Abir Dandis, the mother of the two girls who were murdered in the Negev town of Al-Fura’a last week, couldn't find a police officer to listen to her warnings, neither in Arad nor in Ma’ale Adumim. Both police stations operate in areas where Israel wants to gather the Bedouin into permanent communities, against their will, in order to clear more land for Jewish communities. The dismissive treatment Dandis received shows how the Bedouin are considered simply to be lawbreakers by their very nature. But as a resident of the West Bank asking for help for her daughters, whose father was Israeli, Dandis faced the legal-bureaucratic maze created by the Oslo Accords.

The Palestinian police is not allowed to arrest Israeli civilians. It must hand suspects over to the Israel Police. The Palestinian police complain that in cases of Israelis suspected of committing crimes against Palestinian residents, the Israel Police tend not to investigate or prosecute them.

In addition, the town of Al-Azaria, where Dandis lives, is in Area B, under Palestinian civilian authority and Israeli security authority. According to the testimony of Palestinian residents, neither the IDF nor the Israel Police has any interest in internal Palestinian crime even though they have both the authority and the obligation to act in Area B.

The Palestinian police are limited in what it can do in Area B. Bringing in reinforcements or carrying weapons in emergency situations requires coordination with, and obtaining permission from, the IDF. If Dandis fears that the man who murdered her daughters is going to attack her as well, she has plenty of reason to fear that she will not receive appropriate, immediate police protection from either the Israelis or the Palestinians.

Dandis told Jack Khoury of Haaretz that the Ma’ale Adumim police referred her to the Palestinian Civil Affairs Coordination and Liaison Committee. Theoretically, this committee (which is subordinate to the Civil Affairs Ministry) is the logical place to go for such matters. Its parallel agency in Israel is the Civilian Liaison Committee (which is part of the Coordination and Liaison Administration - a part of the Civil Administration under the Coordinator of Government Activities in the Territories).

In their meetings, they are supposed to discuss matters such as settlers’ complaints about the high volume of the loudspeakers at mosques or Palestinians’ complaints about attacks by settlers. But the Palestinians see the Liaison Committee as a place to submit requests for permission to travel to Israel, and get the impression that its clerks do not have much power when faced with their Israeli counterparts. In any case, the coordination process is cumbersome and long.

The Palestinian police has a family welfare unit, and activists in Palestinian women’s organizations say that in recent years, its performance has improved. But, as stated, it has no authority over Israeli civilians and residents. Several non-governmental women’s groups also operate in the West Bank and in East Jerusalem, and women in similar situations approach them for help. The manager of one such organization told Haaretz that Dandis also fell victim to this confusing duplication of procedures and laws. Had Dandis approached her, she said, she would have referred her to Adalah, the Legal Center for Arab Minority Rights in Israel, which has expertise in navigating Israel’s laws and authorities.

John Kerry revealed his long-awaited plan for peace in the Middle East on Sunday, hinging on a $4bn (£2.6bn) investment in the Palestinian private sector.

The US secretary of state, speaking at the World Economic Forum on the Jordanian shores of the Dead Sea, told an audience including Israeli president Shimon Peres and Palestinian leader Mahmoud Abbas that an independent Palestinian economy is essential to achieving a sustainable peace.

Speaking under the conference banner "Breaking the Impasse", Kerry announced a plan that he promised would be "bigger, bolder and more ambitious" than anything since the Oslo accords, more than 20 years ago.

Tony Blair is to lead a group of private sector leaders in devising a plan to release the Palestinian economy from its dependence on international donors. The initial findings of Blair's taskforce, Kerry boasted, were "stunning", predicting a 50% increase in Palestinian GDP over three years, a cut of two-thirds in unemployment rates and almost double the Palestinian median wage. Currently, 40% of the Palestinian economy is supplied by donor aid.

Kerry assured Abbas that the economic plan was not a substitute for a political solution, which remains the US's "top priority".

Peres, who had taken the stage just minutes before, also issued a personal plea to his Palestinian counterpart to return to the negotiations.

"Let me say to my dear friend President Abbas," Peres said, "Should we really dance around the table? Lets sit together. You'll be surprised how much can be achieved in open, direct and organised meetings."

