Table of contents for Building a successful Palestinian state / David Gompert ... [et al.].

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Contents
Preface .................................................................................... iii
Summary .................................................................................xiii
Abbreviations ............................................................................ xxv
CHAPTER ONE
Introduction .............................................................................. 1
Organization of This Book ................................................................ 2
Defining "Success" ........................................................................ 3
Conditions for Success .................................................................... 4
Security ................................................................................. 4
Good Governance and Political Legitimacy .............................................. 4
Economic Viability ...................................................................... 5
Social Well-Being ....................................................................... 6
Cross-Cutting Issues: Permeability, Contiguity, and Security ............................... 7
Permeability ............................................................................. 7
Contiguity .............................................................................. 8
Security ................................................................................. 8
Estimating the Costs of Success ............................................................ 9
CHAPTER TWO
Governance .............................................................................. 13
Summary ................................................................................. 13
Introduction ............................................................................. 13
The Relationship Between State Legitimacy and Good Governance ....................... 15
The Importance of the 1967 Borders ................................................... 15
Contiguity of Land ..................................................................... 16
Jerusalem and State Legitimacy ......................................................... 16
Legitimacy and Violence ............................................................... 17
Other Variables Affecting Good Governance ........................................... 17
Requirements for Good Governance in Palestine .......................................... 20
Promoting the Rule of Law ............................................................. 22
Promoting Meritocracy in the Civil Service ............................................. 28
Costs ................................................................................... 28
Conclusion ............................................................................... 29
Bibliography ............................................................................. 30
CHAPTER THREE
Internal Security ......................................................................... 33
x Building a Successful Palestinian State
Summary ................................................................................. 33
Introduction ............................................................................. 34
Historical Overview ...................................................................... 35
Phases of Internal Security .............................................................. 36
Terrorist and Militant Groups .......................................................... 36
The Palestinian Security Structure ...................................................... 38
Administration of Justice ............................................................... 39
Internal Security Challenges .............................................................. 40
Administration of Justice ............................................................... 44
Internal Security Options ................................................................. 46
Administration of Justice ............................................................... 46
Reform of the Security Services ......................................................... 54
Costing the Options ...................................................................... 60
General Reconstruction Costs .......................................................... 61
Cost Summary ......................................................................... 62
Bibliography ............................................................................. 64
CHAPTER FOUR
Demography ............................................................................. 73
Summary ................................................................................. 73
Introduction ............................................................................. 74
The Palestinian Population and Its Post-1948 Diaspora ................................... 76
A Profile of the Population in the West Bank and Gaza ................................... 80
Prospects of Future Population Growth in the West Bank and Gaza ....................... 84
Dynamics of Future Population Growth ................................................ 84
Projected Growth ...................................................................... 85
Accuracy of the Underlying Assumptions ............................................... 88
Implications of Population for the State-Building Process ................................. 93
Carrying Capacity ...................................................................... 93
Service Demand ........................................................................ 94
Demographic Pressures on the Palestinian Economy .................................... 97
Prospects for Return Migration .......................................................... 99
Importance of the Issues ................................................................ 99
Key Issues ............................................................................. 100
Estimates of Potential Returnees ....................................................... 102
Bibliography ............................................................................ 105
CHAPTER FIVE
Economics .............................................................................. 107
Summary ................................................................................ 107
The Palestinian Economy .............................................................. 107
Major Challenges and Issues ........................................................... 108
Economic Scenarios and Implications ................................................. 108
Policy Options ........................................................................ 109
Introduction: Overview of the Palestinian Economy ..................................... 109
Snapshot of Palestinian Economy in 1999 ............................................. 110
Palestinian Economic Development from 1967 to the Oslo Accords in 1993 .......... 112
Palestinian Economic Development from the Oslo Accords to 1999 ................... 113
The Palestinian Economy Under the Current Intifada ................................. 115
Principal Challenges and Critical Issues Confronting the Palestinian Economy ........... 116
Principal Challenges ................................................................... 116
Critical Issues ......................................................................... 122
Economic Scenarios for a Future Palestinian State ....................................... 126
Scenarios of Economic Development .................................................. 126
Geographic Contiguity ................................................................ 127
Economic Integration ................................................................. 127
Four Scenarios ........................................................................ 128
Summary of Implications ............................................................. 131
Economic Implications of the Scenarios for a Future Palestinian State .................... 133
Growth Accounting Model ............................................................ 133
Limitations of the Growth Accounting Model ......................................... 139
Potential Inflows of Foreign Assistance ................................................ 139
Best-Practice Economic Policies for Stimulating Economic Growth ...................... 141
Fostering Free Trade ................................................................... 142
Partnering with Neighboring Countries ............................................... 142
Investing in Infrastructure ............................................................. 143
Easing Palestinian Employment in Israel ............................................... 145
Expanding Access to Capital .......................................................... 145
Choosing Currencies .................................................................. 146
Improving the Business Climate ....................................................... 147
Investing in Human Capital ........................................................... 148
Conclusions ............................................................................. 149
Appendix 5.A: The Growth Accounting Model .......................................... 150
Gross Domestic Product .............................................................. 150
Labor Force (L) ....................................................................... 152
Employment in Israel ................................................................. 152
Domestic Employment ............................................................... 153
Calculating Palestinian National Income .............................................. 155
Bibliography ............................................................................ 159
CHAPTER SIX
Water ................................................................................... 163
Contents xi
xii Building a Successful Palestinian State
Summary ................................................................................ 163
Introduction ............................................................................ 164
Water, Agriculture, and Energy in the Middle East ....................................... 165
Water Scarcity in the Middle East ..................................................... 165
The Jordan River ...................................................................... 167
Integrated Management ............................................................... 169
Water Issues in Israel and Palestine: The Past and Present ................................ 172
Historical Context .................................................................... 172
Current Situation ..................................................................... 174
Water for a Future Palestinian State: Policy Options ..................................... 180
Demand Management ................................................................ 180
Supply Enhancement and Sustainability ............................................... 184
Infrastructure Improvements .......................................................... 187
Modeling Future Water Demand and Supply for Palestine ............................... 189
Modeling Mechanics .................................................................. 190
Demand .............................................................................. 191
Supply ................................................................................ 192
Infrastructure ......................................................................... 192
Project Cost ........................................................................... 192
Options for the Future .................................................................. 193
The Base Case ......................................................................... 196
Supply ................................................................................ 197
Costs .................................................................................. 202
Increased Efficiency Scenario .......................................................... 202
Increased Efficiency/Reduced Gaza Agriculture Scenario .............................. 206
Robust Policies .......................................................................... 208
Conclusions ............................................................................. 211
Appendix ................................................................................ 212
Demand .............................................................................. 212
New Supplies ......................................................................... 214
Water Network ........................................................................ 216
Bibliography ............................................................................ 217
CHAPTER SEVEN
Health .................................................................................. 223
Summary ................................................................................ 223
Introduction ............................................................................ 225
What Is a Successful Health System? ..................................................... 227
