By 2003, three years of continuous economic decline and widespread devastation had transformed the occupied Palestinian territory into a “war-torn economy”.

The economic legacies of war identified in comparative research on conflict economies are relevant in recognizing the true nature of the Palestinian economic predicament: structural deterioration and sustained negative growth; declining export capacity and emergence of an unsustainable trade gap; fiscal pressures as expenditures outpace revenues and the budget deficit widens; a shift towards non-traded activities and de-formalization of the economy; and deterioration of real incomes, per capita consumption and savings, greater external dependence and extended poverty.

The income losses and sharp deterioration of physical and human capital between 2000 and 2003 and the performance of all sectors of the economy are consistent with this war-torn economy typology to an extent that renders such recognition essential to elaboration of policies and strategies for recovery and development.

The State of Palestine as envisioned in United Nations Security Council resolution 1397 (2002) should seek to benefit from all relevant development experiences and “international best practices” in the post-conflict phase. Economic development and trade policy must be grounded in a clear understanding of the implications of performing as a small, landlocked and war-torn economy, albeit one with a set of ambitious national objectives to achieve within the next few years. While still needed, relief assistance should no longer be addressed in isolation from development assistance.

In this respect, the role of the Palestinian enterprise sector decimated by war and uncertainty acquires special significance. Enhancing its contribution to developmental relief should also be placed within the context of a cohesive development strategy, which takes into account the structural changes that have occurred in the economy. UNCTAD’s technical cooperation activities for the Palestinian people continue to deliver concrete assistance to enable them to better address such challenges.

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