The “Big Picture”: On the Political and Economic Alternatives Facing Israelis and Palestinians

Aix Group, May 2016

Based on several versions of the “Big Picture” produced since 2009

The Big Picture – Summary

A  historic compromise along the lines described in this document  offers a realistic solution to the Palestinian-Israeli conflict, but this vision is not carved in stone and will eventually have to yield to the reality of conditions on the ground. The Aix Group is aware that continued rejectionists’ efforts on the one hand and pre-emption on the other hand will eventually undermine the two- state solution on which our efforts are based. Therefore, any reasonable solution would require a timeline in which changes on the ground  are declared null and void, by a binding mutual agreement.

The Aix Group believes that the economic analysis presented in its works, under suitable political circumstances, lays the foundation for optimistic future developments for both Israel and Palestine. The related concepts of open borders, cooperation between two sovereign states and interdependencies, combined with conditions of stability and wide political support for the new arrangements on both sides, could lead us out of this dark period and into a better future.

A feasible agreement on two states will have to address the difficult trio of borders, Jerusalem and refugees. It will also have to deal with the question of “pre-emption” and the long-term impact of creating “facts on the ground”. A positive conclusion that addresses the minimum and necessary requirements of the two sides will most probably look like the following:

• The borders between the two states will be drawn so that they will have continuity; the land will be divided 77 percent to 23 percent based on the 1967 borders, allowing for agreed-upon and limited swaps of land along the “Green Line”; arrangements satisfying contiguity between Gaza and the West Bank will guarantee the free flow of people and goods within both Israel and Palestine so that travel between Gaza and the West Bank will not entail crossing a border.
• Jerusalem will be the capital of both Israel and Palestine. Two options for Jerusalem’s borders can be considered:

1. An “open” Jerusalem, necessitating the creation of borders around Jerusalem, or the part of the city that remains “open”.
2. A border that will bisect Jerusalem.

• A just and fair solution to the 1948 refugee problem will address both the individual claims and the collective considerations of the two sides and provide a way to reconcile the two. It is the goal that the Palestinian refugees will be able to choose a permanent place of residency, and that the implementation of these decisions will be agreed to by, and subject to the sovereignty of, all the countries that will be affected, including Palestine and Israel.

Programs for the refugees will address resettlement/repatriation, or what we sometimes describe as relocation, as well as rehabilitation. A substantial compensation scheme for the refugees will be agreed upon. The process will end the status of refugehood and turn all refugees into citizens, with the agreement and cooperation of the refugees themselves.

We suggest that the economic aspect of the new agreement include several key principles. First, it is imperative to agree that the sovereign authority of each party, within internationally recognized borders, includes the right to conduct internal and external economic affairs, including the operation and administration of that party’s economic borders, autonomously but in cooperation with one another. Second, economic relations shall be guided by the concepts of cooperation in both trade and labor, as well as in infrastructure, R & D, etc. Thus the parties can establish the rules and arrangements which will regulate the trade in goods and services, and the flows of labor and investment.

The Aix Group efforts were not academic in the abstract meaning of the word. They did not abstract from the current situation and do not reflect a visionary’s detached exercise. We present very realistic and practical alternatives that rely on our ability to understand that there is more than one point of view. The area between the Jordan River and the Mediterranean Sea contains two peoples who deserve better: They both deserve independence, security and prosperity. The economic dimension may be secondary to the political one, but economic performance is not secondary. If the economic agreements fail to provide the necessary conditions for real development, the political agreement will also fail.

There is a real fear that time is running out for a two state arrangement. If this idea is not accepted and implemented relatively soon, the two sides will have to consider an alternative political economy. The “One State” alternative, while proposed and defended until recently by a minority among both sides, is currently gaining ground due to the very conditions that undermine the possibility of territorial compromise. The Aix Group is convinced that if bold steps are not taken in the direction of rapid implementation of a territorial solution, then an alternative vision of one state for both people, on the basis of common citizenship and equality before the law, will increasingly be placed on the agenda. Such an agenda will require detailed new thinking about many of the elements of this document; but if the vision of “Two States” crumbles, it will become the only alternative to the current conditions of continued occupation.

