Is the Palestinian economy finally showing real signs of improvement? There is cause to believe that it is moving away from conflict-driven scenarios, while looking to create sustained growth.

The World Bank has documented that between 1968 and 1999, Palestinians averaged around 5.5% real growth per year, a brilliant achievement by any standards.

With the onset of Intifada, those figures went in to reverse. Blame Palestinian terrorism or Israeli aggression, the average Palestinian’s income dropped off the scale. Tax collection was almost a non-entity. The Funding For Peace Coalition estimated that 25% of the Palestinian budget came through external donations. And who knows which elements grafted off the top?

So what’s changed? First, the European Union finally began to realise that the billions of aid distributed annually had to be more transparent. In parallel, there is a growing awareness that a dependency on handouts will not create an independent economy.

One example is this new approach occurred this week. The Palestinian Administration has demanded that Hamas pay for electricity used in the Gaza Strip. This is in response to the European demand for greater accountability.

Tom Gross, an established commentator on the Middle East, reported on how Palestinian security forces in the West Bank may finally be turning to formal policing and not actions against Israel. One effect of this change has been the opening of a new cinema in Jenin, until recently known as a centre of the Intifada violence.

At a macro level, a high level Dutch delegation met with the Palestinian minster of the economy and 50 companies in order to discuss investment possibilities. Abraaj Capital has co-sponsored a US$50 million investment fund, primarily aimed at small and medium sized Palestinian enterprises.

All very encouraging. But what next? It is very much up to the leadership of the various factions. The Palestinian Authority, controlled by President Abbas, is still perceived by many as corrupt. And Hamas in Gaza is little better.

Greater transparency and more local projects out of the grasp of politicians. And a continuous uplift to the economy is probably the best method to turn people away from the supporters of violence.