In June 2007, as Hamas took control of Gaza and a new government was formed in the West Bank, observers ventured two scenarios. The West Bank might become a model, whose economic revival and improved relations with Israel and the wider world contrasted with Gaza’s sorry fate; or, given continued occupation and the structural dysfunctionality of the Palestinian Authority (PA), it would see little progress. Both were wrong. Under Salam Fayyad’s competent leadership, it has made gains, particularly in law and order.

But a model it is not. The advances are insufficient to persuade Israel to loosen the closure regime or halt military incursions deemed critical to its security. Absence of a functioning parliament and Palestinian security services’ harsh tactics against Hamas sympathisers are inconsistent with accountable, transparent, legitimate governance. Israel and the PA should improve coordination; their international partners should prod them to do so, while giving significant financial aid. But ending the geographic division and restoring parliamentary democracy are critical for longer term stability.

Upon assuming office, Fayyad inherited a shattered, bankrupt and chaotic PA, a victim of Israeli actions, the international community’s boycott of the Hamas-led and national unity governments and, notably, its own multiple transgressions. From the outset, more patronage mechanism than state, its security apparatus at the service of competing personal agendas, the PA was on the edge of collapse. Breaking with the past, Fayyad has emphasised self-reliance, seeking to restore domestic faith in the idea of statehood and project a different image to the outside world.

The first priority was to restore law and order, of which the Palestinians have seen remarkably little over the preceding years. It has been, incontestably, the government’s principal achievement. Using a variety of means – amnesty understandings negotiated with Israel which promised normalcy for weary militants; co-optation of Fatah-affiliated militias; clan and family-based mediation and, in some cases, old-fashioned strong-arm methods – it has begun to turn the situation around. Perhaps most important has been the exhaustion of ordinary Palestinians, eager for the opportunity to resume their lives.

Urban public order has improved, and militia activity has decreased. The most striking examples are Nablus and Jenin, on which the PA has focused and where citizens are virtually unanimous in applauding its efforts. There is a legitimate debate about how hard Hamas has been hit and whether the current calm is a symptom of weakness or a function of self-restraint. But there is little doubt that the Islamists have had to hunker down.

The news on the economic front is not as good, though there is some positive movement. Several basic indicators in the West Bank – market activity in certain sectors, GDP poverty and unemployment – are pointing in the right direction. Fayyad has concentrated on righting the PA’s fiscal condition, emphasising wage control, encouraging foreign investment, courting donors and reducing patronage.

But there is a natural ceiling to these security and economic improvements against which Fayyad may already be bumping. From the start, he has been in a race against time, hoping that the overall political context would catch up with his own steps so that one could support the other. That has not happened. The negotiations launched at Annapolis in November 2007 show few signs of life, with perhaps only Israeli Prime Minister Olmert and U.S. Secretary of State Rice (both at the end of their tenures) still believing in a breakthrough agreement in 2008. Israeli settlement activity is ongoing, further discrediting President Abbas and the process upon which he has staked his reputation. The Israeli defence establishment has virtually no faith in the PA’s security performance, arguing there is a vast difference between a law-and-order and an effective counter-terrorism campaign, so insisting on continuing its own military activities in the West Bank, even, at night, in Nablus and Jenin. All of which is complicated by the realisation that, through rocket fire, Hamas has achieved a truce that, with peace offerings, Abbas has not.

The PA also has been involved in acts of torture and mistreatment of Hamas sympathisers, many of whom were picked up and detained without due process. There is ample reason to regret this on human rights grounds, but there are also other, long-term costs: perpetuating a culture of impunity, fuelling a cycle of revenge and radicalising a young generation of Islamist militants.

The PA, Israel and the donor community can and should take steps to ameliorate the security situation, everyday economic conditions and fiscal solvency. But as long as the unnatural division between the West Bank and Gaza endures, and democratic institutions are unable to function, it will be difficult both to plan for long-term, sustainable improvement and to seriously advance the peace process. Under current conditions, the West Bank can no more become a model than Gaza can be effectively governed. The imperative of Palestinian national reconciliation remains as urgent as ever.

A companion Crisis Group report previously described the situation in Gaza and the costs of disunity there too.

Ramallah/Jerusalem/Brussels, 17 July 2008