Thick locks hug the front gates of shuttered shops, now covered in graffiti and dust from lack of use. Only a handful of customers pass along the dimly lit road, sometimes stopping to check the ripeness of fruits and vegetables, or ordering meat in near-empty butcher shops.

“All the shops are closed. I’m the only one open. This used to be the best place,” said 64-year-old Mustafa Sunocret, selling vegetables out of a small storefront in the marketplace near his family’s home in the Muslim quarter of Jerusalem’s Old City.

Amidst the brightly coloured scarves, clothes and carpets, ceramic pottery and religious souvenirs filling the shops of Jerusalem’s historic Old City, Palestinian merchants are struggling to keep their businesses alive.

Faced with worsening health problems, Sunocret told IPS that he cannot work outside of the Old City, even as the cost of maintaining his shop, with high electricity, water and municipal tax bills to pay, weighs on him.

“I only have this shop,” he said. “There is no other work. I’m tired.”

Abed Ajloni, the owner of an antiques shop in the Old City, owes the Jerusalem municipality 250,000 Israeli shekels (68,300 U.S. dollars) in taxes. He told IPS that almost every day, the city’s tax collectors come into the Old City, accompanied by Israeli police and soldiers, to pressure people there to pay.

“It feels like they’re coming again to occupy the city, with the soldiers and police,” Ajloni, who has owned the same shop for 35 years, told IPS. “But where can I go? What can I do? All my life I was in this place.”

He added, “Does Jerusalem belong to us, or to someone else? Who’s responsible for Jerusalem? Who?”

Illegal annexation

Israel occupied East Jerusalem, including the Old City, in 1967. In July 1980, it passed a law stating that “Jerusalem, complete and united, is the capital of Israel”. But Israel’s annexation of East Jerusalem and subsequent application of Israeli laws over the entire city remain unrecognised by the international community.

Under international law, East Jerusalem is considered occupied territory – along with the West Bank, Gaza Strip and Syrian Golan Heights – and Palestinian residents of the city are protected under the Fourth Geneva Convention.

Jerusalem has historically been the economic, political and cultural centre of life for the entire Palestinian population. But after decades languishing under destructive Israeli policies meant to isolate the city from the rest of the Occupied Territories and a lack of municipal services and investment, East Jerusalem has slipped into a state of poverty and neglect.

“After some 45 years of occupation, Arab Jerusalemites suffer from political and cultural schizophrenia, simultaneously connected with and isolated from their two hinterlands: Ramallah and the West Bank to their east, West Jerusalem and Israel to the west,” the International Crisis Group recently wrote.

Israeli restrictions on planning and building, home demolitions, lack of investment in education and jobs, construction of an eight-foot-high separation barrier between and around Palestinian neighbourhoods and the creation of a permit system to enter Jerusalem have all contributed to the city’s isolation.

Formal Palestinian political groups have also been banned from the city, and between 2001-2009, Israel closed an estimated 26 organisations, including the former Palestinian Liberation Organisation headquarters in Jerusalem, the Orient House and the Jerusalem Chamber of Commerce.

Extreme poverty

Israel’s policies have also led to higher prices for basic goods and services and forced many Palestinian business owners to close shop and move to Ramallah or other Palestinian neighbourhoods on the other side of the wall. Many Palestinian Jerusalemites also prefer to do their shopping in the West Bank, or in West Jerusalem, where prices are lower.

While Palestinians constitute 39 percent of the city’s population today, almost 80 percent of East Jerusalem residents, including 85 percent of children, live below the poverty line.

“How could you develop [an] economy if you don’t control your resources? How could you develop [an] economy if you don’t have any control of your borders?” said Zakaria Odeh, director of the Civic Coalition for Palestinian Rights in Jerusalem, of “this kind of fragmentation, checkpoints, closure”.

“Without freedom of movement of goods and human beings, how could you develop an economy?” he asked.

“You can’t talk about independent economy in Jerusalem or the West Bank or in all of Palestine without a political solution. We don’t have a Palestinian economy; we have economic activities. That’s all we have,” Odeh told IPS.

