The Declaration of Principles (DOP), signed between Israel and the PLO on September 13, 1993, provided the “agreed framework for the interim period.”  This was to be based on the establishment, through elections, of a Palestinian interim self-governing authority for a transitional period not exceeding five years. The jurisdiction of the council was to cover the West Bank and Gaza Strip with the notable exception of Israeli settlements.
Since signing the DOP, Israel and the PLO have further signed two main documents of implementation: the Agreement on the Gaza Strip and the Jericho Area of May 4, 1994 (the Cairo agreement), and the Agreement on the Preparatory Transfer of Powers and Responsibilities of August 29, 1994.  Although the DOP affirmed the integral status of the West Bank and Gaza, the details and arrangements provided by the subsequent agreements, particularly that of August 29, 1994, strongly indicate that Israel intends to keep separate the two areas — those parts of Gaza and Jericho transferred to the Palestinian Authority (PA) from the rest of the West Bank — throughout the interim period, in other words, until 1999. The Israeli vision of two territories, with Gaza housing the PLO leadership and the West Bank still under its own effective control, has been achieved by the provisions of the agreements already negotiated and signed. This article examines the powers transferred to the PA, with a view to assessing the effect of the August 29 agreement on the governance of the West Bank and on the exercise of control over economic development.
Obligations Transferred, Powers Kept
Under Article II of the August 29 agreement, Israel has agreed to transfer “powers and responsibilities from the Israeli military government and its Civil Administration in the West Bank in the following spheres: education and culture, health, social welfare, tourism, direct taxation and value-added tax on local production.”
Thus the Israeli military government, and its attendant Civil Administration, continues to exercise power in the West Bank except for those “powers and responsibilities” turned over to the PA. The scope of the transferred powers is based on Jordanian laws (pre-June 1967) and Israeli military orders issued over the course of the occupation, some of which are illegal from the point of view of international law.
The power to budget for these spheres, however, is not part of the transfer. Article XI(8) of the August 29 agreement refers to an “agreed budget which is attached as Schedule 1,” but this is for a six-month period only. Israel justifies retention of budget power as required by its “responsibility” for other spheres of Palestinian civilian life.  While no provision requires Israel to consult with the PA in preparing its budget for administration of the West Bank, the PA must “immediately employ personnel who will promptly begin the process of becoming acquainted with the current budget issues,” and PA personnel “will assume responsibility for all accounts, assets and records on behalf of the Palestinian Authority” (Article XI ). The extent of Israeli concession regarding the budget is its undertaking “to provide the Palestinian Authority with full information concerning the budget of each sphere” (Article XI).  As to expenditures beyond the six months’ agreed budget, Article XI(8) stipulates that the Palestinian Authority shall “assume full responsibility” for them “as well as for any shortfall in tax collection that is not actually covered by the donor countries.” This will effectively create a Palestinian budget deficit years before there is even the prospect of a Palestinian state.
Israel, in its magnanimity, also transfers to the PA “all related rights, liabilities and obligations arising with regard to acts of omissions which occurred prior to the transfer. Israel and the Civil Administration will cease to bear any financial responsibility regarding such acts or omissions and the Palestinian Authority will bear all financial responsibility for these and for its own functioning” (Article IX[1.a]). These include claims made in Israel. Awards made by Israeli courts and paid by Israel will have to be reimbursed in full by the PA. Provisions such as these force the conclusion that Israel’s attitude in these negotiations toward the Palestinian Authority has been, to say the least, contemptuous.
The PA’s exercise of powers in the transferred spheres is restricted by its obligation to “coordinate with the Israeli military government and its Civil Administration regarding any planned public large-scale events and mass gatherings within the Spheres” (Article VI). The Palestinians have also accepted that “nothing in this Agreement shall affect the continued authority of the military government and its Civil Administration to exercise their powers and responsibilities with regard to other spheres not transferred.” Indeed, using these powers the Israeli authorities have closed several schools even after responsibility over the schools had been turned over to the PA.
It does not appear from the August 29 agreement that Israel has made the proper accounting regarding employee pensions and other funds transferred to the Palestinian Authority. Yet Article V(l) invests the PA with responsibility for the management of the personnel employed in the transferred spheres “including employment and placement of employees, payment of their salaries and pensions and ensuring other employee rights.” Article V(2) obliges the PA to retain Palestinians currently employed by the Israeli Civil Administration “included in each sphere, and shall maintain their rights.”
Article VII(1) authorizes the Palestinian Authority to “promulgate secondary legislation regarding the powers and responsibilities transferred to it.” but Article V outlines the process for Israeli review. In the event of an Israeli veto, the PA may submit a new draft, but there is no provision for arbitration. Israel retains the final word.