1. Introduction

Since the beginning of 2011 a political storm has engulfed the region; clearly one has to remain very modest trying to understand such dramatic events in real time. But we would like to share with you our attempts to understand the new phenomena and the implications for “our” conflict. Rereading the “Big Picture” text, prepared before the current political transformation, we  find that there are good reasons to believe that our main conclusions still hold. Although some political parties are quick to presume  that this is the time to “wait and see” and reassess, we tend to conclude that they are wrong and, in fact, this may be the best time for a breakthrough. The reasons for our tentative, yet  more optimistic, conclusion are as follows:

• The strength of the status quo before 2011 was partially based on the Israeli-Egyptian (separate) peace agreement. Although the 1978/9 agreement mentioned the Palestinian question and a framework for negotiations was drawn, the issue had actually been postponed. Not until Oslo in 1993 was there any serious attempt to address the Israeli-Palestinian conflict, and even then the process addressed only interim aspects. The failure to reach a permanent agreement which would address the most fundamental and difficult issues that we discuss below, was acceptable to the “old regimes” in the region probably more than it will be tolerated by the “new” ones. Thus, the cost of no agreement was deemed to be higher after 2011.
• The new regimes represent, we think, both the interests of those who would like to see more prosperous economies as well as the search for a more moral polity. Of course, corruption was feeding the protest; but on top of the non-democratic characteristics of the “old regime,” the desire to experience growth and distributive justice were strong forces in the revolt. However, one should not ignore the strong feelings of the majority concerning the weakness of the “old regimes” to change the status quo vis a vis Israel. In particular, solidarity with the Palestinians is a very strong sentiment in the new regimes. Their desire for change would most probably lead away from accepting the “balance” of the last 30 years.
• The call for democracy, and the general support it received around the world, makes the Israeli-Palestinian case a unique outlier: No one can defend the current status quo on the basis of democratic principles. The pressure to address the Israeli-Palestinian conflict will continue growing.

In 2003, the Aix Group agreed on a basic concept which remains central in our discussions to this day. We came to the conclusion that one of the errors committed and followed by the two sides since 1993, when the Oslo process started, had been to base the peace process on “gradualism”. Gradualism takes the form of an incremental approach, moving one step at a time with no agreement on, or even discussion of, the end result. The right way forward, in our opinion, was to adopt what we have called a “reverse engineering” approach (see the “Economic Road Map”, 2004). In “reverse engineering”, the sides first agree on where they want to go, i.e. on the contours of a permanent agreement, and then decide how to reach that end.

The second understanding we reached is that of the utmost importance of symmetry in the solution to the Israeli-Palestinian conflict and in the future economic relations between the two sides. This symmetry is already implicit in the generally accepted solution to the conflict, namely “two states for two peoples”, but the current situation is one of sharp asymmetry between the two sides, between occupied and occupier, between one side that has long since gained independence and one side that still yearns for it. We need to strive to reach greater symmetry between the two sides in order to reach a situation where two independent states live side by side, engaged in many different ways, but with neither state exercising control over the other. We are fully aware of the large economic, military, and political gaps between the two peoples, and we know that no peace agreement will eliminate these gaps overnight. However, formal symmetry in such an agreement is crucial to its success. If the much stronger side tries to dictate conditions to the other side, an agreement might not be reached or, even if reached, might not survive.

As a consequence of its basic positions  – reverse engineering, the need to address all issues and the strong need for symmetry – the Aix Group’s approach is in direct conflict with the gradualism that has characterized the political process since 1993, as well as with unilateralism and with the many attempts to pre-empt the “Two State” solution. Moreover, as a result of its many discussions the Group rejected the view that economic development could pave the way to a political process or be a substitute for such a process. Both reality over more than forty years and a strong set of arguments prove the futility of this approach. In our Economic Road Map (2004) and in additional documents, we agreed upon and defined the basic requirements needed for the permanent existence of two viable states, Palestine and Israel.