Alternative Scenarios for an Independent State ........................................... 228
Population Mobility ................................................................... 228
International Access ................................................................... 229
Other Cross-Cutting Issues ............................................................ 230
Methods ................................................................................. 231
Background ............................................................................. 231
Health Status .......................................................................... 232
Health System Organization .......................................................... 234
Health Care Infrastructure ............................................................ 235
Health System Funding and Expenditures ............................................. 237
Patient Benefits and Costs ............................................................. 239
Strengthening Key Institutions, Policies, and Programs .................................. 243
Health System Planning, Policy Development, and Policy Implementation ............ 243
Health Insurance and Health Care Finance ............................................ 250
Licensing and Certification of Health Professionals .................................... 258
Licensing and Accreditation of Health Care Facilities and Services ..................... 262
Human Resource Development ....................................................... 264
Health Care Quality Improvement .................................................... 270
Policies on Prescription Drugs and Medical Devices ................................... 272
Health Information Systems ........................................................... 275
Research .............................................................................. 279
Programs for Rapid Improvement ..................................................... 280
Priorities and Timing .................................................................... 284
Cost .................................................................................... 285
Discussion ............................................................................... 288
Role of International Donors .......................................................... 289
Limitations of Our Analysis ........................................................... 289
In Closing ............................................................................. 290
Appendix 7.A: Selected Objectives from Prior Palestinian Health Plans .................. 291
Appendix 7.B: Methods ................................................................. 294
Appendix 7.C: Letter of Introduction Regarding RAND's Health System Analysis ....... 297
About RAND and RAND Health ..................................................... 297
About RAND's Palestine Project ...................................................... 298
About RAND's Analysis of the Palestinian Health System ............................. 298
Planned Trip to the Region ............................................................ 300
Appendix 7.D: Integration with Prior and Concurrent Health Sector Analyses ........... 301
Bibliography ............................................................................ 302
CHAPTER EIGHT
Education ............................................................................... 309
Summary ................................................................................ 309
Introduction ............................................................................ 311
Contents xiii
xiv Building a Successful Palestinian State
What Is a Successful Education System in the 21st Century? ............................. 312
Access ................................................................................. 313
Quality ................................................................................ 314
Delivery ............................................................................... 314
Issues Crossing Multiple Domains ..................................................... 315
Relevance ............................................................................. 315
Global Competencies ................................................................. 316
Gender Equity ........................................................................ 317
Historical Development of Palestinian Education (1517/2004) .......................... 319
Education Under the Ottomans (1517/1917) ......................................... 319
The British Mandate (1917/1948) .................................................... 320
1948/1967 ........................................................................... 320
1967/1987 ........................................................................... 321
The First Intifada (1987/1993) ........................................................ 322
Early Autonomy (1994/1999) ........................................................ 323
Al-Aqsa Intifada (2000/2004) ......................................................... 324
The Palestinian Educational System Today ............................................... 326
Structure .............................................................................. 326
Scope and Enrollment ................................................................. 327
Governance ........................................................................... 329
Preschool and Special Services ......................................................... 329
Grade Repetition and Dropout Rates .................................................. 330
Classroom Context .................................................................... 330
Teacher Characteristics ................................................................ 331
Strengths and Challenges Regarding Future Development ............................... 333
Foundations to Build On: Strengths of the System .................................... 334
Challenges ............................................................................ 340
Planning for the Future: Efforts to Date ................................................. 350
Moving Forward: Recommendations for a Strong Education System in a
Palestinian State ................................................................... 351
Maintaining and Expanding Access .................................................... 353
Building Quality ...................................................................... 354
Improving Delivery ................................................................... 357
Costs of Building a Successful Palestinian Education System ............................. 358
Summary and Conclusion ............................................................... 362
Appendix 8.A: Methods for Estimating Education Costs ................................. 365
Per-Student Expenditures ................................................................ 365
Enrollments ........................................................................... 368
Bibliography ............................................................................ 370
CHAPTER NINE
Conclusions ............................................................................. 379
Requirements for Success ................................................................ 380
State Founding ........................................................................ 381
State Enabling ......................................................................... 381
State Maturation ...................................................................... 382
Options for Facilitating Success .......................................................... 382
Promoting Security .................................................................... 382
Addressing Population Growth ........................................................ 383
Developing a Vibrant Economy ....................................................... 383
Improving the Quantity and Quality of Palestine's Water .............................. 384
Improving Health Care ................................................................ 384
Improving the Education System ...................................................... 385
Financing Successful Development ...................................................... 385
Costs to Implement the Recommendations Described in This Study ................... 386
Donor Funding and the Costs of Creating a Viable Palestinian State ................... 389
In Conclusion ........................................................................... 391
Appendix 9.A: Major Infrastructure Investments ......................................... 391
Road Improvements ..................................................................... 392
Gaza Seaport ............................................................................ 393
Airport .................................................................................. 393
Electric Power Grid ...................................................................... 394
Contents xv
Summary
This study focuses on a single analytical question: How can an independent Palestinian
state be made successful?
Identifying the requirements for success is a pressing policy need if a new Palestinian
state is established. Currently, the United States, Russia, the European Union, and
the United Nations remain committed to the establishment of a Palestinian state, as do
a critical mass of Palestinians and Israelis according to surveys. The "Roadmap," 
which
these parties have all officially supported , calls for the establishment of a new 
Palestinian
state by 2005.1 President Bush recently revised this timetable for the United States,
calling for a new state by 2009. As this book is published, prospects for an independent
Palestine are uncertain, although the recent passing of Yasser Arafat has opened up 
new
dialogue and new opportunities. Nevertheless, recent history in nation-building clearly
indicates that in the absence of detailed plans, such efforts almost always fail. It is this
void that the present volume seeks to fill.
In this study, we explore options for structuring the institutions of a future Palestinian
state, so as to promote the state's chances of success. We do not examine how
the parties could reach a settlement that would create an independent Palestinian state.
Rather we develop recommendations, based on analysis, about steps that Palestinians,
Israel, the United States, and the international community can begin to take now to
increase the likelihood that a new Palestinian state will thrive.
It should be emphasized that nation-building even under ideal circumstances is
a very difficult undertaking. If a peace is agreed to, significant distrust will still exist
between Palestinians and Israelis, and some elements in both countries will not accept
a peace settlement and instead will actively seek to disrupt progress toward a 
successful
Palestinian state. Success will require good planning; significant resources; fortitude;
significant sustained involvement of the international community; and courage, 
commitment,
and hard work on the part of the Palestinian people.
1 The full title of the Roadmap is A Performance-Based Roadmap to a Permanent Two-State Solution to the Israeli-
Palestinian Conflict and can be found at http://www.state.gov/r/pa/prs/ps/2003/20062pf.htm, as of June 2004.
xviii Building a Successful Palestinian State
Approach
We begin our discussion by considering the essentials of a successful new state; the
nature of the institutions that will govern it and the structures and processes that will
ensure its security. We then describe the demographic, economic, and environmental
resources on which a Palestinian state can draw, while also identifying factors that can
limit the state's ability to use these resources effectively. Finally, we consider what a
Palestinian state must do to ensure that its citizens are healthy and educated.
In each substantive area, we draw on the best available empirical data to describe
the requirements for success, to identify alternative policies for achieving these 
requirements,
and to analyze the consequences of choosing different alternatives. We also
provide initial estimates of the costs associated with our recommendations over the first
decade of independence. The methodology used in each chapter differs depending on
the nature of the analytic questions and the availability of data. Each chapter describes
its individual approach and identifies the constraints and uncertainties that accompany
the analysis.
Defining Success
In our view, "success" in Palestine will require an independent, democratic state with
an effective government operating under the rule of law in a safe and secure 
environment
that provides for economic development and supports adequate housing, food,
education, health care, and public services for its people. To achieve this success, 
Palestine
must address four fundamental challenges:
- Security: Palestinian statehood must improve the level of security for Palestinians,
Israelis, and the region.
- Governance: A Palestinian state must govern effectively and be viewed as legitimate
by both its citizens and the international community.
- Economic development: Palestine must be economically viable and, over time,
self-reliant.
