While it is hard to predict where the Palestinian-Israeli conflict will be in ten years, one thing is certain: a peaceful reconciliation between Israel and Palestine, based on a two-state solution that guarantees Palestinians and Israelis territorial integrity and security, would have a positive impact on economic and democratic developments in the Arab world. These developments, however, will not occur easily; such transitions are often chaotic, shocking, and painful.

Resolution of the Arab-Israeli conflict will further movements for democratic change through two mechanisms. The newly emergent Palestinian democracy will serve as the “model domino” in the Arab world, and the resolution of the Palestinian-Israeli conflict will decrease anti-Americanism in the region. The reduction in animosity toward U.S. policies—which have been perceived to not only privilege Israelis over Arabs, but also to promote Israeli interests at the expense of Arab interests—will weaken authoritarian regimes that have for too long used the ongoing conflict as an excuse for their lack of democratic reforms. In other words, when the United States urges Arab countries to reform, these countries will no longer be able to stand behind the Arab-Israeli conflict as a reason for their lack of cooperation. Similarly, decreasing anti-Americanism will further embolden opposition movements, which have not been able to formulate all-encompassing domestic platforms, to contest authoritarianism. Traditionally, opposition movements have successfully mobilized on anti-Israel and anti–United States platforms. These same opposition movements have been hesitant to criticize authoritarian regimes and demand reform, lest they appear complicit with their American counterparts.

Palestine: The model democracy of the Arab world. The Palestinian elections, held on January 9, 2005, are of momentous historical significance. Two democratic and fair Palestinian elections were held within six weeks—one at the municipal level, the other for the presidency. The transition of power from Arafat to Abbas was peaceful and bounded by the rule of law. The elections proved vital for Palestinians and observers alike, demonstrating that after four years of Intifada, the Palestinians were committed to democratic ideals and processes.

In the months following the elections, President Mahmoud Abbas has responded to concerns and allegations of Palestinian National Authority (PNA) corruption and incompetence. Responding to both international and domestic demands to stamp out corruption and maintain the rule of law, Abbas has reshuffled the PNA's security apparatus and removed many of the old elite guard of the PNA from power.¹

He has also reformed the Palestinian media, which Arafat had completely controlled under the executive office.² These developments indicate that Abbas is committed to democratic principles. The inclusion of Hamas in recent elections also bodes well for democracy in a new Palestinian state.

As Palestinians prepare themselves for an independent democratic state, they are simultaneously attempting to advance economic development policies that will alleviate unemployment rates and provide the framework for a market economy. Several discussions on this front focus on the proposed Gaza pullout. According to negotiators and advisors, the Erez industrial zone might be revitalized by an Israeli pullout, thus creating much needed jobs for Palestinians. Several technological innovations to expedite border checks between Gaza and Israel are under consideration, and a proposed railway linking Gaza to the ports of Ashdod would facilitate Palestinian imports and exports. Developing the stunted economy and easing the unemployment crisis will undoubtedly bolster Palestine's democratic trajectory.³

The democratic Palestinian state will serve as a model Arab democracy in the region. A successful Palestinian democracy will not only serve as the first falling domino, demonstrating to the Arab world that democracy is possible,⁴

but Arab peoples across the region will shift attention from the Palestinian predicament to the lack of democracy in their own countries.

Linking Arab-Israeli peace to the prospects of Arab democracy. To address the broader implications of a peaceful Palestinian-Israeli resolution on democratic development in the Arab world, one needs to analyze the existing authoritarian realities of the Arab world. The Arab-Israeli conflict did not create Arab authoritarianism: Israel cannot be blamed for the lack of democracy in the region. The factors that explain persistent authoritarianism in the region are numerous and wide-ranging. Political economic realities like rentierism and soft budget foreign aid—both bound up with mind-boggling levels of unemployment—favor authoritarian consolidation at the expense of private-sector development. Arab governments channel disproportionate amounts of their GDPs to the purchase of technologies that consolidate power. Among its global counterparts—Latin America, Eastern Europe, and Africa—the Arab world spends the highest proportion of its GDP on military equipment. In 1997 total defense expenditure constituted 7.4 percent of the GDP, well above the world average military expenditure of 2.4 percent.⁵

Further, inefficient bureaucratic arrangements characterized by corruption, cronyism, and patronage have kept regimes solidly in place at the expense of more efficient forms of government bureaucracy. All Arab governments are unified by the fact that they prohibit both economic and democratic development within their societies.⁶ In the words of Eva Bellin, the “repressive capacity of the state” is paramount in the Arab world.⁷

Given this repressive capacity, where will the impetus for change begin? Conventional theories posit change occurring from oppositional civil societies, coalition shifts among the elite leading to a weakened government, or external influences like the promotion of democracy from abroad. The probability of government weakening is not on the horizon in any country of the Arab world. Among the monarchies, the royal families are firmly in place; among the dominant-party states, the existing leaderships have amply demonstrated their ability to hold on to power. With militaries and secret services under control in these regimes, potential transgressors are dealt with before they can pressure change. It is no surprise that the only opposition movements that have arisen are Islamist in nature—in the battle with “extremist elements,” Arab authoritarianism acquires a good name.⁸

Better authoritarianism than Islamism, in the view of existing regimes.

