World Bank: Israel limits impact of aid to Palestinians

Billions of aid dollars pledged to the Palestinians to bolster peace talks with Israel are having a muted economic impact because of Israeli restrictions on travel and trade, the World Bank said on Sunday.

The lending agency told donor nations in a report that per capita income in the West Bank and the Gaza Strip in 2008 would be static, if not lower, despite the $7.7 billion in aid pledged to the Palestinians in December.

The World Bank said modest gains in economic growth in the occupied West Bank, where western-backed President Mahmoud Abbas' government holds sway, were not sufficient to offset the "severe contraction" seen in Hamas-controlled Gaza.

Israel tightened its blockade of the Gaza Strip after the Islamist group's takeover in June from more secular Fatah forces loyal to Abbas.

"While the PA (Palestinian Authority) has moved ahead with its economic reforms, albeit slowly, there has been little progress on relaxing movement and access constraints," the bank said in the report, a copy of which was obtained by Reuters.

The World Bank said the impact of these restrictions, including hundreds of checkpoints and roadblocks in the West Bank, "cannot be overestimated."

Industrial operations suspended

Western aid, frozen after Hamas won control of the Palestinian Authority in January 2006 elections, has since resumed to Abbas' government to bolster final-status peace talks launched with Israel in November.

But those talks have shown little sign of progress and Israel has balked at removing major West Bank checkpoints and roadblocks, arguing that they are necessary to stop suicide bombers from reaching its cities. Palestinians call the obstacles collective punishment.

While the International Monetary Fund has projected growth of 3% in 2008, the World Bank said: "Taking into account population growth, it can be concluded that under the current movement and access restrictions, per capita incomes will drop or remain the same."

The World Bank said Israel's tightened cordon of the Gaza Strip has "considerably eroded whatever private sector backbone remained in the economy, and in a manner that is progressively more difficult to reverse."

The bank, citing business associations in Gaza, said the current restrictions have led to the suspension of 96% of Gaza's industrial operations.

Following a recent visit by Secretary of State Condoleezza Rice, Israel announced plans to remove 61 barriers in the West Bank. But a UN survey subsequently found that only 44 of the 61 obstacles had been removed and that most of them were of little to no significance.