- Social well-being: Palestine must be capable of feeding, clothing, educating, and
providing for the health and social well-being of its people.
Conditions for Success
Security
The success of an independent Palestinian state is inconceivable in the absence of 
peace
and security for Palestinians and Israelis alike. Adequate security is a prerequisite to
achieving all other recommendations in this volume. An independent Palestinian state
must be secure within its borders, provide for the routine safety of its inhabitants, be
free from subversion or foreign exploitation, and pose no threat to Israel. Moreover,
these conditions must be established from the moment of independence: Unlike 
infrastructure
or industry, security is not something that can be built gradually.
Successful security arrangements range from protecting borders that surround the
state to maintaining law and order within it. Success, even under the most favorable
conditions, will probably require extensive international assistance; close cooperation
between any international security personnel and their Palestinian counterparts; and
Israeli-Palestinian security cooperation, bolstered by at least international financial 
assistance.
Governance
Good governance will be a key measure of success of a new Palestinian state. From
our perspective, this must include governance that is representative of the will of the
people, practices the rule of law, and is virtually free of corruption. The government
must also enjoy the support of the people. To gain the support of the majority of 
Palestinians; 
three-fourths of whom public opinion surveys suggest support reconciliation
with Israel and the establishment of an independent Palestinian state; a new
state must be seen as legitimate by its citizens and practice the good governance that is
necessary to maintain public respect and support.
The thoroughness with which democratic institutions and processes, including
the rule of law, are established will be vital from the outset; indeed, it is already 
critical.
The death of Yasser Arafat in November 2004 will yield new challenges and 
opportunities
for Palestinians trying to establish the institutional foundation for an independent
state.
Economic Development
An independent Palestinian state cannot be considered successful unless its people
have good economic opportunities and quality of life. Palestinian economic 
development
has historically been constrained, and per-capita national income peaked in the
late 1990s in the range of "lower middle income" countries (as defined by the World
Bank). Since then, national income has fallen by half or more following the start of the
second intifada (uprising) against Israel in September 2000. An independent Palestinian
state will need to improve economic conditions for its people just as urgently as it
will need to improve security conditions.
Our analysis indicates that Palestine can succeed only with the backing, resources,
and support of the international community; above all, the United States, the European
Union, the United Nations, the World Bank, and the International Monetary
Fund. Resource requirements will be substantial for a decade or more. Of course, the
availability of such resources cannot be taken for granted. The possible limited 
availability
of resources intensifies the need for the state to succeed quickly, especially in the
eyes of those who provide private investment capital.
Summary xix
xx Building a Successful Palestinian State
During the period of international assistance, the Palestinian state should invest
aid, not merely consume it. Ultimately, an independent Palestinian state cannot be
characterized as successful until the state becomes largely self-reliant.
Social Well-Being
A fourth condition for the success of an independent Palestinian state is that the living
conditions of its people improve substantially over time. Many observers have
suggested that disappointment about slow improvement in living conditions under
Palestinian administration after 1994; and sharp declines in some years; contributed
significantly to the outbreak of the second intifada.
In addition to the conditions for success described above, the Palestinian health
and education systems must be strengthened. Options for such improvements are 
discussed
in the final chapters of this book. Both systems start with considerable strengths.
But both will also need considerable development, which will require effective 
governance
and economic growth, as well as external technical and financial assistance. In
the area of health, the state can be seen as successful if it is able to provide its citizens
with access to adequate primary and tertiary care services while being able to carry out
the basic public health functions of a modern state, including immunization programs
for children. In education, all children need to be assured access to educational 
opportunities
to enable them to achieve their potential while contributing to the economic
and social well-being of the society.
Cross-Cutting Issues: Permeability, Contiguity, and Security
Our analysis identified three crosscutting issues that will strongly influence prospects
for the success of a Palestinian state:
- How freely people can move between Israel and an independent Palestinian state,
which we refer to as "permeability" of borders.
- Whether the state's territory (apart from the separation of Gaza from the West
Bank) is contiguous.
- The degree to which security is achieved.
These issues affect all of the other issues examined in this book. It is important to
understand how they are interlinked, how they affect key goals, and how they might
be reconciled. This study concludes that none of the major conditions of 
success; security,
good governance, economic viability, and social welfare; can be realized unless
Palestinian territory is substantially contiguous. In a territorially noncontiguous state,
economic growth would be adversely affected, and the resulting poverty would 
aggravate
political discontent and create a situation where maintaining security would be
very difficult, if not impossible. In any case, a Palestine divided into several or many
parts would present its government with a complex security challenge since a 
noncontiguous
state would hamper law enforcement coordination; require duplicative and,
therefore, expensive capabilities; and risk spawning rivalries among security officials, 
as
happened between Gaza and the West Bank under the Palestinian Authority. Greater
border permeability is essential for economic development but significantly 
complicates
security.
Key Findings from the Analyses
Below key findings from our analyses are summarized. Most areas examined include 
estimates
of the financial costs associated with implementing each chapter's recommendations.
Costs are presented in constant 2003 U.S. dollars, unless otherwise noted, with
no attempt to adjust the estimates for future trends in inflation or exchange rates.
These estimates are not based on detailed cost analyses. Rather, we intend them
to suggest the scale of financial assistance that will be required from the international
community to help develop a successful Palestinian state. More precise estimates will
require formal cost studies (involving detailed needs assessments), which were outside
the scope of the present project. Moreover, we did not estimate the costs of all the 
major
institutional changes and improvements in infrastructure that would be required
for a successful Palestinian state, so summing the cost estimates across the chapters of
this book will fall considerably short of the "total" financial requirements for successful
Palestinian development.
Governance
A successful Palestinian state will be characterized by good governance, including a
commitment to democracy and the rule of law. A precondition to good governance is
that the state's citizens view their leaders as legitimate. An important source of 
credibility
will be how well Palestinian leaders meet the expectations of their people in
negotiations with Israel on key issues such as the size of the new state, its territorial
contiguity, and the status of Jerusalem, as well as the form and effectiveness of 
governance,
economic and social development, and the freedom of refugees to resettle in
Palestine or be compensated.
Good governance will be more easily achieved if Palestine's borders are open, its
economy prosperous, its refugee absorption manageable, its security guaranteed, and
its early years bolstered by significant international assistance. Good governance will
not be achieved without significant effort and international assistance. It will depend
heavily on the reform of government institutions and practices. At a minimum, 
Palestine
must take actions that (1) promote the rule of law including empowering the
judiciary, (2) give greater power to a Palestinian parliament, (3) significantly reduce
corruption, (4) promote meritocracy in the civil service, and (5) delegate power to lo-
Summary xxi
xxii Building a Successful Palestinian State
cal officials. Among other actions, a currently pending constitution that recognizes the
will of the people and clearly defines the powers of various branches of government
must be wisely completed. Finally, the authoritarian practices and corruption that has
characterized rule under the Palestinian Authority must be eliminated.
Strengthening Palestinian governance will entail real costs, for instance for conducting
elections and for establishing and operating the legislative and executive
branches of government. Our analysis does not explicitly estimate the costs of these 
institutional
changes. These costs are addressed in some instances, however, particularly
those relating to administration of justice in the chapter on Internal Security
Internal Security
The most pressing internal security concern for a Palestinian state will be the need
to suppress militant organizations that pose a grave threat to both interstate security
(through attacks against Israel and international forces) and intrastate security
(through violent opposition to legitimate authority). Public safety and routine law
enforcement; administration of justice; will also need to be put on a sound footing
as quickly as possible.
