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Study: Israelis and Palestinians would be $173 billion richer with a Palestinian state

A Palestinian boy rides a donkey in the E-1 area near the West bank settlement of Maaleh Adumim, background, on the eastern outskirts of Jerusalem in December 2012. (Sebastian Scheiner/AP)
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JERUSALEM — What could a new Palestinian state be worth in dollars? Answer: $173 billion over 10 years.

That is a bunch of zeros, with a lot of caveats. But a report released Monday by the number crunchers at the Rand Corp. suggests that one solution to the long-running Israeli-Palestinian conflict — based on “two states for two peoples” — is ... a cash cow.

The Rand researchers performed a thought experiment to forecast the financial gain or loss of five possible future scenarios for the conflict, from a “two-state solution” to “violent uprising.” They warn: “We make no prediction about the likelihood of any of them becoming reality.” Good advice these days in the Middle East.

Rand concludes that a two-state solution, with a sovereign state of Palestine as a demilitarized next-door neighbor to Israel, based on previous U.S. proposals about following 1967 armistice lines with land-swapping to include most of the Jewish settlements, is the best financial option for both economies.

In the decade after such a deal, Rand says, the Israeli economy would gain about three times as much as the Palestinians' in GDP — $123 billion vs. $50 billion. But the Palestinians would gain more proportionally, with their average per capita income increasing 36 percent over 10 years, compared with 5 percent for the average Israeli.

Over a decade, the average Israeli would see his or her income rise by $2,200, and a Palestinian would see a $1,000 bump, based on projections of present trends.

A two-state solution, Rand says, would benefit Israel with increased direct investment and a tripling of trading opportunities in the Arab world. Israel would suffer the loss of relocating about 100,000 Jewish settlers from the West Bank — a cost that Rand assumes would be paid in part by the international community in any peace deal.

This assumes that the new state of Palestine would be a peaceful neighbor — an assumption that Israeli Prime Minister Benjamin Netanyahu has rejected, warning that any occupied territory transferred to the Palestinians would quickly become “Hamastan,” ruled by the Islamist militant movement that today controls the Gaza Strip.

The report also attempts to predict the cost of continuing the conflict as it stands today, with the Israeli military occupying the West Bank (and fighting with Hamas and enforcing a partial blockade in Gaza). Currently, the Palestinian Authority is putting economic and international pressure on Israel at the United Nations and the International Criminal Court. There is also a growing threat from the boycott, divestiture and sanctions (BDS) movement.

Rand concludes that this status quo of “nonviolent resistance” will cost Israel, mostly in lower investment and tourism, about $80 billion over 10 years. The same scenario hurts Palestinians, too, to the tune of $12 billion over a decade.

Rand says the worst scenario is a violent uprising by the Palestinians, which could cost Israel $250 billion in forgone economic opportunities over 10 years and the Palestinians $46 billion, or more than three times their 2014 GDP.

The Rand researchers are also realists and conclude that there are many barriers to change, including security fears, lack of political leadership and regional instability.

“Israel, the country with by far the greater power, has a smaller economic incentive to diverge from present trends,” Rand concludes. “Israel has learned how to manage security vis-a-vis the Palestinians at a relatively low cost.”