RAMALLAH, West Bank (Reuters) - Six hundred checkpoints in the West Bank send a far more powerful message to West Bank entrepreneurs than Israeli leader Benjamin Netanyahu's new pledge of economic partnership.
Local Palestinian businessmen say the health of the economy is closely tied to these barriers, which grossly distort trading conditions, and that unless Israel's prime minister-designate removes them, there is little scope for big improvements.
So far it is not clear exactly how Netanyahu, who said on Wednesday a strong Palestinian economy would be a strong foundation for peace, plans to proceed.
"The Palestinian-Israeli conflict is a political, not an economic issue. You can't put the cart before the horse," says former Palestinian economy minister Mazen Sinokrot, who owns nine food and logistics companies.
Along with the checkpoints, Israel has also expanded Jewish settlements in the West Bank and the protective fences around them since the Palestinian uprising of 2000, seeking to enhance its security.
Netanyahu, now assured of a majority coalition in the Israeli Knesset, said on Wednesday he wanted to boost the West Bank economy instead of simply negotiating a land-for-peace swap to create a Palestinian state.
"The economic track is not a substitute for political negotiations," he said, apparently seeking to ease any international concerns he might not seek a peace deal.
"It's a complement to them," he said.
Mohammad Mustafa is head of Palestine Investment Fund, which is charged with consolidating the financial resources of the Palestinian Authority.
"Our problem is bigger than economics," he says.
Billions of dollars in foreign aid over the years -- some of it siphoned off by a corrupt elite -- had made little difference, he said.
Since 1999, the economy has shrunk since from a GDP of $4.511 billion to $4.133 in 2007, official statistics show.
Netanyahu speaks of Palestinian self-government, but a state with only limited sovereignty, because of Israel's overriding need for security. He has made no commitment to dismantling Israeli settlements built without government approval.
Western backers of the peace process including Middle East envoy Tony Blair point to "areas that have been holding back Palestinian economic progress," Netanyahu told investors.
"We've checked quite a few of them, and we've seen that we can remove some bureaucratic handicaps without necessarily affecting our security, but definitely affecting the possibility of growth in the Palestinian economy."
The Palestinians would have "a partner for peace," he said.
Mustafa says there cannot be economic prosperity unless hundreds of Israeli checkpoints in the West Bank are removed, an airport is built, and a sea port opened in Gaza.
Ruled by the Palestinian Islamist militants of Hamas, Gaza is currently blockaded by Israel to prevent its enemies rearming, Israel maintains. Movements on the West Bank are tightly controlled in a measure Israel says is intended to prevent militants reaching potential Israeli targets.
The Palestinians call this a form of collective punishment.
"I don't know how to see a viable Palestinian economy, with about 690 checkpoints in the West Bank and the complete closure of Gaza, disconnected from the West Bank," said Sinokrot.
"I do not see how we can have real economy ... to absorb the huge number of those who are not employed." Unemployment among the Palestinians was running at about 27 percent last year.
Nassar Nassar, whose Nassar Group is the biggest producer of limestone in the Palestinian territories, exports 98 percent of his stone to Europe and the United States. His business hardly bothers with a local market whose disadvantages are obvious.
"There is no viable economy without making headway in the peace process," said Nassar.
"Checkpoints do affect our export activity. We pay more money for longer trips because of checkpoints. Transportation costs increase because of delays at checkpoints. This increases prices and lowers demand."
West Bank business have to operate in a country in which some 60 percent of the land, classified by the 1993 Oslo preliminary peace accords as Area C, is under full Israeli security and civil control.
Palestinian farmers have little access to the fertile fields of the Jordan Valley, which constitute about one third of the total area of the West Bank land, Sinokrot notes.
Areas under Palestinian self-rule are classified as Area A. But in so-called Area B lands, Israel has security control while Palestinians have civil control.
In this bewildering patchwork, there is little territorial continuity between A and B. Most major Palestinian companies are in Area A, creating an artificial land shortage in which prices have rocketed.
"It's time that classification of our land as Area C come to an end. Our people are deprived of water resources, developing real estate projects, economic, productive and tourist projects, even health and educational projects," Palestinian Prime Minister Salam Fayyad said on Thursday.
Since the Oslo accords, international powers have advocated a Palestinian state alongside Israel.
"Economic peace won't work," said Mustafa. "The economy can prosper only in the context of an appropriate political environment, where you have stability, sovereignty, where you control your own land and borders."
(Editing by Douglas Hamilton and Philippa Fletcher)
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