Assistance for the administration of justice would facilitate the emergence of an
independent judiciary and an efficient law enforcement agency capable of investigating
and countering common criminal activity and ensuring public safety. Both of these
broad objectives would require funds for rebuilding courthouses and police stations;
supplying equipment and materials necessary for training, such as legal texts, 
computers,
and other office equipment; and providing forensic and other training and the
equipment that police need to carry out their day-to-day patrolling duties. A more
comprehensive program aimed at accelerating the reform process and creating a sense
of security for Palestinian citizens more swiftly would include deploying international
police and vetting and recruiting judges, prosecutors, and police officers.
As in the realms of counterterrorism and counterintelligence, internal security
requirements would demand restructured security services and up-to-date equipment,
monitoring, training, and analytical support. Depending on the severity of the domestic
terrorist threat and the speed with which Palestinian capacities develop in this area,
a more intensive program might be needed.2
We estimate general internal security reconstruction costs to be at least $600 million
per year, and as much as $7.7 billion over ten years.
Demography
There are almost 9 million Palestinians, nearly 40 percent of them living within the
boundaries of what is likely to become a new Palestinian state (the West Bank and
2 A forthcoming RAND companion study to this one, entitled "Building a Successful Palestinian State: Security,"
will explore security issues in more depth.
Gaza). The population's fertility rate is high. If there is large-scale immigration by 
Palestinian
diaspora, the population in the Palestinian territories will grow very rapidly
for the foreseeable future.
Rapid population growth will stretch the state's ability to provide water, sewerage,
and transportation to Palestinian residents, and it will increase the costs of doing so.
It will tax the physical and human capital required to provide education, health care,
and housing, and it will place a heavy financial burden for funding these services on a
disproportionately smaller working-age population. A new Palestinian state will also
be hard-pressed to provide jobs for the rapidly growing number of young adults who
will be entering the labor force.
There are clear signs that Palestinian fertility rates are declining, but the rate of
decline is uncertain. In the short run, births will certainly increase since the number of
Palestinian women in the prime childbearing years will more than double. How much
fertility rates decline over the long term will probably depend on the degree to which
the education levels and labor force participation of Palestinian women rise.
There is also considerable uncertainty surrounding the number of diasporic Palestinians
who might move to a new Palestinian state. The Palestinian Central Bureau of
Statistics and the United States Census Bureau estimate between 100,000 and 500,000
returnees. Our own estimates, based on assumptions about which groups of 
Palestinians
will be most likely to return and under what conditions, are somewhat higher.
Ultimately, the number of Palestinians returning will depend on the terms of the final
agreement and on social, political, and economic developments in the new Palestinian
state. These demographic realities greatly affect the likely economic and social 
development
of the new state.
Water
A viable Palestinian state will need adequate supplies of clean water for domestic 
consumption,
commercial and industrial development, and agriculture. These requirements
are not being met today. Current water and waste management practices are
degrading both surface streams and rivers and underground water resources.
Most of Palestine's water is provided by springs and wells fed by underground
aquifers that are shared with Israel. Current water resource development provides only
about one-half of the World Health Organization's per-capita domestic water 
requirement
and limits irrigation and food production. In addition, current water use is unsustainable:
The amount of water that the Palestinians and Israelis extract from most of
the region's aquifers exceeds the natural replenishment rate.
Options for increasing the water supply that were examined include increasing
groundwater use, accommodated by Israel's reduction in use; increasing rain and storm
water capture; and increasing desalination capabilities where no other options exist.
Demand can be managed through the wise application of water efficiency 
technologies,
water reuse methods, and infrastructure improvements.
Summary xxiii
xxiv Building a Successful Palestinian State
We estimate a base case cost of more than $4.9 billion for supplying water and
sanitation through 2014. Improved water management strategies could save $1.3/2
billion.
Health
The health system of a future Palestinian state starts with many strengths, including
a relatively healthy population, a high societal value placed on health, many highly
qualified health professionals, national plans for health system development, and a
strong base of governmental and nongovernmental health care institutions.
Important areas of concern include poor system-wide coordination and implementation
of policies and programs across geographic areas and between the governmental
and nongovernmental sectors of the health system, many underqualified health
care providers, weak systems for licensing and continuing education, and considerable
deficits in the operating budgets of the Palestinian Ministry of Health and the 
government
health insurance system (the principal source of health insurance).
Our analysis focused on major institutions that the health care system would need
in the first decade of an independent state. In addition, we identified several urgently
needed programs for preventive and curative care.
We examined and recommended that priority be given to initiatives in two areas:
- Integrating health system planning and policy development more closely, with
meaningful input from all relevant governmental and nongovernmental stakeholders.
- Improving public and primary health care programs, including an updated 
immunization
program, comprehensive micronutrient fortification and supplementation,
prevention and treatment of chronic and noninfectious disease, and treatment
of developmental and psychosocial conditions.
We estimate that the Palestinian health system would require between $125 million
and $160 million per year in external support over the first decade of an independent
state.
Education
The future state's education system begins with a strong foundation, especially in the
areas of access, quality, and delivery. Access strengths include a commitment to 
equitable
access and success in achieving gender parity, strong community support for 
education,
and leadership that is supportive of both system expansion and system reform.
Strengths in the area of quality include willingness to engage in curricular reform,
strong interest in and resources for improving pedagogy, commitment to improving
the qualifications and compensation of staff, and the perception of schools as a key
location for developing students' civic skills and social responsibility. The system is
relatively well managed and has some solid data collection capabilities.
Nevertheless, the system faces notable challenges. In the area of access, these include
rising levels of malnutrition, homelessness, and general poor health; inadequate
facilities and supplies; unsafe schools and routes to schools; lack of special education
options for students with special needs; lack of informal education options for 
schoolage
students; and the absence of lifelong learning opportunities. Quality challenges
include a lack of clear goals and expectations for the system; limited relevance of 
secondary,
vocational, and tertiary programs to Palestine's economic needs; limited research
and development capacity and activity; low staff compensation and an emerging
administrative "bulge"; and difficulty in monitoring process and outcomes. Delivery is
hobbled by a severely underfunded and donor-dependent system, and the limited data
on the system are not effectively linked to reform.
Our analysis examined ways in which access, quality, and delivery could be improved,
with a long-term goal of positioning Palestine as a powerful player in the
region's knowledge economy. We recommend the following three primary goals for 
the
system over the next ten years:
- Maintaining currently high levels of access, while also working within resource
constraints to expand enrollments in secondary education (particularly in vocational
and technical education and the academic science track) and early childhood
programs.
- Building quality through a focus on integrated curricular standards, assessments,
and professional development, supported by long-term planning for system 
sustainability.
- Improving delivery by working with donors to develop streamlined and integrated
funding mechanisms that allow the administration to focus on the business
of meeting student needs, informed by strong evaluation and backed by
significant sustained investment.
We estimate that the Palestinian education system will require between $1 billion
and $1.5 billion per year in financing over the first decade of statehood if it is to
operate at a level that will support national ambitions for development. (We do not
distinguish between donor and national investments.) We also offer options for reducing
costs should it be necessary to do so.
Economics
We examined possible economic development trajectories in an independent 
Palestinian
state during the 2005 to 2019 timeframe, focusing on Palestine's prospects for 
sustaining
growth in per-capita incomes. Prerequisites for successful economic development
include adequate security, good governance, adequate and contiguous territory,
stable access to adequate supplies of power and water, and an adequate transportation
infrastructure. In addition to the prerequisites, four critical issues; transaction costs,
resources including internal resources and financing and external aid, the Palestinian
Summary xxv
xxvi Building a Successful Palestinian State
trade regime, and the access of Palestinian labor to employment in Israel; will 
primarily
determine the conditions under which the Palestinian economy will function.