The calls to substitute a permanent political and economic agreement with “economic measures only” that will supposedly produce prosperity were raised by Israeli policy makers immediately after the 1967 war. Moshe Dayan, the Israeli Defense Minister, was the better known among them, but from time to time others repeat this argument. However, in order to bring about a real path of development to a viable Palestinian economy and make the convergence of the standards of living between the two economies a real possibility, some basic requirements are needed. Among those requirements are: the need for stable and predicted macro environment; continuous exchanges of goods and factors of production between the economies; coordination of the financial and monetary spheres, etc. These requirements, analyzed in our Economic Road Map, cannot be addressed unless – and until – the sides reach an end to the political conflict. Hence, the calls for “economics first” measures are at best naïve, and at worst are hiding the desire to avoid the difficult political compromise that is necessary in order to achieve the change to which we aspire.

Concerning the permanent economic agreement, we base our analysis of future relations between the Palestinian and Israeli economies on the concept of economic sovereignty, implemented in two independent states with separate geographies, independent policies, full control over their territories and borders, and cooperation between them. This is in full accordance with the principle of symmetry. We believe that Palestinian and Israeli interests would be best served by a Free Trade Area (FTA) arrangement that enables each customs authority to be a partner to the other side without losing its basic independence. Israeli and Palestinian border control agencies could also manage borders and border crossings to ensure the enforcement of the agreed-upon trade regime between the two sides. Special attention was paid in our discussions to the need to ensure Palestinian labor flow into Israel. An agreement on such labor flows is vital to the future well-being of the Palestinians and for a smooth implementation of the peace agreement.

The failure so far to agree to and successfully implement the “Two State” formula is due in part to the fact that since 1993, the sides have avoided serious discussion of the permanent stage; then at Camp David in 2000, they failed to reach an agreement. But whereas many concluded after the failure at Camp David that it is altogether impossible to reach an agreement, we concluded that it is impossible to give up on reaching one. Thus we thought, and still think, that in spite of the painful failure in 2000 and the painful consequences of that failure, the two sides should resume meaningful negotiations that will lead to a permanent resolution to the conflict.

We believe that the ongoing power imbalance between the two sides is partially responsible for the long delay in resuming meaningful negotiations. An example of the consequences of this imbalance is the recent failure to achieve a permanent agreement in 2008, in the Annapolis process. A permanent agreement will be possible and stable only if it is based on symmetry between the two sides in important dimensions concerning sovereignty, despite the asymmetry in power they face currently. Therefore, in order to reach such an agreement, the current imbalance in power must be addressed. Both the international community and regional players  will need to play an important role in achieving a balance of power and in bridging the gaps between the sides. We outline below the necessary first steps to be taken, based on the reverse engineering concept and with respect to the power imbalance between the two sides that has contributed to the failure to achieve a breakthrough. The road to peace can be taken only if it is accompanied by a continuous effort to treat both sides more symmetrically. This is the abiding essence of the “Two State” solution.

 

 

 

2. Between “One” and “Two”

The Israeli-Palestinian conflict is not a purely territorial war, as some have argued (especially since 1967). It is not only a conflict about the future of the West Bank and Gaza or merely the result of disagreements about human or political rights. It is a conflict between two peoples over one land.

Any imagined agreement between the two sides can be conceptualized in terms of two possible schemes: a) a “Two State” scheme, i.e. the division of the land into two states and two sovereign economic entities; or b) a “One State”  scheme, i.e. the establishment of a single political and economic entity. Of course, if no agreement is achieved, the current status quo, i.e. the continued occupation and conflict, will prevail with all the negative consequences. Since 1967 Israeli policy has repudiated both the “Two State” and the “One State” solutions. It has changed the character and formulations from time to time, as have the Palestinian positions. Sadly, the two peoples are deeply divided within themselves as to the “One” vs. “Two”  State schemes, and some on both sides reject both options. We will review below these two basic possibilities for an agreement and ask how any future permanent agreement can address the core “trio” of issues — borders, Jerusalem, and the 1948 refugees — as well as other key issues like independence, security and prosperity.

