REACHING A PEACE agreement was an enormous accomplishment for Israel and the PLO. Establishing an economically stable and prosperous society and a democratic Palestinian state presented greater challenges for the PLO. The most immediate problem the new Palestinian Authority faced was building the economic base of the West Bank and Gaza.

The state of the economy

At the time the peace accord was signed, both Gaza and the West Bank had long suffered from a decayed infrastructure and a poor economy. The PLO had helped maintain much of the social infrastructure in the occupied territories. It funded many necessary social services, helped establish schools, offered scholarships to Palestinian students enrolled at universities elsewhere in the world, and in general helped keep the social infrastructure of the territories functioning. However, the physical infrastructure—roads, power and water lines, school buildings...