Since Palestinian territory has limited natural resources, economic development
will depend critically on human capital, with stronger systems of primary, secondary,
and vocational education as indispensable down payments on any future economic
success. Other important conditions will include Palestinian access to Israeli labor 
markets
and substantial freedom of movement of people and products across the state's
borders, including the border with Israel. However, brittle Israeli-Palestinian relations
are likely to constrain cross-border movement of Palestinians into Israel for some time
after a peace agreement.
Strategic choices made by policymakers at the outset of the new state will markedly
affect its economic development. Decisions about geographic contiguity; the size,
shape, and territorial coherence of a future Palestinian state, the inclusion of special
sites or areas, and control over land and resources; will determine the resources that
the new state's leaders will have to foster growth and the ease with which Palestinians
can engage in business. Decisions about the degree of economic integration with
Israel in terms of trade and the mobility of Palestinian labor will shape the Palestinian
economy, the rate of economic growth, and prospects for employment.
We analyze four development scenarios, each determined by decisions about
geographic contiguity and economic integration. We estimate the levels of economic
growth that might be achieved under each scenario, given specific levels of 
international
investment.
Under each scenario except the low-contiguity/low-integration case, Palestine
could surpass its 1999 per-capita gross national income by 2009 and double it by
2019. Achieving such growth would require significant investment in Palestinian capital
stock: Between 2005 and 2019, the Palestinian private and public sectors and the
international community would have to invest about $3.3 billion annually, for a 
cumulative
total of some $33 billion over the first decade of independence (and $50 billion
over the period 2005/2019).
Under any scenario, domestic private employment would have to grow at a substantial
pace (perhaps at an annual average of 15 to 18 percent) between 2005 and
2009 to reach rates of employment last seen during the summer of 2000. These 
employment
rates should be possible once Palestinian businesses are able to operate in a
relatively unrestricted environment and are fully able to utilize available resources.
We note that the assumed level of capital investment of $3.3 billion per year is
in the same range as the total cost estimates for a port, airport, and connecting road;
improvements in the electric power system; the capital costs of expanding water and
sewage systems; and even costs of improving health and education, many of which
are operating, not investment costs. Thus, the economic analysis of the Palestinian
economy provides some comfort that the total of the individual cost estimates is not
out of line with overall investment needs.
Donor Funding and the Costs of Creating a Viable Palestinian State
As a frame of reference for the magnitude of funding that may be required from 
international
donors to ensure successful Palestinian development, we considered the
cases of Bosnia and Kosovo, two areas where the international community has recently
invested very large sums for post-conflict reconstruction. Like the West Bank
and Gaza, these two entities suffered considerable damage from conflicts. Both have
attracted considerable international interest and assistance. Both have had some 
success
in creating democratic governments and revitalizing the local economies. In the
first two years following the signing of peace accords in Bosnia and Kosovo, foreign
assistance (grants and loans) averaged $714 and $433, respectively, per person per
year.
Applying these per-capita figures to the projected population of West Bank and
Gaza, an analogous annual inflow of assistance of $1.6 billion to $2.7 billion would
be required in the first year. The level of required assistance would rise to between
$2.1 to $3.5 billion by 2014 because of increases in population (see Table S.1). Over
the ten-year period between 2005 and 2014, flows of foreign assistance to a new 
Palestinian
state analogous to levels that have been granted to Kosovo and Bosnia would
run from $18.8 billion to $31.1 billion. Those levels of foreign investment would be
enough to cover the areas examined by our study, with some left over for other areas
that were outside the scope of our study (e.g., transportation).
Table S.1
Aid Flows Analogous to Bosnia and Kosovo
Year
Estimated Palestinian
Population
Total Aid (millions of 2003 dollars)
Bosnia Analogy Kosovo Analogy
2005 3,761,904 2,688 1,627
2006 3,889,249 2,779 1,683
2007 4,018,332 2,871 1,738
2008 4,149,173 2,964 1,795
2009 4,281,766 3,059 1,852
2010 4,416,076 3,155 1,910
2011 4,547,678 3,249 1,967
2012 4,676,579 3,341 2,023
2013 4,807,137 3,434 2,080
2014 4,939,223 3,529 2,137
Total 31,068 18,813
SOURCE: World Bank, West Bank and Gaza Update, Washington, D.C., April/June
2003.
Note: The World Bank figures are in then-year U.S. dollars.
Summary xxvii
xxviii Building a Successful Palestinian State
Looking to the Future
At the time of this writing, the prospects for establishing an independent Palestinian
state are uncertain. U.S. attention, without which a negotiated settlement between 
Palestinians
and Israelis seems unlikely, has been focused primarily on Iraq and elsewhere
to date. However, President Bush recently called for a new state by 2009. U.S. 
experience
in Iraq and Afghanistan can only reinforce the value of having plans in place for
the eventuality of an independent Palestine. The death of Yasser Arafat in November
2004, which spurred both Palestinians and the wider world to focus on the future of
the region, may yet turn this eventuality into a more imminent reality.
Our book is not a prediction that peace will come soon. However, we believe
that thoughtful preparation can help make peace possible. And when peace comes,
this preparation will be essential to the success of the new state. This book is designed
to help Palestinians, Israelis, and the international community; the United States, its
Quartet partners, and Palestine's Arab neighbors; prepare for the moment when the
parties are ready to create and sustain a successful Palestinian state.
xxix
Abbreviations
ARIJ Applied Research Institute Jerusalem
CM cubic meter
CME continuing medical education
EDZs economic development zones
EIA Energy Information Agency
EU European Union
GDP gross domestic product
g/l grams per liter
GNI gross national income
GNP gross national product
ha hectare
HDIP Health, Development, Information and Policy Institute
ICITAP International Criminal Investigative Assistance Program (U.S.
Justice Department)
IDF Israeli Defense Forces
IMF International Monetary Fund
I/PCRI Israel/Palestine Center for Research and Information
l/d liters (of water) per day
M&I municipal and industrial
MAS Palestine Economic Policy Research Institute
MCM million cubic meters
MoE Palestinian Ministry of Education
MOH Palestinian Authority Ministry of Health
N.A. not available
NGO nongovernmental organization
NIS Israeli shekels
NWC National Water Council
PA Palestinian Authority
xxx Building a Successful Palestinian State
PASSIA Palestinian Academic Society for the Study of International Affairs
PCBS Palestinian Central Bureau of Statistics
PCDC Palestinian Curriculum Development Center
PFLP The Popular Front for the Liberation of Palestine
PHG Palestinian Hydrology Group
PIJ Palestinian Islamic Jihad
PLO Palestinian Liberation Organization
PMA Palestinian Monetary Authority
ppm parts per million
PR proportional representation
PRCS Palestinian Red Crescent Society
PWA Palestinian Water Authority
QI quality improvement
QIP Quality Improvement Project (of the Palestinian Authority Ministry
of Health)
RSC Regional Security Committees
TFP total factor productivity
TIPH Temporary International Presence in Hebron
UFW unaccounted for water
UN United Nations
UNCTAD United Nations Conference on Trade and Development
UNDOF United Nations Disengagement Observer Force
UNDP United Nations Development Programme
UNEF United Nations Emergency Force
UNEP United Nations Environmental Programme
UNESCO United Nations Educational, Scientific, and Cultural
Organization
UNRWA United Nations Relief and Works Agency for Palestine Refugees
in the Near East
UNSCO United Nations Office of the Special Coordinator in the
Occupied Territories
UNSCR United Nations Security Council Resolution
USAID The United States Agency for International Development
USBC U.S. Bureau of the Census
WB West Bank
WHO World Health Organization
<ch1)
CHAPTER ONE
Introduction
C. Ross Anthony, Glenn E. Robinson, 
Michael Schoenbaum, and Cynthia R. Cook
This study focuses on a single analytical question: How can an independent Palestinian state be made 
successful?