The assumption that the Aix Group made and that we continue to hold is that the conflict is one where there are two peoples with legitimate claims. Some think that it was not always so; that in the past, the conflict had one side that was “right” and hence legitimate, and another that was “wrong” and illegitimate. We will not address those views concerning the past here. However, when we say that today the two sides both have “legitimate claims”, we have to define those claims carefully. Moreover, if we seek consistency and symmetry, and we do, we have to convince the reader that those claims, which are both individual and collective in nature and which seem to some to be contradictory, can be addressed in a compromise between the two sides — in an agreement that both sides can accept as a resolution to the conflict. That is, we will argue that the conflict can be resolved in a compromise that will address what each side sees as its minimal necessary claims and which a clear majority on each side will support.

In reality, there are critical asymmetries between the two sides to the conflict: Israel is an independent state and the Palestinians do not have independence; Israel is the occupying power and the Palestinians are the occupied. There are also clear differences in the current strength of each side, including both military capabilities and economic development. Yet the resolution to the conflict that we discuss is based on symmetry between the two sides.

The preliminary assumption that today there are two legitimate sides with legitimate claims is negated by some Israelis and Palestinians (as well as by others). There are Israelis who deny the collective and individual rights of Palestinians. There are Palestinians who deny the collective and individual rights of Israelis. These two camps both reject a permanent, final, political agreement with the other side. Usually they reject such an agreement because they deny the legitimacy of the other side’s claims; hence they are commonly known as rejectionists, rejecting an end to the conflict via a political compromise. We will add below a few observations concerning the strong rejectionist camps on both sides that deny the legitimate rights and even the right to the existence of the other side, and how they have influenced the failures to achieve an agreement over the years. Their role may help to explain why gradualism  and “economics first” failed as policies.

The two frameworks for  a compromise, the “One State” and “Two State,” are both feasible in principle in our case and in similar conflicts where two legitimate sides fight over one territory. However, we argue that the two alternatives are very different in reality: the “Two State” solution is capable of answering the legitimate claims of the two sides and hence is realistic; the “One State” solution leaves some legitimate claims unanswered and is not, in our view, a realistic alternative. We often hear that the “Two State” solution is wishful thinking and no longer a practical alternative. We disagree and would like to argue that sometimes the inconceivable and imaginary becomes conceivable and real. This always was and continues to be the optimist’s line. We are optimists. It can happen under certain circumstances.

 

3. The Political Models

Palestinians’ and Israelis’ disagreements are over core issues such as self determination, sovereignty, independence, collective identity, future prosperity and security, but also about individual rights and claims to land, property and justice. In a conflict where two legitimate sides fight over sovereignty — over the ability to control  their own lives democratically through their representatives — they can, in principle, agree on one of two schemes:

• One State
• Two States

 

We will discuss both of them from a political perspective and, briefly, from an economic perspective, which is less common but vitally important.

What is a political “One State” agreement when two legitimate sides fight over land and other issues?

• It is an agreement to run the polity in the contested land so that the territory will not be divided geographically and so that a power sharing  arrangement is agreed to. Politically, the sides should find mechanisms that will guarantee the individual rights of all and also a plan that will address the collective aspirations of the two sides, including independence, security and prosperity. The agreement would have to address the present balance of power but also possible changes in the balance of power. Specific internal issues such as economic policy, civilian affairs, education, health, and security (internally and toward the outside world) should all be addressed. Clearly there will be no internal borders, hence also no economic borders, and there will be an agreed upon, unified economic policy.

 

What is a political “Two State” agreement when two legitimate sides fight over land and other issues?

• It is an agreement to run the polity in the contested land so that the territory will be divided geographically and a power sharing  arrangement is agreed to. In principle each side is responsible for the implementation of its sovereignty in its area of control. Again, politically the sides should find mechanisms that will guarantee the individual rights of all and also a plan that will address the collective rights of the two sides. They will have to address the present balance of power but also possible changes in the balance of power. Specific internal policy issues such as economics, civilian affairs, education, health, and security (internally and toward the outside world) should all be addressed. But in this case some of the decisions can be separated and put in the hands of the two sides.

