On the Road to Nowhere, Merchants Pay the Toll

Since Hamas seized control of Gaza in June, the movement has run a parallel administration in the strip. Palestinian Authority President Mahmoud Abbas, a Fatah leader pursuing peace talks with Israel, leads a U.S.-backed government in the West Bank.

Seeking to improve Abbas's tenuous political standing, the Israeli government is allowing more Palestinian trade and employment inside Israel and its settlements. But the restrictions are being eased only for the West Bank -- not for Gaza -- even though Israel once pledged to treat the regions as a "single territorial entity" pending the creation of a Palestinian state.

"The West Bank economy will go up, and Gaza will go the other way," said Lt. Col. Baruch Persky, who heads the economic branch of Israel's military administration in the territories. "But even the West Bank's relationship to the Israeli economy will depend entirely on the security and political situation."

Given their poor local market, Gaza manufacturers once exported 95 percent of the furniture, clothing and other goods they produced. Nearly all of it was bound for Israel and the West Bank.

Many had Israeli business partners. But Gaza has been effectively sealed since June to all but emergency aid. The United Nations estimates that 85 percent of the strip's manufacturing businesses, unable to import raw materials or export their products through the Israeli-controlled passages, have shut down.

"We actually have lots of material in storage but no one to buy our products," said Ibrahim Mushtaha, a partner for more than three decades in el-Arusa Ice Cream Co. in Gaza City.

No longer able to export his ice cream bars to the West Bank, Mushtaha has laid off all but a dozen of his 60 workers since June.

"We only produce a little now because there is so little money here," he said.

Settlement Industries

In recent years, Israel has turned away from the Palestinian territories as a source of cheap manual labor and as a market for its goods. The transition has been economically painless for Israel thanks to the forces of globalization.

Many immigrants from South and Southeast Asia, reliable and unthreatening in the eyes of Israeli employers, have taken the jobs of Palestinians now barred from Israel's construction sites, citrus fields and restaurant kitchens.

On the eve of the uprising, 136,000 Palestinians, or nearly a quarter of the labor force, worked inside Israel or in Israeli-owned enterprises in the territories. With a financial stake in Israel's security, said Persky, the Israeli army officer, only a "very few" were even tangentially involved in suicide attacks. Today, 47,400 Palestinians from the West Bank, or less than 9 percent of the workforce, have such permits.

The United States and Europe are increasingly the largest markets for Israel's more than $40 billion in annual exports -- including cut diamonds, high-tech hardware and software, arms and agricultural products. Less than 5 percent of Israel's exports are sold in the Palestinian territories. By contrast, roughly 90 percent of Palestinian exports are sold inside Israel.

"It has always been attractive for us to get cheaper products and labor, and the short distance between us made this possible," Persky said. "Both sides benefited, but their side the most."

On the ridgeline east of Bidya stretches the Barkan Industrial Park, a gated compound of 200 Israeli factories churning out products from pretzels to software for sale in Israel and beyond. Its businesses have come under pressure from political activists who oppose their presence in the occupied territories. The Barkan Winery, which sold much of its product abroad, moved out as a result.

But Ariyeh Kestenboim, a 26-year-old Orthodox Jew, moved his textile factory into the industrial park three years ago when he could no longer secure low-cost Palestinian labor for his plant in Petah Tiqwa, a suburb of Tel Aviv. Israel's frequent closure of the territories often left him with no workers.

Half of the Palestinians with Israeli work permits are employed by Israeli-owned enterprises in the occupied territories. Persky calls the arrangement, increasingly prevalent, "a win-win situation" for the Palestinian workers and settlement businesses.

Kestenboim, the third-generation of his family to run the business, employs 10 Palestinians at his hillside factory. He also pays half the municipal tax he did inside Israel, revenue that goes to the nearby settlements.

"If I hadn't moved here, I would have had to close," he said. "The problem now is China."

A group of Palestinians walked along the industrial park's streets, among them a 38-year-old with a three-day beard named Atta Kleb.

Kleb once commuted along Route 505 to a job in a supermarket warehouse in the Israeli city of Herzliyya. But Israel revoked his work permit when the uprising began, and he scraped by with day jobs on local construction sites until two months ago, when he showed up at the park's gate looking for work.

At the time, the Palestinian employees of the Beitily furniture company had walked off the job demanding a pay raise. When they were rehired a few weeks later, Kleb kept his fill-in job because he spoke Hebrew.

For his work on the factory floor, he receives $45 a day, although he said the hours can stretch well into the night without additional compensation. His pay is not as much as it was inside Israel, but it supports his wife and nine children. His brother, who once worked with him in Israel, is still unemployed.

"This is all we have," Kleb said.