Aid can't save Palestinian economy in Israeli grip

By Alistair Lyon, Special Correspondent - Analysis

BEIRUT (Reuters) - The world has promised to inject $7.4 billion (3.7 billion pounds) into the decaying Palestinian economy, but money cannot stop the rot unless Israel lifts its chokehold on trade and travel in the West Bank and Gaza Strip, relief groups say.

The idea is to show Palestinians that a new peace effort brokered by Washington can improve their lives and reinforce a U.S. policy of strengthening "moderates" against "extremists".

In practice, that means helping Palestinian President Mahmoud Abbas, who has ruled only the West Bank since Hamas Islamists seized Gaza in battles with his Fatah faction in June.

The West, which had halted most aid to the Palestinians after Hamas won a parliamentary election in January 2006, responded to the Gaza takeover by renewing assistance to Abbas.

The British-based aid agency Oxfam International has said the donors who met in Paris on Monday effectively agreed to pour money faster into a leaking bucket, instead of fixing it.

"You can't solve it without money, but money alone doesn't do the trick," said Michael Bailey, an Oxfam spokesman.

"Without political will to apply pressure to resolve issues of access and movement, it seems dangerous to commit lots of money to growing an economy when the constraints aren't about the ability of the Palestinians to be productive, but about their ability to turn their productivity into economic growth."

Citing security concerns, Israel has refused to remove the more than 600 checkpoints and barriers that paralyse Palestinian movement in the West Bank. It has tightened a military and economic cordon around Gaza since the Hamas takeover there.