The conflict between Israel and the Palestinians is usually described as a political problem. But for the Palestinians living in the Israeli-occupied West Bank and Gaza, the immediate day-to-day problems are the economic restrictions imposed by the Israeli occupation.

These restrictions are part of the harsh reality of occupation. Perhaps more important, they have the effect of discouraging an entire class of moderate, middle-income Palestinians-which might otherwise emerge as a basis for negotiation of a stable peace.

The economic restrictions range from prohibitions against marketing fresh produce in Israel and Jerusalem without approval from the military government to denial of licenses to start industrial businesses or to produce certain processed products that may compete with Israeli business. Restrictions also take the form of reserved rights to property. The military government may confiscate West Bank real property for public use, and some lenders refuse, as a matter of policy, to recognize West Bank property as collateral for a loan.

Israeli producers, meanwhile have open and unrestricted access to the West Bank and Gaza markets. Many Israeli products are subsidized, making it difficult for West Bankers to sell in their own markets. As for exports, West Bank producers cannot export their agricultural products directly to European markets, except under specific approval and membership/handling by AGREXCO, the Israeli agricultural marketing association. Israeli farmers have unrestricted access to such markets.

The West Bank is truly a private-sector economy, representing the ideal that international development agencies strive for. Farmers and non-agricultural businesses operate largely without economic assistance. There are no subsidies for business, on imported inputs, exports or available credit. Local businesses are making it on their own, under conditions of constant political upheaval and less than economic parity. Palestinian businesses are surviving and making a modest profit within a combination of day-to-day economic rstrictions that would destroy private-sector initiative in most countries.

A grape grower in the Hebron area. Like other West Bank growers, he is prohibited from making wine in competition with Israeli growers in the Golan Heights. When total production of all Hebron area grape growers is counted, farmers are left, with an annual surplus of some 13,000 kilos of fruit, which could be processed for many uses.

This producer and fellow growers have responded by turning their attention to other markets, including those for carbonated and natural fruit-juice drinks, in the predominantly Moslem Arab Middle East countries where alcohol is not consumed. The group has prepared a project for mounting a juice manufacturing unit, which would pay farmers a better price for their fruit and provide them with guaranteed demand, backed by identified European commitments to purchase and resell the product to the Arab markets. A significant hurdle will be Israeli approval of the license to operate.

The economic impact of this project would be to increase valued added sales and employment on the West Bank. It could thus also serve to reduce considerable tensions between residents in the Hebron area, where youths have teken to the steets with rocks and bottles, and in the greater Israel-West Bank area.

There are no evident restrictions upon exterior marketing of processed fruit and vegetable products. Will the Israelis allow this project to go forward?

An aerosol manufacturer. This businessman, who has been operating since 1973, has faced obstacles even after meeting all known requirements for licensing, production and marketing. Due to stiff competition in the Israeli market from European products brought in by Israeli wholesalers, he initially targeted the Jordanian market.

At his incorporation, this manufacturer secured registration as a partnership under the Jordanian law, as is required to sell there. He was told he would have to import his raw materials only through Jordanian ports and was provided with a 60 percent production quota for export to Jordan. But the Jordanian market was effectively cut off when the Israeli authorities refused to grant a permit to import chemicals through Aqaba and bring them to the West Bank over the Jordan River bridges-on the grounds that effective border checks cannot be carried out on sealed barrels of chemicals.

The Israeli market for aerosol products of this business is limited, due to existing manufacturing competition and high margins sought by Israeli buyers. Thus the market for the original investment of capital is very limited-confined to the West Bank and Gaza.

If this entrepreneur were able to secure import permits and enter the Jordanian market, he could substantially incerease his aerosol sales. Like many other West Bank businesses, he has been unable to secure commercial credit to expand, in this case in chemicals distribution, to diversify and keep growing.

A furniture manufacturer. In operation since 1936, this family-owned business produces and markets quality metal furniture for office, home and institutional use. The business serves institutional customers in the West Bank, Israel and neighboring Lebanon.

Growth and operation of this business have been severely interrupted by three wars, resulting in significant losses of property during the 1948-49 and 1967 Arab-Israeli conflicts. Since the 1967 war, the business has significantly grown. It is now facing a slowdown, due to the downturn in the Israeli economy and increasing competition from Israeli industry.

To maintain growth, this business is also taking the route of diversifying into import and resale of retail products related to its line, at no value added. In a recent attempt to secure commercial credit to expand its manufacturing operation, and build back a reduced workforce, this business was forced to sell business property to secure credit. The local bank would not recognize West Bank real property as collateral. Credit had to be obtained using offshore lines.

Restrictions on licensing, import, manufacture, export and availability of credit have discouraged new investment in fixed, productive assets in the Palestinian economy. That would create expanded skilled job opportunities for Palestinians entering the job market and benefit the Israeli economy through diversification and reduced pressure on the Israeli market. The results in terms of available economical opportunity are devastating-particularly for the young Palestinians, who face a very uncertain future. It is the young-ages 15 to 20-who are taking to the streets. What they and their parents see on a day-to-day basis are problems and few opportunities.

Any negotiated solution to the difficulties on the West Bank must take into consideration the fact that economics is a fundamental part of the political conflict and that continued economic restriction compromises some of the keys to a negotiated peace. The propects for a peaceful solution will be directly related to the ability of the international community-working with the Israelis and the Palestinians-to assist a solution that firmly establishes the political integrity of both peoples within a free market economy.

Tamara Duggleby is financial consultant who specializes in Africa. She has also worked with the Agency for International Development's economic development program for the West Bank.