Picking Up the Pieces

By J.F.O. MCALLISTER WITH CHRISTOPHER

The scene was novel -- and euphoric: Israel's Foreign Minister Shimon Peres sitting at a table near the Dead Sea on the Jordanian side of the border last week across from his counterpart from Amman, Prime Minister Abdul Salam Majali. Meeting for the first time publicly on Jordanian territory, the two men started talking about taking practical steps that would all but end the state of war that has existed between their two countries since 1948.

Their talk was about peace and, just as important, about prosperity. Diplomats are discovering that in ending the estrangement between Arabs and Israelis, money must talk as much as they do. As if to underscore that point, hundreds of Palestinians rioted on the border between the Gaza Strip and Israel last week in a skirmish between Israeli soldiers and P.L.O. policemen that left two Palestinians dead. The reason for the disturbance: the Palestinians, 20,000 of whom travel to Israel daily for work, were fed up with long lines at the checkpoint into Israel and with the Israeli quotas that keep thousands of them unemployed in job-poor Gaza.

For 40 years, the Middle East has suffered from an acute circulatory disorder. Right at its heart was Israel, a state that could not do business with its Arab neighbors, the place where all roads, pipelines and electrical grids stopped dead at a line on a map. Now that politicians are poised to erase that obstacle, economists can envisage all kinds of projects to make Israel and its neighbors into a prosperous United States of Abraham. Already Jordanian and Israeli negotiators are constructing what one U.S. official calls "pieces of peace" -- practical ways of linking their countries, like formalizing the sharing of scarce water sources, building a road between Egypt and Jordan through Israel, constructing a joint park around the Dead Sea.

While large-scale trade between the comparatively wealthy Israel and its poorer Arab neighbors is unlikely soon, analysts and investors are beginning to look seriously at ideas for mutual development. A $3 billion canal could be dredged linking the Dead Sea with the Red Sea. The natural 1,300-ft. drop in altitude could power turbines, and the electricity generated could desalinate water to irrigate the desert in the Jordan Rift valley. A regional airport near the Jordanian port of Aqaba could relieve air traffic next door in the Israeli city of Eilat; an open border would attract many more tourists to the Red Sea riviera. The electrical grids of the region could be linked to share peak loads and save billions.

These are big and expensive dreams. In the short run the most urgent need is to boost the economy of the stricken Palestinian self-rule zones, where local officials warn of a "revolution of the hungry." Employment in the Gaza Strip is scarce except for jobs in Israel. The $2.5 billion in aid over five years pledged by the international community to build Palestinian houses and schools and train workers for better jobs will help, but only a trickle of funds is flowing in. Last week P.L.O. Chairman Yasser Arafat asked U.S. Secretary of State Warren Christopher to open the spigot full blast. The Secretary voiced sympathy but reiterated the demands of donors for strict accounting controls. Arafat fumes at such "economic occupation," but donors, recalling the P.L.O.'s freewheeling spending habits, have reason to fear creation of a giant slush fund.

To develop an economy beyond make-work, the Palestinians need to adopt tax laws and business regulations to attract capital, both from the large Palestinian diaspora, which has quietly assembled a $200 million investment fund, and from foreigners. But while the Palestinian Authority seeks out international funds, it resists encouraging investment from Israelis. That attitude will have to change, since even senior P.L.O. officials estimate that much development money must come from private sources, and the likeliest ones are in nearby Israel.

Jordan too needs money. At his summit this week in Washington with President Clinton and Prime Minister Yitzhak Rabin, King Hussein will make a pitch for relief on $685 million of official U.S. debt and more than $6 billion in other foreign borrowing. Eager to tap international aid before the P.L.O. gets it all, Hussein hinted that he might agree to terms of a full peace treaty even if Syria is still haggling.

In the near term the growth of the Middle East economy is likely to remain limited. But both Arabs and Israelis seem to have reached a critical way station on the journey to peace: a mutual conviction that they would rather make money than war.

With reporting by Lisa Beyer/Jerusalem, Dean Fischer/Cairo and Jamil Hamad/Amman