An overview of the besieged Palestinian economy

Israel's ongoing war in Gaza has highlighted the ever-growing plight of the Palestinians living in both the coastal enclave and the West Bank. But the two territories, captured by Israel some 50 years ago, have long faced a prospect bereft of any progress due mainly to the intense degrees of Israeli control.

Here is an overview of how the Palestinians have suffered from a besieged economy.

From labor integration to the First Intifada

Israeli victory following the 1967 war allowed it to wrest control of Gaza from Egypt and the West Bank from Jordan, ushering in a military administration that managed many aspects of the Palestinian life.

Though the two territories initially enjoyed some relief as Israel opened its labor market to the Palestinians, many of whom joined the lower rungs of the job ladder that were undesirable for Israelis, economic disparities and worsening life conditions eventually translated into widespread frustration among the Palestinians.

The subsequent 20 years saw Israel increasingly expropriate Palestinian land and restrict land allocation for new construction and agriculture, even as the Palestinian population grew exponentially. In the meantime, an expansion of a Palestinian university system led to a growing number of undergraduates who could not find degree-level jobs, with only one in eight of them managing to do so.

In December 1987, a major Palestinian uprising – the First Intifada – broke out against the backdrop of a high population density and rising unemployment in the occupied territories.

The years-long uprising, which ended with the signing of an interim agreement, caused severe and lasting economic damage to Palestine, while Israel's enduring economic control – both direct and indirect – only added insult to injury.

Persistent control

The Oslo Accords, signed in the mid-1990s, came into existence with the aim of establishing a Palestinian state alongside Israel, but that was never realized. Despite being given some degree of autonomy, the Palestinian territories continued to come under various forms of Israeli control.

In the years following the accords, the West Bank and Gaza witnessed moderate stability and growth as economic relations between Israel and the Palestinian Authority (PA) were formalized and international aid to the territories increased. However, the failure of the peace process, which became apparent after a series of peace talks ended in 2000, coupled with growing distrust between the two sides, led to the outbreak of the Second Intifada.

Amid widespread violence in Israel and the occupied territories, tight restrictions were imposed on the movement of Palestinian goods and people, and social turbulence as well as damage to Palestinian infrastructure paralyzed some economic sectors. Palestine's GDP declined by 17 percent from 2000 to 2002 before regaining minor growth, according to the World Bank. 

In the case of Gaza, conditions turned dire after Israel's unilateral disengagement from and subsequent blockade of the coastal enclave in 2007, with harsh restrictions in place that choked off even the basic livelihood of many. In the 12 years that followed, no Palestinians from Gaza were allowed to work in Israel, and the scarcity of job opportunities there has exacerbated the pervasiveness of poverty.

As of last year, 79 percent of Gaza's labor force was unemployed, a sharp rise from 45 percent in 2022 and 35 percent in 2006, while the poverty rate soared to 96 percent in 2023 from 35 percent in 2006, according to the United Nations Conference on Trade and Development (UNCTAD).

The situation in the West Bank has been relatively better, but its economic dependence on Israel is highlighted by its disproportional trade with Israel as well as the high number of Palestinians working in Israel and Israeli settlements.

Israel has also employed a variety of measures to ascertain Palestinian compliance since the Gaza blockade. In the West Bank, most tax revenues have been collected by Israeli authorities on behalf of the PA, and Israel at times withholds these funds when there is a dispute between the two. In Gaza, Israel regularly uses fishing rights and work permits as leverage in its dealings with Hamas. After the war broke out on October 7, Israel froze most work permits issued to Palestinians.

Longtime dependence on aid

The main industries in the West Bank and Gaza include agriculture and services, but with the underdevelopment of its industrial sector and the lack of basic infrastructure, Palestine has long relied on international aid amid enduring economic hardship.

In the wake of the 1948 war that succeeded Israel's founding, a UN body – the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) – was established by a UN General Assembly resolution to provide humanitarian assistance for Palestinian refugees, including the 700,000 who fled or were expelled from their homes during the war.

Over the past decades, it has received billions of dollars from countries across the world, and since Israel's disengagement, UNRWA's services in Gaza have significantly expanded.

According to UNRWA's 2023 report, 1.2 million Palestinians in Gaza and 23,000 in the West Bank were receiving emergency food and cash assistance. It operated 22 primary health centers in Gaza and 43 in the West Bank before the war.

The Oslo peace process in the 1990s gave rise to more pledges of aid to the Palestinians, but enthusiasm slipped over time as the peace prospect dimmed.

In the case of Gaza, foreign aid dropped from $2 billion, or 27 percent of the GDP, in 2008 to less than 3 percent of the GDP in 2022, according to UNCTAD. Recent Israeli allegations about UNRWA employees' involvement in Hamas' October 7 attack have made it worse, with some donor countries having cut their funding to the agency.

Seven months of Israel's war in Gaza have dealt a devastating blow to the coastal enclave. Currently grappling with a humanitarian disaster, Gaza's economy is estimated by UNCTAD to take over a decade to recover.