This leaves two other viable options for reform: oppositional civil society and outside pressure, namely from the United States. Both approaches would be more effective if the Palestinian-Israeli conflict were resolved. Since the creation of the modern Arab states in the mid-1950s, the one unifying factor that has mobilized all opposition movements—whether secular, pan-Arab, socialist, communist, democratic, or Islamist—is the emphatic denunciation of Western colonial influence. British colonialism, followed by American hegemony in the region, has dealt the Arab world an overwhelming sense of humiliation, exploitation, and defeat. The birth of the nation of Israel in 1948, Lamis Andoni reminds us, dispossessed Palestinians and cut them off from their environment, “instill[ing] a deep awareness of a residual colonial legacy.”⁹

Israel's decisive military victories against these dispossessed, which resulted in the creation of the Palestinian refugee problem and the Israeli occupation of the West Bank and Gaza, form yet another layer in the saga of colonialism. Both to the average Arab citizen and for collective opposition movements in the region—socialists or Islamists in Egypt, the Muslim Brotherhood or communists in Jordan—Israel's treatment of the Palestinians is unjust, and the United States supports Arab suffering.

Thus as opposition movements emerged in various countries in the region, they mobilized on an anti-Israel/anti–United States platform, often criticizing their respective governments for tacitly approving of deteriorating Palestinian living conditions. Although the Islamists have emerged to advocate other internal reforms (favoring socially conservative policies and condemning government corruption), the bulk of their platform is still couched in a discourse emphasizing the unjust treatment of Palestinians by Israel and the American approval of the occupation. In the absence of anti-American sentiment opposition movements would need to adopt internal programs and strategies to maintain the support of their constituencies.¹⁰

And while the United States currently calls for democratic reforms, it would be much more likely to push for regime concessions if it were not worried about anti–United States constituencies seizing power.

The second dimension of this argument holds that reducing anti-Americanism with a resolution of the Palestinian-Israeli conflict will hamper the ability of Arab governments to dismiss U.S. calls for democratization and reform. People remain skeptical—not because they don't like the message, but because they resent the messenger. Polls in 2002 found that support for the United States had significantly plummeted across the region, with U.S. support for Israel often cited as an explanation for Arab dissatisfaction with the United States.¹¹

The Arab world has not shown any willingness to divorce the messenger from the message. This is certainly true about the regimes themselves. Recently, Hosni Mubarak of Egypt said of U.S. calls for reform, “The deliberate disregard of the daily violations of human rights committed by Israel in the occupied Palestinian territories … will not help our endeavor to reform but may even strengthen terrorism and extremism which stem from the despair and frustration of Arab societies.”¹² In this formulation, Mubarak explains his unwillingness to reform as part of a strategy to counter U.S. support of Israel. He also tries to win sympathetic points from would-be internal dissenters.

Reform in the Arab world will not happen without difficulties. Evidence from the former Soviet Union and other third-wave countries indicates that the transition from authoritarianism to democracy is typically accompanied by unrest, instability, violence, and chaos. In the Arab world, the ability of current regimes to weather the winds of necessary economic reform will, to a great extent, determine the success of political reform. Unemployment for the entire group of Arab countries is about 15 percent. Combined unemployment and underemployment is as high as 20–25 percent. In Algeria it is at 30 percent; in the West Bank and Gaza it could be as high as 35–50 percent—in some areas even as much as 75 percent. First-time job seekers have the worst of it, and about 80 percent of the unemployed in Egypt are in this position. Since 1980, real wages for almost all occupations have declined in Egypt. Exacerbating this bleak economic predicament, the Arab world's share of world trade has declined from 38 percent in the 1980s to 3 percent today.¹³

Regional peace will increase the chances of regional economic agreements that include Israel and the United States. The qualified industrial zones (QIZs) in Jordan are but one example. Created in 1994 as part of a dividend for the Jordanian and Israeli peace agreement, these projects have created over 26,000 jobs, increased exports of Jordanian goods to the United States, and increased foreign investment in Jordan by almost 50 percent since 2002.¹⁴

In this regard, Jordan will have a more successful and peaceful transition than Egypt. Further, where economic realities are bleak, one should expect Islamists to gain stronger support. Islamists will attempt to push Islamist agendas, but as they continue to participate in formal political processes, they will have to adjust their visions to accommodate popular sentiment. It will take several election cycles, but eventually Islamists will moderate and effectively create domestic agendas.

The key to the success of democracy in the region is a simultaneous strategy of economic and political reform. Resolution of the Palestinian-Israeli conflict will induce these developments, but the success of reform will depend on the ability of governments to adopt effective economic policies. I expect instability in the next decade or so, but it should be a healthy instability, that is, one in which societies and states are determining their own futures.¹⁵