Israel’s separation barrier alone, according to a new report by the United Nations Conference on Trade and Development (UNCTD), has caused a direct loss of over one billion dollars to Palestinians in Jerusalem, and continues to incur 200 million dollars per year in lost opportunities.

Israel’s severing and control over the Jerusalem-Jericho road – the historical trade route that connected Jerusalem to the rest of the West Bank and Middle East – has also contributed to the city’s economic downturn.

Separation of Jerusalem from West Bank

Before the First Intifada (Arabic for “uprising”) began in the late 1980s, East Jerusalem contributed approximately 14 to 15 percent of the gross domestic product (GDP) in the Occupied Palestinian territories (OPT). By 2000, that number had dropped to less than eight percent; in 2010, the East Jerusalem economy, compared to the rest of the OPT, was estimated at only seven percent.

“Economic separation resulted in the contraction in the relative size of the East Jerusalem economy, its detachment from the remaining OPT and the gradual redirection of East Jerusalem employment towards the Israeli labour market,” the U.N. report found.

Decades ago, Israel adopted a policy to maintain a so-called “demographic balance” in Jerusalem and attempt to limit Palestinian residents of the city to 26.5 percent or less of the total population.

To maintain this composition, Israel built numerous Jewish-Israeli settlements inside and in a ring around Jerusalem and changed the municipal boundaries to encompass Jewish neighbourhoods while excluding Palestinian ones.

It is now estimated that 90,000 Palestinians holding Jerusalem residency rights live on the other side of the separation barrier and must cross through Israeli checkpoints in order to reach Jerusalem for school, medical treatment, work, and other services.

“Israel is using all kinds of tools to push the Palestinians to leave; sometimes they are visible, and sometimes invisible tools,” explained Ziad al-Hammouri, director of the Jerusalem Centre for Social and Economic Rights (JCSER).

Al-Hammouri told IPS that at least 25 percent of the 1,000 Palestinian shops in the Old City were closed in recent years as a result of high municipal taxes and a lack of customers. “Taxation is an invisible tool…as dangerous as revoking ID cards and demolishing houses,” he said. “Israel will use this as pressure and as a tool in the future to confiscate these shops and properties.”

Reporting from Ramallah, West Bank — As Palestinian Authority President Mahmoud Abbas prepares to embark down a well-trod path of peace talks — a road he's spent a career helping to pave — the pragmatic leader is risking his political future in what some predict could be his last trip to the negotiating table.

It's little wonder Abbas has responded with ambivalence to the U.S.-sponsored direct talks, set to begin Thursday in Washington.

After months of hesitation, Abbas agreed to participate only after heavy American pressure and despite deep pessimism among his own people and supporters. Less than 25% of Palestinians believe the talks will yield results, a recent poll found.

With Palestinian frustration high after a string of failed negotiations over the last decade, Abbas' political future may hang in the balance, dependent on whether he can deliver Palestinian statehood and vindicate his dogged pursuit of peace talks, rather than violent resistance, as the only viable path.

"He's really putting himself out on a limb," said former Abbas advisor and Palestinian analyst Diana Buttu. "His decision to enter talks is incredibly unpopular with Palestinians. Unless he can somehow pull a rabbit out of his hat, his credibility will be lost. The stakes for him are very high."

Leaders in the rival Hamas movement, which controls the Gaza Strip, have branded Abbas a sellout and called for his resignation after five years in office. Even some of Abbas' supporters in the more moderate Fatah party are questioning his decision to soften his demand for Israel to halt housing construction in the occupied West Bank as a precondition to joining the talks.

"This decision to go to talks is very risky for him because it exhausts all the capital he has," said Khalil Shikaki, a Palestinian pollster and analyst. "He is much weaker today than he was a week ago. He has to deliver something concrete."

Shikaki said support among Palestinians for peace talks is falling, while support for a return to violence is growing. He said another round of failed talks could mark a turning point. "We are seeing the end of diplomacy and [Abbas is] the embodiment of diplomacy."

Inside Fatah, an emerging faction of leaders could become emboldened if talks collapse, Shikaki and others said. "They're just waiting for him to fail," Shikaki said. "Over time, the perception will grow that [Abbas] is hurting Fatah and they needed to distance him."

