Israeli-Palestinian Economic Relations
August 1998

Ministry of Foreign Affairs
Ministry of Defence

The two parties view the economic domain as one of the cornerstones in their mutual relations, with a view to enhance their interest in the achievement of a just, lasting and comprehensive peace.

(From the Protocol on Economic Relations, Israeli-Palestinian Interim Agreement, signed in Washington, D.C., September 28, 1995)

The Government of Israel considers Palestinian economic prosperity an important Israeli interest. This concept derives from the understanding that the peace process needs to be backed by economic arrangements that will result in improving the socio-economic situation in of the region. In the nature of things, the Israeli economy and the Palestinian economy are closely interrelated; an increase in the standard of living of the Palestinians is therefore an important goal for the achievement of good neighborly relations between the two peoples.

To promote this objective, Israel has made a concerted effort, in cooperation with the Palestinian Authority, to assist the Palestinian economy both unilaterally and in conjunction with the donor community. In view of the prevailing security situation, it is not always easy to implement the necessary steps in the economic sphere. Nevertheless, despite the calculated risks involved, Israel is doing its utmost to reduce to a minimum the impact of essential security measures on the Palestinian economy, and to enable it to grow and develop.

Indeed, the Palestinian economy has registered a gradual improvement in recent years. This has found expression in such indicators as the scope of funds transferred from Israel (see table on page 9) and the number of workers employed in Israel. The figures in these and other areas show that the year 1997 was better, from the economic point of view, than the previous year; and, judging from the data available so far, 1998 will be even better.

Economic activity has focused primarily on two areas: employment and development of the private sector. The importance of employment is in its role in the income of Palestinian families. The development of the private sector is a vital tool for the advancement of the Palestinian economy.


Wages earned by Palestinians working in Israel represent a significant factor in the Palestinian economy. Therefore, Israel has set out, in cooperation with the Palestinian Authority, to facilitate the employment of more Palestinians in Israel, in addition to the ongoing efforts to create jobs in the territories.

Israels efforts in this domain reflect an overall policy based on the following principles:

A Long-Term Outlook

Israel views the subject of employment for Palestinians as a long-term project. Efforts are made to locate further places of employment for Palestinians in Israel, and to overcome the obstacles which have curtailed such efforts in the past. The long-term aim is to increase the number of Palestinians lawfully employed in Israel, while reducing the number of foreign workers. To this end, the quota for Palestinian workers has been abolished. Today, every Palestinian worker conforming to the security requirements with a job in Israel can obtain a work permit; numbers are determined by market factors only.


The stability factor is of particular importance for both the employees and the employers. Specific steps have been taken to maintain the stability of the work force, among them a plan approved by the Minister of Defense, designed to maintain the Palestinian work force at a level of tens of thousands even in times of tension.

Increasing Numbers

The number of Palestinians working in Israel is steadily growing. Lawfully employed Palestinians in Israel today number about 60,000, of whom some 13,000 work in industrial zones and in the settlements. All told, more than 100,000 Palestinians are estimated to be employed in Israel approaching the record number employed in 1992.

Working Together

Israel and the Palestinian Authority cooperate closely in locating employment opportunities and in creating jobs for Palestinians. For example, a number of successful job fairs which have provided employment, mainly in the field of construction, have taken place. Israel and the Palestinian Authority also cooperate in creating employment opportunities in the industrial zones at Erez and Karni. About 3,500 workers are employed today at Erez, while the plans for Karni call for the creation of tens of thousands of jobs.

Following are some of the steps Israel has taken in the sphere of employment:

  • Elimination of Quotas: The number of workers today is determined solely by market requirements.
  • Continuous Employment: A program designed to ensure employment of Palestinians in Israel even in times of high tension has been implemented.
  • Minimum Age: This has been lowered to 23, thus opening up the labor market in Israel to thousands of additional Palestinian workers.
  • Overnight Stay: Some 5,000 workers from Gaza are now able to take advantage of a new program allowing Palestinian workers to remain in Israel overnight. This eliminates the need for many hours of commuting, and makes the Palestinians situation comparable, in this respect, to that of the foreign workers in Israel.
  • Labor Exchanges: These have made job-hunting more organized and efficient and employment procedures more streamlined.
  • Longer and More Flexible Hours: The number of hours a Palestinian worker may lawfully stay in Israel has been extended; and arrangements have been made to allow for working in shifts.

As a result, more and more Palestinian workers are finding gainful employment in Israel, with an estimated 100,000 Palestinian workers employed in Israel today. At the same time, the rate of unemployment among Palestinians has dropped to an average of about 15.5% or one-third less than last year.

Palestinian workers in Israel, in settlements and in industrial zones in the West Bank and Gaza

 Israeli-Palestinian Economic Relations


In accordance with the economic policy guidelines laid down by the donor-countries, Israel has been investing much effort, jointly with the Palestinian Authority, to promote the Palestinian private sector. Included in this sphere are: assistance rendered to Palestinian businessmen; assistance in development of industrial zones; assistance in attracting foreign investors; and boosting trade.

