The Costs of the Israeli-Palestinian Conflict

For much of the past century, the conflict between Israelis and Palestinians has been a defining feature of the Middle East. Despite billions of dollars expended to support, oppose, or seek to resolve it, the conflict has endured for decades, with periodic violent eruptions, of which the Israel-Gaza confrontation in the summer of 2014 is only the most recent.

This study estimates the net costs and benefits over the next ten years of five alternative trajectories — a two-state solution, coordinated unilateral withdrawal, uncoordinated unilateral withdrawal, nonviolent resistance, and violent uprising — compared with the costs and benefits of a continuing impasse that evolves in accordance with present trends. The analysis focuses on economic costs related to the conflict, including the economic costs of security. In addition, intangible costs are briefly examined, and the costs of each scenario to the international community have been calculated.

The study's focus emerged from an extensive scoping exercise designed to identify how RAND's objective, fact-based approach might promote fruitful policy discussion. The overarching goal is to give all parties comprehensive, reliable information about available choices and their expected costs and consequences.

Seven key findings were identified: A two-state solution provides by far the best economic outcomes for both Israelis and Palestinians. Israelis would gain over two times more than the Palestinians in absolute terms — $123 billion versus $50 billion over ten years. But the Palestinians would gain more proportionately, with average per capita income increasing by approximately 36 percent over what it would have been in 2024, versus 5 percent for the average Israeli. A return to violence would have profoundly negative economic consequences for both Palestinians and Israelis; per capita gross domestic product would fall by 46 percent in the West Bank and Gaza and by 10 percent in Israel by 2024. In most scenarios, the value of economic opportunities gained or lost by both parties is much larger than expected changes in direct costs. Unilateral withdrawal by Israel from the West Bank would impose large economic costs on Israelis unless the international community shoulders a substantial portion of the costs of relocating settlers. Intangible factors, such as each party's security and sovereignty aspirations, are critical considerations in understanding and resolving the impasse. Taking advantage of the economic opportunities of a two-state solution would require substantial investments from the public and private sectors of the international community and from both parties.