Abbas and his supporters concede that chances for success are slim, but they predict that Israel, not Abbas, will shoulder the blame if talks fail.

A key test will come as soon as Sept. 26, when Israel's 10-month moratorium on most new housing construction in the West Bank ends. If Israel does not extend the freeze, Palestinians will pressure Abbas to quit the talks. U.S. officials are working toward a compromise.

Abbas has defended his decision to return to the negotiating table.

"If there's a 1% chance to achieve peace, we will go for it out of conviction, because we want to achieve peace with our neighbors," he told reporters at his presidential compound here Friday.

Supporters warned against underestimating the 75-year-old Palestinian leader. Despite his repeated threats in recent years to resign, Abbas is a political survivor who has resisted efforts inside Fatah to identify and groom his successor.

As a result, he is seen as the only credible Palestinian leader, particularly by the West, where he enjoys strong support from the U.S. and others.

According to polls, Abbas has strengthened his base over the last year in a theoretical match-up against Hamas leader Ismail Haniyeh. A June survey taken in both Palestinian territories gives Abbas 54% to Haniyeh's 39%, according to the Palestinian Center for Policy and Survey Research. At the same time, Abbas' popularity lags that of Marwan Barghouti, a leader of past Palestinian uprisings who is serving a life sentence in an Israeli prison.

Palestinian Authority spokesman Ghassan Khatib downplayed speculation that the negotiations' failure would strike a blow to Abbas. "Negotiations are not the only thing in Palestinian strategy," he said.

But independent commentator and newspaper columnist Hani Masri, who is close to Fatah and Abbas, called the upcoming talks "political suicide" and said Abbas had failed to develop alternative strategies. "Abu Mazen always says that the alternative to negotiations and to the failure of negotiations is more negotiations," he said, using Abbas' nickname.

Other Palestinian leaders are known for advocating different approaches. Palestinian Authority Prime Minister Salam Fayyad has suggested building strong government and security institutions, and unilaterally declaring statehood in 2011 in the hopes that world powers will recognize the new entity. Others have pursued civil disobedience and challenging Israel's occupation in international courts.

In Gaza, Hamas and other militant Palestinian factions continue to keep the use of violence as an option.

Independent Palestinian legislator Mustafa Barghouti said Abbas was putting too much faith in President Obama's ability to secure a deal within a year.

"There's an overreliance on external support," said Barghouti, a distant cousin of Marwan Barghouti. "As the leader of Palestinians, Abbas should be listening to the people."

But should Abbas reach a deal, Barghouti acknowledged, the Palestinian president's legacy will be secure. Referring to the 12th century Muslim hero, Barghouti said, "If he gets us a state, he will be Saladin."

The rockets may not strike as often these days, but residents of this working-class town say they can't shake the anxiety that comes with living in Israel's most frequently bombed city.

Pedestrians strolling downtown keep an eye out for the nearest concrete-reinforced bus-stop shelter in case public loudspeakers crackle with a 15-second warning to dive for cover. Many motorists forgo seat belts so they can ditch vehicles quickly.

A playground is equipped with 5-foot-wide concrete pipes that are brightly painted to look like giant caterpillars but double as children's bomb shelters.

"There is really no sense of security here at all," said Merilin Timsit, a 29-year-old mother of two.

Last month, the Israeli government said it was on the cusp of a technological breakthrough that would put such fears and precautions in the past. A new anti-rocket defense system, called Iron Dome, was presented as a high-tech umbrella that would allow Israelis to go about their lives while short-range rockets fired from Palestinian territories or Arab neighbors were blasted out of the sky.

But despite promising results in a much-touted test in January, Iron Dome so far has heightened as many tensions as it was supposed to relieve. Critics say the technology is not fast enough to work in cities such as Sderot, which is only a mile from militant strongholds in the Gaza Strip.

Some officials, including Israeli Prime Minister Benjamin Netanyahu, question the steep cost: as much as $1 billion for development and nationwide deployment.

Others warn against seeking technological solutions for threats better handled diplomatically.

"It's no silver bullet," said Yiftah Shapir, head of the military balance project at Israel's Institute for National Security Studies. "In fact, it's not going to solve any of our problems."

