PALESTINE - Still Room For Hope.

There is room for hope, observers say. A window of opportunity has been provided by the suspension of suicide attacks by the Islamist groups, removing any obvious reason for Sharon to continue with the blockades and the air strikes against Palestinian targets. If the PA is able to maximise its gains from Zinni's visit to the region, it is feasible that the Mitchell Plan - which both sides supported, at least nominally - would come back on track. This could once again lead the way to a negotiated settlement, provided that there are no further major incidents of violence.

The observers have pointed out that the PA, despite the problems, has kept one eye on trying to attract investors into the Palestinian controlled area - a nearly impossible task given the current environment. They note that the authorities have established an investment bureau. There is some optimism that, once everything has settled down and the violence recedes, stocks would start to inch back up on the PSE and that the economy might be able to get back to where it was before the Al Aqsa intifada began within a year or two.

A further cause for optimism is that the PA is in line, at least in principle, with free market ideals and a liberalised economic regime. In any case, whatever may be the inclination of the PA, it is clear that the Palestinian society - both in diaspora and in the areas under PA control - will have a significant influence on future economic policies - given that Palestinians are perhaps the best educated and most politically aware community in the Middle East.

The worldwide Palestinian diaspora plays an important role in terms of influencing the course of decisions made by the leadership in the autonomous territories on both economic and political matters. In addition, having lived for a long time under Israel's thumb, the local Palestinians are less prepared to tolerate autocrats.

Arafat and other figures in the Palestinian leadership have been well aware of these dynamics for some years. As such, few senior Palestinian leaders would argue against democracy or market economics. But they would argue about the immediate applicability of a Western-style democracy in the territories under their control, as well as about the risks of embarking on a "free for all" economy when the vast majority of the population are living on meagre resources. The ground reality, therefore, would be a mixture of political freedom where criticism and dissent is tolerated but violations of basic human rights continue to occur.

On the economic front, the Palestinian leadership will be more oriented towards liberalisation than in the political sphere - as in much of the rest of the Arab World. To a large extent, that is because the economy is sustained by outside assistance through grants and aid - especially from the US, EU and multilateral lending agencies. All of these funds are provided conditional on good governance, which includes adopting the economic policies advocated by the lenders.

For example, at the January 1996 Paris conference on assistance to the Palestinians, the PA presented a development strategy based on the principles of the free market, the encouragement of Arab and foreign investment, and the enhancement of exports. The approach was based on the understanding that (a) the private sector would provide the engine for economic growth, and (b) the role of government should be limited to creating the appropriate investment climate by providing a positive and predictable legal, institutional, and political framework.

The impact of lender conditionalities was also visible in the Palestinian Development Plan (PDP) 1998-2000, which sets out objectives and priorities for development. Rather than emphasising what sort of economic outlook, i.e. centralised or decentralised, the government would have, the PDP laid emphasis on efficiency and accountability through monitoring, auditing and careful job description in the civil service.

The PDP said, for instance, that "building strong institutions, and administrative and financial systems is considered the foundation for enabling private sector led development". It added "Palestinian economic growth and improvement requires a greater degree of economic legality, i.e. the existence of clear laws and regulations, well disseminated, and the transparent administration and enforcement of these laws by credible institutions". It also said the PA would "continue to advocate the fundamentals of good governance which are based on democratic values, diversity, respecting human rights, transparency, and auditing".

Apart from external pressures, there is another reason why economic and even political liberalisation is likely to be carried forward. There is no designated successor for Arafat. Most observers feel that, health permitting, he would try to introduce a democratic system after the final status negotiations are complete. If the final status negotiations lead to the creation of a state of Palestine, they say, then it is highly likely that a future constitution would be formulated on the principles of basic human rights, both political and economic. To a large extent these principles are already integrated into the existing institutions such as the PA and the Palestinian Legislative Council (PLC), the forerunner of a future Palestinian parliament - although they are not practised.

In the post-Arafat era, however, pressures to put these principles into practice will come from both external and internal sources. Highly sensitised politically, the Palestinians have among their leaders and intellectuals figures like Hanan Ashrawi, Sari Nusseibeh, Edward Said and others who can work to ensure that a future Palestinian state does not turn into an autocratic regime. There is a strong sense among the Palestinian intellectual elite that, having fought so hard for a state of their own, they must not let it become like most of the other countries in the Arab World. In the post Sept. 11 world, such efforts would find total support from the US and the EU.