According to Article V(3), the main office for each of the PA’s spheres must be situated in the Jericho area or in Gaza. Only existing subordinate offices may continue to operate in the West Bank. Since the transfer of some spheres, Israel has closed off Gaza and prevented access to residents of the West Bank. The PA has not publicized the contradiction between this Israeli action and the relevant provision in the agreement.
Control over Economic Development
The preamble to the August 29 agreement invokes Article VI of the Declaration of Principles, which this agreement claims to implement. According to Article VI, the transfer of powers and responsibilities is to be carried out “with a view to promoting economic development in the West Bank and Gaza Strip.” The World Bank proposed nine short-term and eleven medium-term actions that need to be carried out to develop the private-sector economy in the West Bank.  These include reform of laws relating to commerce, expansion of production, license requirements, and restriction on movement of goods and people. But none of the powers transferred enables the Palestinian Authority to implement any of the suggested actions. 
Israel continues to exercise exclusive control in most areas vital to economic development, including foreign exchange, regulation of trade and banks, land use outside of municipal boundaries, infrastructure, licensing of non-resident human resources, investment, the judiciary, and registration of corporations and intellectual properties. Total control over water resources also remains in Israeli hands, and all military orders — such as those requiring permission to plant eggplants and tomatoes — continue intact.
Israel has announced a change in policy aimed at encouraging economic development in the territories under its control, but no change is evident. Applications for foreign investment in West Bank enterprises, for example, are still considered on a case-by-case basis by the same Israeli officers using the same regulations as before the peace negotiations. The process is arduous and lengthy, and if permission is finally granted it is for one year only. 
Development restrictions extend to sectors transferred to the Palestinian Authority. There is little likelihood that the PA will succeed in developing tourism, one of the transferred sectors, when it cannot grant licenses for entrepreneurs to build hotels or tourist centers outside municipalities, and lacks access to adequate sources of water or control over border crossings. It is clear that Israel continues to enjoy the power to control economic development. As in the past, Israel will do so in a manner consistent with its own vision of the final status of the Palestinian territories.
The final paragraphs of the August 29 agreement repeat the refrains that appeared in the DOP and the Cairo agreement: namely, that nothing therein shall prejudice the outcome of the negotiations on the permanent status, and that the West Bank and the Gaza Strip are a single territorial unit. Despite these repeated affirmations, the agreements of May 4 and August 29 have in effect brought about a consolidation of the separation between the two Palestinian territories. Soon after Yasser Arafat and Yitzhak Rabin signed the Cairo agreement, the commander of the Israeli army in Gaza, Mitan Vilnai, issued Proclamation 4 dissolving the Israeli Civil Administration in Gaza and transferring its powers to the PA. In the West Bank, the military government continues to exist.  In clear violation of the DOP principle that “the two sides view the West Bank and the Gaza Strip as single territorial unit whose integrity will be preserved during the interim period,” two different authorities are governing the two territories, one Israeli and the other Palestinian.
Although the August 29 agreement designates a transfer of powers in the five spheres from the Israeli military government in the West Bank to the Palestinian Authority in Gaza, this will not necessarily bring the two territories closer. The scope of PA powers in the education sphere in both territories, for instance, is limited in the West Bank to Jordanian laws in force there, as amended by Israeli military orders listed in the appendix to the August agreement. Different laws are in force in Gaza. Changing either set requires Israeli approval. Article VII(9) highlights the separation: any secondary legislation which the Palestinian Authority may be allowed to pass “shall be published as a separate part of any publication of legislation regarding the Gaza Strip and the Jericho Area issued by the Palestinian Authority.”
The strongest indicator of Israel’s policy of consolidating separation of the two territories, and not negotiating any other major agreements with the Palestinians until the end of the interim period in May 1999, is the “Bill on Implementing the Agreement Concerning the Gaza Strip and Jericho Area (Amendment of Legislation) 1994,” which the Rabin government submitted to the Knesset on July 25, 1994.  The bill’s 65 articles distinguish between “the Gaza and Jericho Areas” and the “Area” defined as “Judea and Samaria and the Gaza Strip, except for the Gaza and Jericho Areas.” Whereas some provisions apply to both areas, most apply only to Jericho and those parts of Gaza under PA rule. Article V, for instance, amends the law on entrance to Israel, giving authority to an Israeli police officer to remove visitors who remain in Palestinian territories without permits or beyond the terms of their permits; this authority applies to both areas. On the other hand, Article 55, which prohibits transport and possession of agriculture produce, applies only to the Gaza and Jericho areas and not to the West Bank. In all, 15 Israeli laws will be amended indirectly by the proposed bill.
Laws are not made every day. This carefully drafted bill, with accompanying explanations, makes it quite clear that the Israeli side expects no more major agreements before 1999 and that the present division of the Palestinian territories will remain for the five-year duration of the interim period.