Military officials this month began hinting that Iron Dome's initial deployment this summer would be smaller than expected and would focus on protecting military installations rather than Sderot, which many assumed would be the first town to benefit.

Sderot grocery store owner David Turjeman, 48, fumed at what many see as government backpedaling.

"If it's not deployed, I'm going to sell my business and leave Sderot," said the father of three, whose house was damaged in 2008 by one of the 6,000 rockets and mortar shells fired at Sderot over the last four years. "I'm not willing to go through that again. . . . I feel helpless."

Short-range rocket attacks have long been one of Israel's most-vexing military problems. The nation in the last decade has been targeted with more than 11,000 rockets and mortar shells by Hamas and other armed groups in Gaza. Israel's 22-day offensive against the coastal territory a year ago was largely an effort to halt the rocket barrage. The nation's northern towns have come under similar attack from Hezbollah fighters in Lebanon.

Many of these homemade projectiles land in open spaces without causing major damage. But about three dozen Israelis have been killed over the last decade in the south.

The rockets take a heavy toll on the public's psyche and can wreak economic havoc because of business closures and lost productivity, experts say.

Since the Gaza cease-fire, rocket attacks have declined sharply, but Israel's military continues to search for a defensive system to neutralize the threat. Israeli military contractor Rafael Advanced Defense Systems announced in January that its mobile rocket-interceptor system, developed with the military, was nearly ready to deploy.

The system uses radar to detect a rocket launch, quickly computes whether the projectile is headed toward people or buildings, and then dispatches an interceptor missile to destroy it. Rockets headed toward open spaces are allowed through. Similar technologies have been designed by the U.S. and others to knock out mid- and long-range projectiles, such as the Patriot surface-to-air missile system.

Some critics say such technology will not work against short-range rockets, which can strike in 15 seconds or less and at distances of less than two miles.

Based on the preliminary details released by Rafael, outside experts have concluded that Iron Dome requires at least 30 seconds to respond.

"A Kassam rocket can hit Sderot in about 14 seconds, so there's no way Iron Dome can defend it," said Reuven Pedatzur, a Tel Aviv University lecturer and defense analyst.

Pedatzur, a former air force fighter pilot, said defensive systems like Iron Dome aren't the right approach for dealing with short-range rockets.

"If you want a military solution, you should attack the area," he said. "Or you could reach a [political] agreement with the other side."

Pedatzur said reliance on Iron Dome could hinder peace talks if Israelis become overconfident.

"Everybody will say, 'Why do we need a [political] solution? We have the perfect defense.' "

The system is expensive. Each mobile battery costs about $25 million, according to Rafael. Interceptor missiles reportedly cost up to $50,000 apiece.

That compares with as little as $50 needed to construct each of the Kassam rockets favored by Palestinian militants, which are usually produced in low-tech factories using old pipes, fertilizer and scrap metal.

Netanyahu has praised Iron Dome as a technological "miracle," but he also referred to the system as "prohibitively expensive."

Yossi Drucker, project director at Rafael, said critics are wrong in their estimates about Iron Dome's response time, though he said such details are being kept secret for security reasons.

"Iron Dome can protect Sderot against all the threats it faces," he said.

Drucker added that Iron Dome's costs should be considered in relation to the economic effect of rocket barrages or the cost of another war. During Israel's 2006 war with Hezbollah, the estimated cost from rocket attacks on cities in the north -- both damage and lost productivity -- was nearly $1 billion, he said.

Defense Ministry spokesman Shlomo Dror said no final decisions had been made about where Iron Dome would be deployed, but he said the initial rollout would include two self-contained systems, each capable of covering about a 45-mile area. Previously, Rafael and military officials had spoken about deploying seven systems.

Dror emphasized that each system can be moved around the country in response to threats. Rafael and the military are also hoping to sell the technology to the United States and other countries to help defray costs.

Some observers see the development of Iron Dome as a political strategy rather than a military one, aimed at intimidating enemies and bolstering confidence among the Israeli public.

"It's no accident that there's been so much press attention to this on the home front," said security analyst Meir Elran, former deputy head of military intelligence for the Israel Defense Forces.

"It's part of a campaign by the government and Defense Ministry to show that they are active and responsive."