One has to remember that we have some experience concerning the possible economic regime for the future, although no experience with an agreed-upon permanent economic regime. After the 1967 war, Israel unilaterally imposed an economic regime based on the integration model, “one state – one economy”. It did so without taking into account the Palestinian interests. In 1994, following and as part of the Oslo process and the recognition that there are two sides to the conflict, the imposed regime was modified a little and received the official approval of the government of Israel and the PLO. The economic agreement signed in May 1994, known as the Paris Protocol, assumed no internal borders, Israeli control over the external borders (the “customs envelope”) and Israeli monopoly over trade policy. This agreement reflects to a large degree the basic asymmetry between the two sides, which was one of the reasons for its failure.

The economic consequences of Oslo were very disappointing. The conflict continued and the economy was another of its victims. By the beginning of the current century many economists — Israeli, Palestinian and those from the international community — had adopted a very different approach from that of Oslo and the Paris Protocol. They reconsidered the arguments for and against integration and came to the conclusion that from an economic point of view there are good reasons to support two economic sovereigns, two sets of trade policies, and joint regulations concerning  labor flows between Palestine and Israel. The work of the Aix Group was part of this change. The main reason for it was the realization that integration exacerbates the control of the strong side over the weak. Relations are never purely economic; they involve much politics. A lack of borders creates a situation wherein the strong side increases its control by mustering its political, military and economic superiority to create conditions that strengthen itself and weaken the other side. The fact that the policy of integration was implemented in the Oslo process as an interim solution was used as a justification to maintain and even increase the basic asymmetry between the two sides. This is one of the reasons why the Aix Group came to the conclusion that the right way forward is to adopt a “reverse engineering” approach.

        

4. Paving the Path to a “Two State” Agreement

 

The issues which need to be addressed in the final agreement are all well known and have been addressed by many already, including by the Aix Group. Below is an analysis of how these issues are related to the current situation, and how they should be treated in the short-to-medium term in order to avoid pre-emption and to ensure  the adoption of reverse engineering toward a final agreement.

Negotiations in and of themselves are not an end but simply a means for reaching the required compromise for both sides. Hence, the peace process should not be perceived as an end in itself, but rather as a process that will eventually lead to a peace agreement which is embraced by each side. Since 2000, negotiations have been running in a closed circle, with little achieved by way of potential agreement, due to the fact that not all parties agree on what the outcome or end result will be; no reverse engineering is being done. At the outset, a framework agreement which sets out the parameters for a comprehensive agreement should be reached in order to guarantee that negotiations are guided in body and spirit by the end results.

In this context one has to understand that the current settlement enterprise is not only illegal but harmful, as it pre-empts the capacity of having a real Palestinian state that has well defined territory and contiguity. The settlements tend to intersect the West Bank, and prevent sovereignty and control that is necessary for the creation of infrastructure such as electric grids, water and transportation and telecommunications networks, as well as housing and the natural expansion of Palestinian cities and residential areas.

 

5. On Some Weaknesses in the “One State” Solution

Let us explain briefly why at this stage a “One State” agreement cannot, in our view, address the legitimate claims of the two sides.

• In a “One State” agreement there are no satisfactory answers to Jewish Israeli claims for self-determination and independence.
• The question of collective Jewish rights becomes more severe in a “One State” framework with a resolution of the refugees’ problem. The conflict between the return of the refugees to Israel and the Jewish Israeli desire to maintain a collective identity, self-determination and sovereignty (even in an Israeli state that has a Palestinian national minority where the majority are Jews) is clearly the focus of many of the disagreements. Thus, no common ground exists today for a “One State” agreement that can receive the support of a majority of Israelis.
• There are no satisfactory answers concerning security, particularly in the face of a strong rejectionist presence, and there are no satisfactory answers to the economic questions. “One State” leaves security in the hands of one sovereign while there are those who do not recognize the existence and rights of the two sides. This cannot be considered an answer to the legitimate claim of most Jews in Israel to an agreement that will provide for their safe existence and the safeguarding of their collective rights.
• Legitimate Palestinian claims for self determination, including independence and control over various aspects of life, cannot be answered in a “One State” framework; certainly not in the near future when the Palestinians are a minority.
• As long as a very strong minority, maybe even a majority, on the two sides of the conflict (or even just on one side), rejects the “One State” arrangement, violence will likely continue. There will be constant conflict for the foreseeable future between the two populations within the one state, as well as conflict about power positions and the allocation of resources. The risk is that the political environment will be unsustainable, which may even lead to a civil war.