Identifying these requirements became a pressing policy need for the United States with the adoption of 
the "Roadmap," which calls for a Palestinian state in 2005. President Bush recently revised this timetable and 
is now calling for a new state by 2009. Following a March 2002 UN Security Council Resolution, which 
called for the creation of a Palestinian state and was supported by the United States; in June 2002, President 
George W. Bush expressed explicit U.S. support for creating a Palestinian state. To this end, the United 
States joined the European Union, Russia, and the United Nations to pursue the Roadmap initiative in 2003. 
The same year, the Israeli government under Prime Minister Ariel Sharon also formally endorsed the eventual 
creation of an independent Palestinian state.
When President Bush made his initial declaration, he called for creation of an independent Palestinian 
state within three years, and the Roadmap was designed to meet this timetable. As this chapter is written, 
however, the prospect of an independent Palestine anytime soon seems remote. Nevertheless, a critical mass 
of Palestinians and Israelis, as well as the United States, Russia, the European Union, and the United Nations, 
remains committed to the establishment of a Palestinian state.
This book proposes options for structuring the institutions of a future Palestinian state, so as to ensure 
as far as possible the state's success. This study does not examine how an independent Palestinian state might 
be created, nor does it explore the process or terms of a settlement that would lead to its creation. In fact, one 
of the book's strengths is that by concentrating on factors that are key to making an established Palestinian 
state successful, it develops conclusions about what must be present both at the beginning and throughout the 
process to achieve success.
This work should be seen as a living document that will need to respond to the constantly changing 
realities in the region and that will need to be expanded to cover areas that were beyond the scope of this 
study. In particular, key areas such as housing, transportation, and energy are not dealt with in this study, 
although a companion study will deal with them at a community level. A second companion study will deal 
with security issues not dealt with here. Furthermore, the rapidly changing dynamics in the region and the 
death of Yasser Arafat demand a deeper analysis of the option for establishing good governance in a new state. 
The chapter on internal security must also be updated as geopolitical and security realities change and because 
of changes in international, Palestinian, and Israel leadership.
U.S. experience in Afghanistan and Iraq since 2001 has underscored our conviction that nation-building 
can only benefit from detailed consideration of governance, security, economic development, health, education, 
and natural resources, among other factors. Recent experience also clearly demonstrates the need for thoughtful 
detailed planning if nation-building experiences are to succeed. Furthermore, the lessons of U.S. experience in 
Iraq indicate clearly that, in order to seize the opportunity to build a state when it arises, advance planning is 
extremely important. Failure to have feasible options on the shelf can result in lost opportunity at the least and 
disaster at the extreme. Many of the policy options laid out here; including those in the areas of health, 
education, and water; can be initiated even before the establishment of a state.
Creating a state of Palestine does not ensure its success. But for Palestinians, Israelis, and many around 
the world, it is profoundly important that the state succeed. If the failed or failing states of recent 
years; Somalia, Yugoslavia, the Democratic Republic of the Congo, and Afghanistan; have endangered 
international security, consider the perils in the Middle East and beyond of a failed Palestine, or the costs and 
risks of one so weak that it must be propped up and policed by the United States and others. The true 
challenge for a Palestinian state is not that it exist, but that it succeed.
Organization of This Book
In our discussion, we first consider the essentials of a successful state; the nature of the institutions that will 
govern it and the structures and processes that will ensure its internal security. We then describe the 
demographic, economic, and critical water resource on which a Palestinian state can draw, while also 
identifying factors that can limit the state's ability to use these resources effectively. Finally, we consider what a 
Palestinian state must do to strengthen its human capital, through ensuring its citizens health care and 
educational opportunities. 
In each substantive area examined, we draw on the best available empirical data to describe the 
requirements for success, to identify alternative policies for achieving these requirements, and to describe the 
consequences of choosing each alternative. We also provide initial estimates of the costs associated with our 
recommendations over the first decade of independence. The specific methodology in each chapter differs 
with the nature of the analytic questions and the availability of data. Each chapter describes its individual 
approach and identifies the constraints and uncertainties that accompany the analysis.
In the remainder of this chapter, we consider goals for a successful Palestinian state in more detail. We 
then turn our attention to three major issues that cut across all parts of our book: the degree to which 
movement of people and goods is possible between an independent Palestinian state and other countries, 
which we refer to as "permeability"; the degree to which the territory of an independent Palestinian state is 
integral or fragmented, which we refer to as "contiguity"; and the nature of the security arrangements for 
Palestinians, Israelis, and the region. Finally, we describe the methodology we have used to estimate the costs 
of the options put forward in the various chapters.
Defining "Success"
In our view, "success" in Palestine will require an independent, democratic state with an effective government 
operating under the rule of law in a safe and secure environment that provides for economic development and 
supports adequate housing, food, education, health, and public services for its people. To achieve this success, 
Palestine must succeed in addressing four fundamental challenges:
	-	Security: Palestinian statehood must improve the level of security for Palestinians, as well as that for 
Israelis and the region as a whole.
	-	Good Governance and Political Legitimacy: A Palestinian state must be governed effectively and be viewed 
as legitimate by both its citizens and the international community.
	-	Economic Viability: Palestine must be economically viable and, over time, self-
reliant.
	-	Social Well-Being: Palestine must be capable of feeding, clothing, educating, and providing for the health 
and social well-being of its people.
When a Palestinian state is established, its success is not only important as an end in itself; it could 
influence the course of political and social reform in the greater Middle East. The failure of a Palestinian state 
might discourage efforts to bring about reform in the region. 
Conditions for Success
Security
The success of an independent Palestinian state; indeed, its very survival; is inconceivable in the absence of 
peace and security for Palestinians and Israelis alike. Thus an independent Palestinian state must be secure 
within its borders, provide for the routine safety of its inhabitants, be free from radical subversion or foreign 
exploitation, and pose no threat to Israel. Moreover, these conditions must be established from the moment of 
independence. Security is not something that can be built gradually, like infrastructure or industry, but must 
be in place at the beginning of a new state if that state is to have a chance of succeeding. In fact, as shown in 
the security chapter (see Chapter Three), it is clear that even before a new state can be established, the present 
situation will need to improve considerably. Because of the breakdown in security within areas of Palestinian 
control in recent years, it is hard to see how Palestinians can assume the responsibility and gain the ability to 
provide adequate security, objectively and in Israeli eyes, without international support and involvement.
Successful security arrangements range from patrol and protection of the borders themselves to workable 
justice and public safety systems within them. There is no room in this chain for weak links: Internal leniency 
toward violent extremists will likely lead to Israeli reactions; and failure to monitor and manage who and what 
enters Palestine can only weaken internal public safety. The borders of an independent Palestinian state, 
including the degree of territorial contiguity and whether Palestinian territory surrounds Israeli settlements, will 
significantly affect the success of any security arrangements.
It will take more than Palestinian good faith and effort to meet such standards of security, even under 
the most favorable conditions. It will also require extensive international assistance and close cooperation 
among security personnel. 