Assistance to Businessmen

The Palestinian business community represents an important factor in activating commerce, developing an industrial infrastructure and creating jobs. It has therefore been decided that Palestinian businessmen should enjoy the following advantages:

  • Facilitated Movement: Special permits allow Palestinian businessmen entry into Israel, and passage between the Gaza District and the West Bank. There has been a steady and significant increase in the number of such permits; a record number of 21,000 Palestinian businessmen today hold permits to enter Israel. There has also been a significant increase in the number of Palestinian businessmen who can enter Israel with their vehicles.

  • Business Contacts: Palestinian and Israeli businessmen meet at private gatherings and at conferences organized by Israeli organizations, thus forging an active working relationship between the two business communities.

 Israeli-Palestinian Economic Relations

Industrial Zones

The idea behind the new industrial zones is to create employment opportunities along the seam-line" between Israel and the territories (West Bank, Gaza) and in areas under the jurisdiction of the PA. They are also intended as a means of developing an industrial infrastructure and promoting Israeli-Palestinian economic cooperation.

A considerable degree of success in meeting these goals has been achieved in the Erez Industrial Zone. Today some 3,500 workers are employed there in 115 industrial plants, of which about one-third are Palestinian-owned.

Work is soon to be completed on the Gaza Industrial Estate (GIE), and operations are scheduled to begin before the end of 1998. This industrial area is slated to provide some 20,000 jobs within its first year of operation. When completed, the projects will provide up to 50,000 jobs directly and indirectly. Israels role includes, inter alia, the linking up of infrastructures and the installation of a new, state-of-the-art cargo terminal (now in final stages of completion), to be operated by the Israel Ports Authority.

A number of possible locations in the West Bank are being examined, with a view to setting up industrial zones capable of generating employment for thousands of additional workers.

Israeli governmental and non-governmental bodies have been arranging visits to the industrial zones, in order to attract investors and generate interest in cooperative ventures.

 Israeli-Palestinian Economic Relations

Expanding Trade

Israel would like to see an increase in the scope of commerce between the Palestinians and Israel, and between the Palestinians and the rest of the world. Towards this end, efforts are being made to remove bottlenecks from the commercial chain. Following are some of the steps taken:

  • Passages: Procedures at the Erez and Karni Passages have been streamlined so as to facilitate and expedite the flow of persons and goods. The operation of these passages is soon to be taken over by a civilian authority (the Israel Ports Authority), which will introduce modern technology. Innovations to be introduced include improvement in service and in overall efficiency, on the principle that the needs and wishes of the customer have top priority. The new Erez Passage, scheduled to be completed by the end of 1999, will boast technology providing for biometric examinations that will speed up the flow of persons.

  • Import / Export: Here, too, procedures have been streamlined to eliminate delays in the handling of goods at ports of entry and exit.

  • Information: Palestinian exporters and importers are provided with business information and groups of Palestinian industrialists regularly tour port facilities. The Israel Customs Authority recently produced a paper on import and export regulations applying to the Palestinian Authority.

  • Specific Economic Sectors: An effort is being made to deal innovatively and imaginatively with sectors that appear to require a non-routine approach. A special plan has been drawn up, for example, to ship citrus fruit grown in Gaza to Jordan via the Allenby Bridge. The plan has proved very successful and has resulted in a substantial rise in the quantity of fruit exported during the last citrus season. Special plans have also been implemented this year with regard to the export of vegetables and flowers, as well as marble and stone.

  • Transport: Israel has taken steps to allow Palestinian trucks to enter Israel and move about freely on its roads. Subject to security regulations, more and more Palestinian trucks are now allowed to enter Israel; when the GIE becomes operational, this will increase considerably. This is expected to boost the Palestinian transport sector.

    Average monthly number of trucks (passing through Gaza passages and Jordan bridges)

    1996 11,962
    1997 15,178
    1998 (January – May) 15,592
    Export of Citrus Fruit from Gaza (in tons)

    1996 46,000
    1997 52,000
    1998 56,000
    Export of Tomatoes from Gaza (in tons)
    1995-96 1,800
    1996-97 3,500
    1997-98 13,000

Encouraging Investment

A special effort is being made to attract Palestinian investors from abroad to invest in the region. A procedure has been established which enables these investors to obtain long-term visiting permits, including permission to move freely between Israel and the territories, and ID cards granting resident status once the project becomes operative.

Efforts are also being made to encourage Israelis to invest in the territories. For example, the Israeli government will provide risk insurance for investments of up to 50 million dollars for Israeli investors in the Gaza Industrial Estate. Meetings, visits and seminars to promote investment and cooperative ventures are arranged regularly.

 Israeli-Palestinian Economic Relations



This booklet produced jointly by the Ministry of Foreign Affairs and the Office of the Coordinator of Government Activities in the Territories enumerates some of the elements of the economic cooperation between Israel and the Palestinians, as well as the measures taken to help promote the Palestinian economy. Economic activity in Gaza and the West Bank is increasing, as evidenced by the amount of funds transferred from Israel to the Palestinian Authority. It is hoped that a stable security situation, a joint effort to encourage investments, the creation of jobs and an increase in trade will together augment the current upward trend of the Palestinian economy.