International donors are cautiously optimistic on eve of Palestinian aid meeting

With Palestinian President Mahmoud Abbas seeking a large increase in aid for his would-be country, the international community gathers at a donors' conference here Monday to grapple with how to turn the billions of dollars the Palestinians receive into a tool for peace.

The answer is simple, the Palestinians and many donors agree, although achieving it will be anything but: Either the economic assistance is accompanied by political progress toward a Palestinian state and an easing of restrictions on Palestinian life, or the money the world gives will serve only as humanitarian aid with little long-term impact.

The Paris gathering – which Mr. Abbas hopes will result in nearly $6 billion in aid over the next three years – is a logical follow-up to the Anapolis Middle East peace conference that relaunched Israeli-Palestinian negotiations last month. If the economic and political tracks move forward together, experts say, prospects for an elusive peace accord brighten.

"The worst thing that could happen in Paris is an effort that essentially subsidizes the status quo," says Scott Lasensky, an expert at the US Institute for Peace in Washington. "There is a sense of optimism about a new start, but the challenge will be to break the mold of the last seven years and turn the aid that has become a short-term humanitarian lifeline back into the building blocks of Palestinian institutions."

The history of Arab-Israeli peace efforts offers hope that the challenge can be met, he adds. "If you look at the larger picture of the last 30-35 years, aid has been a fairly dynamic tool in Arab-Israeli diplomacy," he says. "It's given the parties a stake in building and maintaining peaceful relationships."

Examples include the Israel-Egypt peace accords, and Israeli-Jordanian peace.

But that constructive element of international assistance has been lost over the past seven years in the Palestinian territories, experts say, as violence replaced negotiations and living conditions in an occupied land hardened. The dismantling and collapse of Palestinian institutions such as schools, public services, and courts means that more money went to simply keeping people alive – and without viable institutions, more of that aid was lost down what experts refer to as the "rat hole of corruption."

International aid actually increased in 2006 in the wake of the Hamas electoral victory and the divide that followed between Fatah forces in the West Bank and Hamas in Gaza. In fact, aid to the Palestinians has doubled since 2000 – though little if any of that money went toward building much-needed civic infrastructure.

Outside experts are adamant that this scenario of "throwing good money after bad" won't change without political progress. In its latest report on the Palestinian territories, the World Bank concludes that international assistance can not have "sustainable effects" without a change in the day-to-day situation.

Former British prime minister Tony Blair, the international community's envoy for Palestinian development and co-chair of the Paris gathering, says the Annapolis and Paris conferences "must translate into progress on the ground." That means essentially two things: the Palestinians must return to building the institutions and law enforcement that will give Israel a sense of security, and the Israelis must ease restrictions on movement that have hamstrung the economy.

On the eve of the conference, Abbas's prime minister, Salam Fayyad, unveiled a three-year plan that requests $5.6 billion in aid to reform and rebuild institutions and security forces. Catching the eye of some experts is the fact that Mr. Fayyad does not lay all blame for collapse on the Israelis, but acknowledges Palestinian shortcomings – and has laid out a plan to address them.

"Having Fayyad at the steering wheel is giving the international community a new confidence," says David Makovsky, director of the Israeli-Palestinian peace project at the Washington Institute for Near East Policy. "He has a track record, and people know it's no longer the Yasser Arafat era, when they used to pay people out of paper bags."

Fayyad, a respected University of Texas-trainedeconomist and former International Monetary Fund representative, has pressed in the past for reforms. But analysts now see a post-Annapolis environment for advancing both political and economic measures. Another advantage is the focus Mr. Blair brings as representative of the Quartet seeking Middle East peace: the US, the European Union, Russia, and the UN.

"The hope is that between Fayyad and Blair, you have people who will zero in on the requirements for economic development," Mr. Makovsky says, "and not merely on managing handouts."

A key question is how much new aid comes from Arab countries, particularly the oil-rich Gulf states. Despite expressions of support – and assertions that Israel's occupation is a top destabilizing factor in the region – Arab countries have often given little to Palestinians, analysts note.

But post-Annapolis, and with oil flirting with $100 a barrel, speculation is bubbling in Paris that large aid commitments will be announced. If Arab countries do open the coffers, it will be a sign that perceptions in the region of the relaunched peace process have changed, some experts say. "If we see the Saudis putting their money where their mouth is, that will be the best indication of a change in how this process is being perceived and how seriously it's taken," says Michael Hudson, of Georgetown University. "Until now, there's been considerable skepticism, including when it comes to Abbas's ability to really deliver.... If they put up more money, it could suggest a shift to cautious optimism."