Good Governance and Political Legitimacy
Palestinian national aspirations have evolved over time since the creation of Israel in 1948. Through the 
establishment of the Palestine Liberation Organization (PLO) in 1964, Palestinians formally rejected the 
existence of Israel and called for a Palestinian state in the whole of all the territory that was governed by the 
British under the League of Nations mandate of 1920 (excluding Transjordan). As the "two-state solution" 
gained legitimacy internationally and among Palestinians living in the West Bank and Gaza, the PLO formally 
changed course in 1988, recognized Israel, and proclaimed a Palestinian state based on the earlier UN partition 
resolution. This evolution in Palestinian goals was pushed further with the 1993 exchange of recognition letters 
between Israel and the PLO; the precursor to the Palestinian Authority (PA), which was established by the 
Oslo Accords. Since 1994, however, the PA has formally committed itself to a two-state solution. Moreover, 
surveys suggest that some three-fourths of Palestinians in the West Bank and Gaza would support reconciliation 
with Israel following a peace treaty and the establishment of an independent Palestinian state. 
Of course, even a small number of rejectionists can be dangerous, as the past decade has shown. Such 
factions could target Israel or the Palestinian state and its leadership. In practice, the willingness and ability of 
the Palestinian state to resist or co-opt such factions will depend on its political legitimacy. Legitimacy, in 
turn, will depend on a number of factors, including the form and effectiveness of governance; economic and 
social development; territorial size and contiguity; the status of Jerusalem; and the status and the treatment of 
Palestinian refugees, particularly those currently living in Lebanon, Syria, and Jordan. 
Finally, the way that Palestinians govern themselves will affect the political viability of the new state (as well 
as its economic vitality and security). The thoroughness with which democratic institutions and processes are 
established will be critical from the outset; indeed, they are already critical even before the state has been created. 
Finally, the passing of Yasser Arafat is likely to generate new challenges and opportunities. 
Economic Viability
An independent Palestinian state cannot be considered successful unless its people have good economic 
opportunities and quality of life. Palestinian economic development has historically been constrained, and per-
capita national income peaked in the late 1990s in the range of "lower middle income" countries (as defined 
by the World Bank). Since then, national income has fallen by half or more following the start of the second 
intifada ("uprising") against Israel in September 2000. An independent Palestinian state will need to improve 
economic conditions for its people as immediately and urgently as it will need to improve security conditions.
As we describe in this book (see Chapter Five), there are a number of prerequisites for successful 
economic development in a Palestinian state. These include security; adequate and contiguous territory 
(although we assume that the West Bank and Gaza will remain physically separate); stable access to adequate 
supplies of power and water; adequate infrastructure for transporting goods, both domestically and 
internationally, and the ability to use it; and an improved communication infrastructure. Since Palestinian 
territory has limited natural resources, economic development will depend critically on human resources, with 
stronger systems of primary, secondary, and vocational education as crucial down payments on any future 
economic success.
Historically, income from Palestinians working in Israel has been an important component of Palestinian 
national income. However, the degree of access by Palestinians to Israeli labor markets has fluctuated greatly 
and is minimal at the time of this writing. The extent of such access in the future is another important 
variable discussed in this book that will affect Palestinian economic development under independence.
A new Palestinian state will not be successful without significant economic development. Such 
development will require considerable external assistance in the form of investment capital in addition to good 
governance and human capital formation. It is also difficult to see how the Palestinian economy can flourish 
unless there is substantial freedom of movement of people and products across the state's borders, including the 
border with Israel.
Our study indicates that Palestine can succeed only with the backing and assistance of the international 
community; above all, the United States, the European Union, the United Nations, the World Bank, and 
the International Monetary Fund. Resource requirements will be substantial for a decade or more. During that 
period, aid should be invested, not merely consumed. Palestine's institutions and policies should be prepared 
to absorb many forms of foreign help; e.g., for external and internal security, health care and education, 
financing needs, and good governance. At the same time, an independent Palestinian state cannot be truly 
characterized as successful until the amount and scope of external assistance diminishes and the state becomes 
largely self-reliant.
The requirements for external assistance estimated in this study are considered essential to enable a 
Palestinian state to succeed. However, the availability of such resources should not be assumed at a time when 
many donor countries around the world are in, or are just coming out of, a recessionary period that has 
resulted in very tight budgets. This limited availability of resources places a special burden on the new state and 
intensifies the need for it to succeed quickly in the eyes of the international community; particularly among 
providers of private investment capital.
Social Well-Being
A fourth condition for the success of an independent Palestinian state is that the social well-being of its people 
improve substantially over time. Living conditions and provision of social services including health care and 
education have declined with Palestinian national income since the outbreak of the second intifada. 
The final chapters of this book focus particularly on options for strengthening the Palestinian health care 
and education systems (see Chapters Seven and Eight). Both systems start with considerable strengths, but also 
require considerable development in the future. Such development will require effective governance and 
economic growth, as well as external technical and financial assistance.
Cross-Cutting Issues: Permeability, Contiguity, and Security
The following discussion highlights three cross-cutting issues that will have special influence on the ability of a 
Palestinian state to achieve the essential conditions for success:
	-	how freely can people travel to and from an independent Palestinian state, which we refer to as 
permeability of borders
	-	whether its territory (apart from Gaza's separation from the West Bank) is contiguous
	-	the prevailing degree of security and public safety.
These issues affect all of the other issues examined in this book, and they interact with each other as 
well. It is important to understand how they are intertwined, how they affect key goals, and how they might 
be reconciled in some optimal way. As a rule, the greater the permeability, contiguity, and security of 
Palestine, the more likely Palestine will succeed as a state. 
Permeability
Movement of people between Israel and Palestine will be crucial to the Palestinian economy by giving labor, 
products, and services access to a vibrant market and by encouraging foreign (Western and perhaps Israeli) 
investment in Palestine. On the other hand, a sealed border will undoubtedly affect political viability of the state 
and its economy. There are also some one million Palestinian citizens of Israel, who will desire access to family, 
friends, colleagues, and business associates in a Palestinian state and vice versa. An impermeable border would 
separate them from the Palestinian state.
Obviously, permeability has major implications for security. The more freedom of movement between a 
Palestinian state and Israel, the more opportunities there will be for the infiltration of terrorists into Israel. 
Such threats, in turn, will undermine the stability of a final status accord, especially if they lead to Israeli 
incursions into Palestinian territory.
On the surface, then, permeability could foster economic viability and political legitimacy at the cost of 
security. Of course, it is not that simple. Better economic and political conditions, thanks in part to 
permeability, could enhance stability and increase Palestinians' stake in security. On the other hand, sealing off 
Palestine from Israel will substantially reduce but probably not eliminate suicide attacks or other terrorist threats 
against Israeli civilians altogether.
In sum, permeability is basic to economic and political viability, as well as to long-term security. But it 
raises major security issues. If Israel itself deals with the dangers inherent in permeable borders, the potential 
for conflict would be high. If Israel is to be convinced to entrust others with responsibility for the security of 
permeable Israeli-Palestinian borders, the demands on the United States and its partners could be substantial 
and long lasting.
Contiguity
Palestinian political legitimacy and economic viability will depend on contiguity of land no less than and 
perhaps more than on the permeability of its borders. A Palestine of enclaves is likely to fail. Moreover, 
political and social development requires that Palestinians be free to move within and among Palestinian 
territories (e.g., between the West Bank and Gaza). Successful economic development further requires that 
movement of goods within and among Palestinian territories be as free as possible.