 

The coexistence within one state of two peoples in which one has greater financial means and more economic development than the other, will induce strong asymmetry in political power between the two communities. This will further amplify the economic gaps between them, mainly through control over lands. As a result, the “One State” solution would undoubtedly lead to further tensions and animosity between the two peoples and will not constitute a solution at all.

 

6. Why has the “Two States” solution failed so far?

There are several arguments raised against the idea that two states are possible and desirable, arguing that this model is not — or is no longer — an answer:

• Reality is Irreversible. This argument claims that it is impossible to change the geographic-demographic reality that we described above and reach a two state agreement that is practical and viable. But in our view reality is reversible, depending on the political power on each side. There is nothing on the ground that contradicts the ability to reach an agreement on partition.
• The Israeli side will not agree to the contours of the two states described above. More specifically, the Israeli side will reject the borders, the agreement in Jerusalem and maybe even the agreement on the refugees. But this argument is faced with a number of counter arguments. First, whatever Israeli support for the “Two States” solution may be, Israeli support for the “One State” solution is much smaller. Second, Israeli support for the “Two States” solution, despite the territorial cost, is quite significant. Support in Israel for pulling out unilaterally from 90 percent of the West Bank was overwhelming just a few years ago. This signals that Israeli attachment to the West Bank is not the real obstacle. The Israeli public seems to be more ready for a compromise even on Jerusalem if the deal is perceived as a serious one in which the other side would stick to and accept as a closure to the conflict, and if the international community, including the U.S., supported it.

 

If we do not accept these standard arguments against the “Two State” solution, we are left with the question of why it has failed so far. We have two basic answers to this question. One is related to symmetry and the other is related to cooperation between rejectionists on both sides.

We have already mentioned that there is significant economic, military, and political asymmetry between the two sides, mainly with respect to international support. This tempted the Israeli negotiators to seek an agreement that would reflect this asymmetry to some extent. Thus the Israeli negotiators tried to assert long-term Israeli control over the Jordan Valley, which is of critical importance to the Palestinians in their desire to control the external borders and as a main agricultural area. Israeli negotiators also tried to maintain elements of control over Palestinian movements between the West Bank and Gaza, despite the impingement on Palestinian sovereignty. There are many more examples of Israeli attempts to reinforce the existing asymmetry.

The other explanation for the failure to achieve an agreement so far is tacit collaboration between rejectionists. The conflict is between two groups but the developments are determined by (at least) four: between two camps who reject a compromise and two who are ready to accept it. We think that the supporters of “One State” have no real answer to the fact that there are indeed four camps in the region, and two of them reject the collective rights of the other side. This is part of our explanation for the collapse of Oslo.

Taking into account the historical aspects that brought the conflict to where it is today, we believe that the “Two State” solution, while deeply problematic, is more practical than the “One State” solution and has better political chances for success. The “One State” solution cannot address the fact that there are now, always have been, and will continue to be those who deny the other side’s claims. Thus, there is no way to agree on a consistent one-state framework that will guarantee security to the two sides.

An agreement must not be vulnerable to political changes, and must provide answers to the basic fear that the other side will change its view or elect a rejectionist faction. Thus, a call for a  “Two State” solution with relatively open borders between the states is the only realistic alternative.

The next question is whether such a solution addresses basic legitimate rights. The most difficult issue is the refugees’ demand to return to the specific locations  inhabited by their ancestors. If the refugees will agree to return to their homeland but not to their original villages, and if the Israelis will accept the rights of the other side and agree to a full withdrawal, we will be able to test the above arguments. It calls for a major change in Israel. It calls for a major change in Palestine. It will enable two sovereign political entities to coexist. As a result of an agreement, a clear understanding will be established as to who “belongs” to each entity as far as citizenship, residency and property rights are concerned.

