An olive tree cultivated by Palestinian residents in Ginsafout village. (Khaleel Reash, Maan Images)

The Palestinian economy rests primarily on agriculture (olives, citrus, wheat, barley, lentils, and vegetables), small family industry (cement, garments, soap, olive wood and mother of pearl carvings) and services (health, education, tourism). Remittances from Palestinians working in Jordan, other Arab countries and the West, have also contributed importantly to sustaining the Palestinian population.

In the years following the 1967 war, the Israeli economy experienced a boom, causing many Palestinians from the Occupied Territories to seek employment there. Although Israel initially adopted an "open border" policy with the Occupied Territories, Palestinians from the West Bank and Gaza Strip were not permitted to stay overnight in Israel.

Israel controlled all entry and exit of goods and people between the Occupied Territories and other countries, permitting it to treat the Occupied Territories as captive markets for Israeli goods. Israel also prevented Palestinian exports other than to Israel, and barred or restricted enterprises in the Occupied Territories that would have competed with Israeli businesses.

A number of changes occurred when the Palestinian Authority began to administer parts of the Occupied Territories. Arab banks, which had not been permitted to operate by Israel, began to extend services to Palestinians. In 1993, the Palestine Liberation Organization (PLO) established the Palestinian Economic Council for Development and Reconstruction (PECDAR) to administer funds provided by the international donor community.

While the PA achieved progress in developing the economy of the West Bank and Gaza Strip, there is little question that foreign aid was used by President Arafat to, in effect, purchase political loyalty. Many PA officials and their cronies were enriched through sweetheart contracts and franchises. The Palestinian Authority itself became the largest employer in the Territories, with tens of thousands of civil servants, teachers, security personnel, and others on its payroll.

The Occupied Territories' economic dependence on Israel, and vulnerability to its control, was not fundamentally changed. This was evident during the mid-'90s, when Israel tightened restrictions on Palestinians' freedom of movement, both within the Occupied Territories and between the Occupied Territories and Israel. Tens of thousands of Palestinians were prevented from reaching jobs, and were replaced by migrant workers from Romania, China, Thailand, and other labor-exporting countries. These travel restrictions were greatly increased at the onset of the al-Aqsa Intifada in October 2000, and have been only minimally eased since.