The Contest for the West Bank
When the PLO represented the only political leadership recognized by the Palestinians, Israel encouraged Hamas as an alternative. This may have contributed to bringing the PLO to the negotiating table. It certainly sped up the PLO’s agreement to the Oslo Declaration, since the organization feared it had to head off the Hamas challenge to its political hegemony.
Having signed the agreements with Israel, the PLO leadership is being confined to the Gaza Strip. There Israel can tolerate a measure of contained chaos, since it can unilaterally and instantaneously declare the entire Strip a closed area. The more PLO mismanagement of Palestinian civilian affairs becomes felt by Palestinians in both Gaza and the West Bank, the more the leadership is discredited. It is quite plausible that Israel would like the PLO to prove itself inept, and towards this end has contributed to the PLO’s difficulties and problems. But will Israel support and encourage an alternative political leadership to the PLO and to Hamas in the West Bank?
The struggle between the PLO and Jordan over the West Bank has already begun, as is evident from the recent controversy over the Islamic waqf.  Jordan offers many attractions to West Bank Palestinians, and thus advantages over the PLO there. Jordanian law applies in the West Bank, residents hold Jordanian citizenship, almost all the recently opened banks are Jordanian, and Jordan’s professional and business sectors are dominated by people of Palestinian origin.  With the peace agreement between Jordan and Israel, direct telephone links are available. Kinship links will be compounded by business links, as the vested interests of more and more Palestinians in the West Bank become linked with Jordan. 
Perhaps the most significant factor will be the growing gap between the relatively orderly Jordanian society, with its stable public administration and clear laws governing commercial activity and public life, and the chaos and confusion of the Palestinian-run areas, where opportunities for industrial development and attracting investments are lost.  Of course, not all of Palestinian West Bank society is commerce-minded, but theirs is a fatigued society that has just emerged from years of difficult struggle entailing great personal sacrifices and delay in the development of vital areas of life. The yearning for a more stable and prosperous future is pervasive, and may yet prove decisive in the coming struggle for power over the West Bank.
 For the text of the DOP, see Journal of Palestine Studies 23/1 (Autumn 1993).
 For the text of the May 4 agreement, less its annexes, see Journal of Palestine Studies 23/4 (Summer 1994).
 Israel, as the occupying power, is responsible under international law for all aspects of the welfare of the Palestinian population.
 Israel has maintained a position of providing limited access to public information from the beginning of negotiations. The Palestinian team in the Washington negotiations requested full access to information concerning the budgets of the Israeli Civil Administrations of the West Bank and Gaza, which the Israeli team refused to provide, insisting on releasing only that relating to the spheres to be transfer to the Palestinians. This refusal has continued through to the agreement of August 29.
 Developing the Occupied Territories, An Investment in Peace: Volume 3, Private Sector Development (Washington, DC: World Bank, September 1993), p. 25.
 Although responsibility over direct taxation and VAT have been transferred to the PA, any structural legal reforms require Israeli consent.
 After many months and great effort, the Israeli Civil Administration finally granted a license on October 20, 1994 for operation in the West Bank to the Palestine Development and Investment Company, a multi-million dollar holding company established in Liberia, but the license was limited to one year.
 Another military proclamation bearing the same number was issued in the West Bank on May 13, 1994, transferring to the PA powers and responsibilities regarding the Jericho area. For an analysis of the proclamation, see Raja Shehadeh, “Israel Stands on Its Legal Position,” Middle East International, September 23, 1994.
 Israeli Official Gazette, July 25, 1994.
 The PLO and Jordan have each appointed their own mufti for Jerusalem.
 One example of the gap between the PLO and Jordan regarding civilian matters was their respective treatment of regulations of new banks. Although the Cairo agreement provided for the establishment of a Palestinian Monetary Authority with power to license new banks, as of April 1995 a governor had been appointed to head the PMA but had not yet established monetary policy or even banking regulations. Jordan, on the other hand, had drafted a Memorandum of Understanding with Israel regulating the opening of branches of Jordanian banks in the West Bank. Over ten new Jordanian banks have been established in the West Bank New banks seeking to establish in the Palestinian-run territory find no Palestinian regulatory authority.
 Article 3(b) of the Peace Treaty between Jordan and Israel of October 26, 1994, states that “the boundary, as set out in Annex 1(a), is the permanent, secure, and recognized international boundary between Israel and Jordan, without prejudice to the status of any territories that came under Israeli military government control in 1967.”
 On April 15, products imported by a Palestinian company were confiscated by the Palestinian Customs Authority. The official form lists eight grounds for confiscation of goods but none of them was marked; rather, the reason stated was “upon orders from the President.”