When Israeli Foreign Minister Avigdor Lieberman faced questions Monday from European diplomats over Israel's suspected role in the Dubai assassination of a Hamas militant, he responded with familiar indignation: Why is Israel always the first to be blamed, he asked.

Perhaps no other country's use of assassinations has been more scrutinized, condemned and celebrated than that of Israel. The policy is not likely to change, analysts and diplomats say, because such killings, from Israel's point of view, have proved effective in fighting a nonconventional enemy. And despite legal questions and international backlash, Israel has usually emerged unscathed.

Confronting a hostile region, Israel sees targeted killings as an essential tool in decapitating militant groups or putting them on the defensive, experts say.

"They seem to be extremely focused on this kind of tactic," said Aaron David Miller, former U.S. negotiator in the Middle East and now scholar at the Woodrow Wilson International Center for Scholars in Washington.

"This is the price of living in the neighborhood," he added. "It's a symptom of the ongoing confrontation and their perceptions about the long war. Both sides perceive that acting, even with the negative consequences to image and public diplomacy, is still effective and it's going to continue."

Israel is certainly not the only nation to engage in targeted killings. Despite presidential orders to restrict political assassinations, the U.S. has killed terrorism suspects in Yemen, Pakistan and Somalia, usually with airstrikes. European spy agencies have also been accused of assassinations.

In 2001, the Popular Front for the Liberation of Palestine killed Israel's tourism minister at a Jerusalem hotel. Two months earlier, Israel had assassinated the group's leader.

Israel has been relatively open and public in defending its use of targeted killings. In 2006, the Israeli Supreme Court ruled the practice justified in some instances under international law. In addition, countless books and movies have mythologized the Israeli spy agency Mossad's knack for revenge.

But when such activities occur on foreign soil, and evidence emerges implicating Israeli agents, the nation has found itself under fire.

After the exposure of a 1997 attempt to poison Hamas leader Khaled Meshaal in Jordan, Israel was not only pressured by the Jordanian king to deliver an antidote, it also agreed to release another imprisoned Hamas leader as part of the apology.

But Israel had the last word, one might say. The released man, Sheik Ahmed Yassin, was assassinated in an Israeli airstrike seven years later.

In the Dubai killing, Israel has refused to confirm or deny its role, though Dubai authorities say they've collected evidence implicating the Mossad.

Israel resorts to assassination, analysts say, because its superiority in military might only goes so far in defeating underground cells of militants.

Such limits were apparent in the perceived failure of the 2006 war with Lebanon and the mixed results of the Israeli military's offensive in the Gaza Strip a year ago.

"Targeted killings is a tool that is sometimes necessary," said Yoram Schweitzer, senior fellow at Israel's Institute for National Security Studies. "It's a very delicate instrument, but as long as it is not used that often, it works."

He said the Mossad's reported 1978 assassination of Palestinian militant Wadie Haddad, who was said to have been poisoned by a box of tainted chocolates, led to the collapse of Haddad's terrorist cell.

Critics, however, question the legality of Israel's use of targeted killings and say the violence only leads to retaliation.

Though international attention usually focuses on attacks taking place on foreign soil, Israel's military has killed several hundred suspected militants in Gaza since 2000, according to the Jerusalem-basedhuman rights group B'Tselem. The group says the killings are at best a moral and legal gray area and at worst extrajudicial executions.

"The biggest problem is it's completely nontransparent," said B'Tselem Executive Director Jessica Montell. "They are killing people and saying [the person] was a senior operative. But we don't know, because nobody has access to that information."

Israeli commentator Guy Bechor says the hoopla over Israel's role in the Dubai assassination has actually helped Israel by striking fear in enemies about a "crazy" aggressive nation that should not be messed with.

Senior Hamas figure Mahmoud Mabhouh was killed in his Dubai hotel room in January by assassins whose pre- slaying moves were captured on a security video. Eleven people using fake European passports allegedly entered Dubai to carry out the killing of Mabhouh, who has been accused of smuggling arms from Iran and of involvement in the capture and killing of two Israeli soldiers in the 1980s.

