures alone will not attract investors back to the Palestinian economy. A programme of economic reform and proper governance is required to create an investor friendly business environment.
The Palestinian Authority needs to control lawlessness, improve the security situation, develop a solid judicial system and increase transparency.
A new income tax law is needed to reduce the burden on the private sector, and encourage investment and growth.
The donor countries need to provide financial support of $2 billion (Dh7.34 billion) annually (nearly $500 (Dh1,835) per capita), twice the current levels.
Of this, about half should go towards reconstruction. The rest could be allocated for humanitarian and budget support.
Several supportive elements are already in place that would make it easier for private sector activities to take off once conditions of security and stability prevail.
These include the existence of several free-trade agreements with the United States, the European Union and Arab countries. These agreements provide Palestinian exports duty-free access to these markets.
A developed banking sector is in place. The sector includes both domestic banks and 58 branches of Jordanian banks providing banking services to the Palestinian territories.
There is a viable stock market in Nablus, open to international investors, allowing Palestinian companies to draw on capital resources available domestically and internationally.
Palestinian expatriates working mostly in the Gulf countries remit about $1.5 billion (Dh5.50 billion) annually.
These funds will constitute an important and stable revenue source for the Palestinian economy for several years to come. This will boost domestic consumption, and contribute to higher growth.
More Arab tourists are opting to vacation in Middle Eastern destinations. If conditions of stability and security prevail, the Palestinian territories will attract many Arab visitors, especially those interested in historical and religious heritage.
Tourism, which is labour intensive, is likely to be a high growth sector in the territories in the years ahead.
Cross border mergers and acquisitions are expected to take place once conditions of stability prevail. Ambitious investors from the Gulf countries, Jordan and Egypt will want to establish a presence in the Palestinian territories.
They will look at opportunities in the fields of telecom, IT, banking, insurance and tourism and would transfer technology, management and capital resources.
The Jordanian private sector will be a reservoir from which its Palestinian counterpart can draw support. This is facilitated by the strong ties and family relationships that exist between Jordanians and Palestinians.
Insurance and construction companies, hotels, industrial enterprises and other enterprises could replicate the strategy pioneered by branches of Jordanian banks operating in the Palestinian territories.
The writer is the Chief Executive Officer of Jordinvest.