This study concludes that none of the major conditions of success; security, political legitimacy, 
economic viability, social welfare; can be realized unless Palestinian territory is substantially contiguous. In a 
territorially noncontiguous state, economic growth would be adversely affected, resulting in poverty that would 
aggravate political discontent and create a situation where maintaining security would be very difficult if not 
impossible. In any case, a Palestine divided into several or many parts would present its government with a 
complex security challenge since a noncontiguous state would hamper law enforcement coordination; require 
duplicative and, therefore, expensive capabilities; risk spawning rivalries among security officials, as happened 
between Gaza and the West Bank under the PA; and result in immense operational security problems. Even the 
most challenging peacekeeping experiences; Cyprus, Bosnia, and Kosovo; might seem easy by comparison.
Security
We explicitly describe options for structuring internal security arrangements in a subsequent chapter of this 
book. Here, we provide a brief overview of options facing an independent Palestinian state, Israel, and the 
international community.
Security is a precondition for successful establishment and development of all other aspects of a 
Palestinian state. The challenge is how to ensure security in order to advance Palestine's economic and political 
goals while recognizing that extreme security measures inhibit political and economic development.
One critical dimension of security is the trust of Palestinian citizens in the stability of their new state. 
They must be confident that they live under the rule of law. In our analysis, we explore how to build a judicial 
and police system on which citizens can rely for safety and equitable treatment.
The other key dimension of security for a new Palestinian state will be protection against political 
violence. Various groups may reject the validity of the accord with Israel and continue to try to attack Israel to 
undermine the peace agreement and the Palestinian government that agreed to it. Such groups might also 
rekindle internal violence. It is to address these possibilities that we will examine external security issues in a 
forthcoming volume. 
Accordingly, we explore how the United States and other countries might reorganize, train, equip, and 
directly support an internal security force that could defeat challenges to the new state's authorities without 
resorting to repressive methods.
Estimating the Costs of Success
This book differs from other studies of Palestinian state building because we have estimated the costs of 
developing institutions for some of the areas we examine. Below we describe the estimating approaches we 
used. We emphasize that the estimates are approximations; with better data and more clarity about the 
approaches to be taken, the estimates can be improved. Furthermore, our analysis could not cover all relevant 
sectors of a Palestinian state. Some important development areas, such as transportation and energy, were 
outside the scope of the volume but will certainly require considerable resources in their own right. (Some of 
these issues are discussed at a community level in a forthcoming RAND publication. )
RAND has an extensive history of estimating the costs of both U.S. and non-U.S. defense and 
nondefense projects and, in the process, has developed some of the basic tools and approaches used in creating 
cost estimates. There are three primary ways in which cost estimating is done, which we refer to as 
"bottom-up," "parametric," and "analogy." The three methodologies have different levels of data requirements 
and are appropriate in different situations; all three methods have been used in this book. A brief discussion of 
the three methods helps to illuminate the complexities of developing cost estimates for this analysis.
Bottom-up estimating involves identifying all of the individual items involved in a project, which are 
then summed to produce a final estimate for the entire project. Bottom-up estimating for social programs can 
be an extremely costly process and requires a great deal of research and robust data. For example, in the field of 
education, bottom-up estimating would ideally start with a needs assessment. Analysts could determine the 
educational goals of the state, the desired level of education and the fields of study, and the number of students 
who will need schooling over the next few decades. The next step would be to determine existing current assets 
and identify any additional assets that would be needed. Data might include the number of existing schools, 
their physical condition, and the number of students they can serve. Insight would be needed about the 
number of available teachers, their training, and ways to recruit and train additional teachers. What school 
supplies; including books, computers, and Internet connections; are available or would be needed?
As the list is developed, costs of incremental investment can be estimated, perhaps by getting bids from 
construction companies for the cost of schools. This information is collected, the costs are estimated and 
added, and a total cost estimate is reached.
Parametric estimation involves developing an equation (using some form of regression analysis) in which 
the changes in the information desired; the dependent variable; are modeled based on known relationships 
to some group of independent or explanatory variables. These equations are referred to as cost estimating 
relationships.
Generally, the parametric approach involves developing a database of historical information that can be 
used as inputs to the model. For example, if the decision were made to invest in a shipping port in Gaza, the 
costs of such a port could be estimated by taking information from other port construction projects and 
developing a model including key variables that affected cost. In this case, cost may be affected by the desired 
size and capacity of the port and the depth of the relevant body of water. Information from the construction 
of other port projects, the specific details of the site, and the requirements could be used to estimate a likely 
cost. 
Another example of the use of parametric estimating is the development of the cost of educating a 
student for one year. Large school systems often have these costs available in their budget systems. Thus, to 
estimate the cost of a school system, the number of students per year would be the independent variable and 
the dependent variable would be the total cost of educating the group per year. The parametric approach 
avoids the detail required for a bottom-up estimate but in this case requires gathering data from other school 
systems on costs per pupil per year and adjusting them for the Palestine case (for example, changing the average 
teacher's salary).
An approach related to the parametric method is to estimate by analogy. With this approach, an analyst 
selects a similar or related situation and makes adjustments for differences. Analogy works well when there are 
reasonable comparisons, or for derivative or evolutionary improvements. Its main advantage over the bottom-
up approach is that only the changes or differences must be separately estimated; thus saving time and cost.
However, analysts must have a good starting baseline of similar projects to use this method. For 
example, they may have a lot of information about the costs of an internal security system in Iraq. Although 
there are many key differences between Iraq and a likely Palestinian state, the baseline information from the 
Iraqi case can be adjusted for these differences to derive an estimate using reasoning by analogy. Similarly, 
knowing the differences between the existing Palestinian security capabilities and the desired ones may allow 
for the development of an evolutionary cost assessment.
From this discussion, it may seem that the bottom-up approach would provide the greatest fidelity. 
Indeed, if all the required data could be perfectly captured, that would be the case. However, given the many 
unknown factors, the difficulty of collecting accurate data, and the difficulties involved in predicting future 
needs, the bottom-up approach may not necessarily yield a better estimate than the other two methodologies. 
In addition, omitting requirements is often the largest risk in using this approach. Because of its costs and 
extensive data, using the bottom-up approach to estimate the costs of a new Palestinian state would require 
resources far beyond the scope of this study.
Parametric estimating is commonly used in developing cost estimates for new weapons systems where 
cost estimating relationships between such inputs as weight and material and such outcomes as cost have been 
developed over a number of years with many data points. The building of a Palestinian state can be compared 
to situations such as those in Kosovo, Bosnia, and Iraq. However, the number of variables that affect cost is 
large enough that any relationships developed using this relatively limited number of cases would be of 
questionable validity.
For the most part, the authors in this volume use the analogy approach, with cost estimates that either 
assess the cost of evolutionary or derivative changes from the current situation, or they use case studies of 
situations that are comparable along one or more dimensions. The analogy approach is used in the "Internal 
Security" and "Health" chapters. Some of these chapters also list the detailed cost elements that would need to 
be collected in a bottom-up approach. These elements provide insight into the complex nature of the state-
building task. The "Education" chapter provides some bottom-up information. The "Water" chapter uses a 
previously developed parametric model that the authors have modified based on the scenarios they develop. 
The "Economics" chapter uses a simple growth model to estimate Palestinian economic growth under 
different assumptions about economic integration with Israel and territorial contiguity. Two of the chapters 
("Governance" and "Demography") do not involve cost estimates, although some of the institutional structures 
called for in the "Governance" chapter, such as certain issues relating to the justice system, are estimated in the 
"Internal Security" chapter.

Library of Congress Subject Headings for this publication:

Arab-Israeli conflict -- 1993- -- Peace.
Palestine -- Politics and government.
Legitimacy of governments.
Education -- Palestine.
Health care reform.