The Marshall Plan metaphor, however, is incorrect. The Palestinian Authority is a setting for conflict, not a post-conflict zone like Western Europe in the late 1940s. Moreover, the Marshall Plan was a partnership, whereas international assistance to Palestinians is a mere disbursement, driven in part by humanitarianism, nation-building and conflict-resolution goals. More of the same type of charitable assistance will not spur development of a viable Palestinian state. The best prescription for the Palestinians, even if the conflict persists, is a two-pronged strategy of improving the current aid regime and unlocking the potential for real private sector growth.

As recent experiences in Iraq and Afghanistan show, foreign aid cannot replace successful, concerted diplomatic intervention or real economic growth. Wolfensohn himself, who put up a substantial amount of his money to underwrite the transfer of Israeli settler greenhouses in Gaza to Palestinians, had lost faith in his own plan only four months after Gleneagles, when he reported to donor governments: "The combination of violence, external closures and weak internal governance is undermining the chances for any substantive economic recovery." If these conditions do not change, he warned, no amount of donor money will lift Palestinians out of their spiral of economic regression and impoverishment.

The region is in dire need of professional financial products such as insurance, primary mortgages and leveraged loans.

Wolfensohn’s frustrations are particularly acute because he has been charged with addressing economic problems that are political in nature. Previous envoys have also wrestled with this dilemma. In a 2005 study on Palestinian aid done by the United Kingdom’s Royal Institute of International Affairs, also known as Chatham House, World Bank representative Nigel Roberts warned, "The process of fund-raising and pledging can become an insidious substitute for dealing with the difficult political issues."

When Israelis and Palestinians launched the Oslo process in 1993–the boldest attempt to negotiate an end to their century-old conflict–it brought about a quantum leap in international foreign assistance for the Palestinians. The United States developed a huge program that relied on American companies and private voluntary organizations working with local partners to act as conduits for development dollars. In what was expected to be a drawn-out, step-by-step process, the foreign aid was intended to build a peace constituency among Palestinians. But violence and political disputes crippled both the peace process and hopes for the Palestinian economy. In the absence of a viable peace process, international aid became a crutch for the Palestinians, rather than a shot in the arm.

The collapse of Oslo in 2000 brought yet another wave of assistance. Despite the fact that there was no peace process to support, donors were unwilling to cut off aid, especially direct budgetary support, fearing a collapse of the Palestinian Authority and a humanitarian crisis in the territories. Today, following the Israeli withdrawal from Gaza, the international community has proposed yet another increase in economic aid. It is providing the proverbial fish without teaching the recipient to fish, and will only doom the two-state solution to failure.

Raising Stakeholders
The present confluence of events, including elections in both the Palestinian Authority and Israel, make it the right time for true investment in the new Palestine, irrespective of Israeli or Palestinian political will. Fixing the economy, however, will require that donor governments offer access to risk capital at preferential terms, support political risk-taking by the two governments and underwrite the political risk assumed by private investors, while requiring that the investments be implemented largely by the actual stakeholders: the Palestinian population and private sector.

Donors will also need to focus on modest projects that will enhance economic opportunities immediately rather than putting all of their muscle into big-ticket infrastructure projects that consume political capital and require years to build, such as the construction of a deep-water seaport, an international airport in Gaza and an ambitious rail system in the West Bank and Gaza proposed by Rand Corp. While donors remain preoccupied with these large projects, work has yet to begin on a West Bank-Gaza rail or road link–a fundamental piece of infrastructure necessary for a viable Palestinian state. Concurrent with negotiations over multibillion-dollar projects, donors and private investors could quickly facilitate construction of a floating fisherman’s marina or a roll-on/roll-off shipping facility in Gaza, as proposed by the World Bank.