Economic Issues Are Key to Mideast Peace

A GENUINE peace settlement between Israelis and Palestinians is threatened not only by political extremists on both sides, but also by economics.

That's the view of Thomas Stauffer, a Washington economic consultant with a long interest in the Middle East. Money and water, he says, may be the ``ultimate stumbling blocks'' to peace.

Most analysts have been talking of the prospects of a peace dividend resulting from less military spending, expanded trade and investment in the entire region, greater freedom of movement for Palestinians, and increased tourism.

But Mr. Stauffer offers a list of ``economic realities'' in the occupied territories of the West Bank and the Gaza Strip:

* Water is the most sensitive factor, he says.

About 40 percent of all water consumed in Israel is tied to the territory taken in the 1967 Arab-Israeli conflict. That amounts to more than 600 million cubic meters a year. The largest part is diverted from the upper Jordan River and the Sea of Galilee. Control of the Golan Heights and of southeast Lebanon, Stauffer says, enables Israel to protect the system of canals, pumps, and pipelines which move Jordan River water through Israel as far as the northern Negev desert.

A second element is the aquifer underlying the West Bank. The use of that water by Arabs is currently limited by Israel so the water can be tapped by Israelis when it flows under the coastal plain of Israel itself, Stauffer says.

Israeli economists, he adds, estimate it would cost $1 billion or more each year to replace with desalinated water those diverted water supplies if peace meant Israel had to relinquish that water to residents upstream in Lebanon, Syria, Jordan, and the West Bank.

* Tourism in Israel depends heavily on access to the West Bank and all of Jerusalem with their Christian, Muslim, and Jewish holy sites. Stauffer asks whether Israel will want to risk the loss of some of that pilgrimage market by giving up control of key sites, including Bethlehem, to a self-governing West Bank. Tourism, he says, is worth more than $500 million to Israel.

* The West Bank is a valuable ``captive market'' for Israel, Stauffer argues. West Bank residents must pay high Israeli prices and taxes on imported goods, and must export their goods at low prices through Israeli middlemen. West Bank ``sweatshops'' are producing garments and other goods that are sold under contract to Israeli firms, given an Israeli label, and then often exported to the United States. The US has free trade with Israel.

The yearly value to Israel of business in the occupied territories is estimated at more than $350 million, Stauffer says. However, the flow of hard currency to West Bank and Gaza Arabs from relatives and nations in the Gulf has been diminishing.

Israel, Stauffer says, has long wanted to get rid of the impoverished Gaza Strip. The Israeli Army dislikes patroling this crowded and increasingly dangerous area as the intifadah shifts from using rocks to modern weapons. Stauffer suspects Israel will offer only limited self-government to the West Bank in an effort to protect its economic interests. It will take strong pressure from the US to get Israel to sacrifice its control of West Bank water, trade, and tourism, he says.

However, other observers see great benefits for Israel and the region from peace. For instance, they speculate on a vast growth in tourism if travelers can proceed freely by bus or boat between Cairo, Jerusalem, Beirut, and Damascus.

The Israelis must also be nervous about the effect of peace on the level of aid coming from the US, Stauffer says. Official US aid amounts to $3.2 billion a year. Further, the Defense Department requires procurement of several hundred million dollars of military equipment from Israeli. And American Jews help through the purchase of Israeli bonds or with other assistance.

In an interview this week with Monitor Radio on the Israeli-Palestinian deal, Sen. Patrick Leahy (D) of Vermont spoke of the need to ``dramatically review'' foreign aid, including the $5 billion going to Israel and Egypt combined, and to look for decreases in some areas he did not specify. On the other side, the Clinton administration is pushing for aid to the Palestinians from Japan, Europe, and the Gulf states. Through trade, some of that aid could rub off on Israel.