Many here expect that despite the diplomatic protests from Britain, Ireland, France and Germany, whose passports were forged for use by the assailants, international outrage will fade -- though the mesmerizing security camera video of the operation lives on.

"After 9/11, people understand that democracy sometimes has to be not as clean as we would like it to be," said former Mossad agent Gad Shimron.

Behind the scenes, Israel's intelligence agency works closely with Western nations against joint threats, Shimron said. So though foreign governments might lodge public complaints, he said, "when the door closes, they'll wink."

Is the West Bank ready for Wall Street?

That's a question soon to be answered with the launch of the first-of-its-kind Palestinian private equity fund, which managers hope will raise $50 million to invest in businesses in the Palestinian territories.

The Palestine Liberation Organization's finances have at times drawn criticism. Late PLO Chairman Yasser Arafat was accused of controlling a $1-billion investment portfolio that, Western intelligence agencies said, was funded in part through money laundering, arms dealing and diversion of international aid.

International pressure led to the 2003 launch of the Palestine Investment Fund, which took over the PLO's old portfolio -- now worth about $800 million -- and invests the money in projects to assist Palestinians, such as housing and infrastructure construction. The PIF operates with its own board but reports to Palestinian Authority President Mahmoud Abbas.

The new private equity fund, the PIF's latest project, will try to raise cash from international investors and use the money to help small and medium-sized businesses. Such enterprises employ about 85% of Palestinians and contribute to more than half the gross domestic product in the West Bank and Gaza Strip, but they often lack access to banks and capital markets.

Mohammad Mustafa, chairman of the PIF and a former World Bank official, spoke recently to The Times.

Investing in the West Bank sounds risky. In the 1990s, after the Oslo peace agreements, there was an economic boom. But after the violence resumed in 2000, many of the new hotels, casinos and exporters shut down. What happens if there's another intifada?

One of the major lessons we've learned is that there are sectors and projects that are less sensitive to such changes.

This fund is focusing on smaller companies that have shown resilience over the last years. They are driven and led by people who have lived there for many years, not by those who are coming from the outside. They are primarily local investors who are producing things needed for the Palestinian economy. Some of it might be for export, but not necessarily.

Allegations of corruption have dogged the Palestinian Authority for years and helped lead to the creation of the Palestine Investment Fund. How can investors be assured that their money will be safe?

We have a very competent management team, an independent board, a general [oversight] assembly of 30 individuals. We have Pricewaterhouse as internal auditor and Ernst & Young as external auditor. In the last few years we have worked with several international investors and institutions.

Who do you expect to invest in the private equity fund?

Investors will have different motivations. Some in the Palestinian diaspora have been looking for an opportunity to invest in Palestine, [and] this presents them with the right vehicle.

There are also regional investors who might be interested in socially responsible investing. There has been interest from local investors, local banks, companies that typically invest with Abraaj [Capital, the fund's manager], which works a lot in the region.

How will the new fund invest -- what sort of companies will you look for and how will you recoup the investment?

This is equity participation for small to medium enterprises, ranging from a half-million dollars to $7.5 million. . . . The private equity fund intends to own a minority stake in a new or existing company, add value or help turn [it] around.

We'll look at several sectors where Palestine has a competitive advantage, such as the ICT [information and communications technology] sector and other knowledge-based enterprises, high-value-added agriculture, financial services, education and tourism.

Typically we estimate it will take about four years. Then we'll sell the stake back to the existing owners, or to other investors, or take the company to the stock market.

Small businesses have a high failure rate. What's been your experience with these types of businesses in the loan-guarantee program you offer? Are defaults high?

I'm happy to say that after 18 months, the program has extended 200 loans for a total of $50 million. It's created 3,000 jobs. And zero defaults. It's unbelievable.

Given the Hamas takeover of the Gaza Strip and border restrictions imposed by Israel and Egypt, will you invest there?

We are looking at the option, but things are complicated given the siege. It's very risky right now. So it's included in the program, but we are not active there right now.

What role will Israel play in the success of the fund?

Companies need markets. Israel could be one of those markets. But even if it isn't, companies need to reach other markets, and would have to go through Israel, which controls the airport and borders with Jordan. So we hope that they realize the importance of the success of these programs and ensure that nothing adversely affects them.