Time is running out for a “Two State” arrangement. If this idea is not accepted and implemented relatively soon, the two sides will have to consider an alternative political economy, and the “One State” alternative, on the basis of common citizenship and equality before the law, will increasingly be placed on the agenda. Such an agenda will require detailed new thinking about many of the elements discussed today; but if the vision of “Two State” crumbles, it will become the only alternative to the current conditions of continued occupation.

The passage of time makes the resumption of meaningful negotiations even more difficult, since two serious problems challenge an agreement: one is that of a strong opposition and terror campaign against a political “Two State” agreement, based on the negation of the existence and rights of Israel and the Jewish collective; the second is that of “pre-emption”, i.e. a process of creating facts on the ground through sustained settlement expansion. These processes, combined with the physical transformation of land in the occupied Palestinian territory, create conditions which undermine and supersede an agreement based on meaningful sovereignty for both sides.

 

7. Summary and Conclusion

A feasible agreement for two states will have to address the difficult trio of borders, Jerusalem and refugees. It will also have to deal with the question of “pre-emption” and the long-term impact of creating “facts on the ground”. A positive conclusion that addresses the minimum and necessary requirements of the two sides will most probably align with the following:

 

• The borders between the two states will be drawn so that the two states will have continuity; the land will be divided 77 percent to 23 percent based on the 1967 borders, allowing for agreed upon and limited swaps of land along the “Green Line”; arrangements satisfying contiguity between Gaza and the West Bank will guarantee the free flow of people and goods within both Israel and Palestine so that travel between Gaza and the West Bank will not entail crossing a border.
• Jerusalem will be the capital of both Israel and Palestine. Two options for Jerusalem’s borders can be thought of:

1. An “open” Jerusalem, necessitating the creation of borders around Jerusalem, or the part of the city that remains “open”.
2. A border that will bisect Jerusalem.

 

A just and fair solution to the 1948 refugee problem will address both the individual claims and the collective considerations of the two sides and provide a way to reconcile the two. It is the goal that the Palestinian refugees will be able to choose a permanent place of residency, and that the implementation of these decisions will be agreed to by, and subject to the sovereignty of, all the countries that will be affected, including Palestine and Israel.

 

Programs for the refugees will address resettlement/repatriation, or what we sometimes describe as relocation, as well as rehabilitation. A substantial compensation scheme for the refugees will be agreed upon. The process will end the status of refugehood and turn all refugees into citizens, with the agreement and cooperation of the refugees themselves.

If the two peoples want self-determination, normalcy and prosperity, they should head toward this historic compromise. By supporting such a “package” as the outline of an agreement, the international community can also contribute to the beginning of a new path in our troubled region.

We suggest that the economic aspect of the new agreement should include  several key principles. First, it is imperative to agree that the sovereign authority of each party, within internationally recognized borders, includes the right to conduct internal and external economic affairs, including the operation and administration of that party’s economic borders, autonomously but in cooperation with one another. Hence, the parties must reciprocally recognize each other as independent customs territories and make this recognition the foundation for their economic and trade relations. Second, economic relations shall be guided by the concepts of cooperation in both trade and labor, as well as in infrastructure, R & D, etc. Thus the parties can establish the rules and arrangements which will regulate the trade in goods and services, and the flows of labor and investment.

The current widespread pessimism seems to choke off any initiative that dares to think about a permanent arrangement and which presents an alternative to the continuation of the existing conflict. We should not surrender to the pessimists and should not accept their verdict of more years of death and suffering. Time is running out for a “Two State” arrangement. The Aix Group believes that the economic analysis in the ERM and in the papers presented here lay the groundwork for optimistic future developments for both Israel and Palestine. The related concepts of open borders, cooperation between two sovereign states and interdependencies, combined with conditions of stability and wide political support for the new arrangements on both sides, could lead us out of this dark period and into a better future.