Tony Blair’s peace mission in the Middle East is doomed because he is not prepared to confront the Israelis, Palestinian business and political leaders said yesterday.

Yasser Abed Rabbo, the chief Palestinian negotiator, gave Mr Blair’s mission to revive the West Bank’s economy a “5 per cent chance” unless he was prepared to talk tough to Israel over loosening restrictions on freedom of movement.

But Palestinian businessmen who have worked closely with Mr Blair say that he is “running away” from such confrontations for fear of ending up like his humiliated predecessor. Mr Blair was appointed Middle East Quartet envoy in July, replacing James Wolfensohn, who resigned in frustration at Israeli obstacles to his efforts to revive the Palestinian economy.

Raising the standard of living in the desperately poor territories is seen as crucial to providing disillusioned Palestinian youths with an alternative to extremism and violence. But Palestinian leaders argue that such efforts are impossible without the removal of obstacles, such as Israeli checkpoints, which impede the movement of workers and goods within and in and out of the Palestinian territories.

Mr Wolfensohn’s attempt to create a “commercial corridor” to allow freedom of movement for goods and workers was thwarted by Israeli opposition. His failure, Palestinian businessmen said, had frightened Mr Blair off from risking his own reputation over the checkpoint issue.

UN officials say that Mr Blair was appalled by what he saw on his first visit to Ramallah in his role as a peace envoy but has shied away from tackling the issue head on. “He is a politician and he has political survival skills,” Abdul Malik al-Jaber, chief executive of the Paltel telecommunication group, told British journalists in Ramallah. “Mr Wolfensohn put all his weight behind the commercial crossing and for all his efforts he ended up with zero. Because Mr Blair has political savvy he doesn’t want to go in that direction.”

Last night Matthew Doyle, the spokesman for Mr Blair, denied that the former Prime Minister had ignored the problem of checkpoints.

“We are in a continual dialogue with the Israelis and the Palestinians,” he said. “These are issues that we are aware of and working on all the time.”

So far Mr Blair has unveiled three big projects on the West Bank for which he has raised £3.5 billion in donors’ pledges. The ideas are not new; only Israel’s backing for them.

But Palestinians remain unimpressed. “He is talking about industrial parks and none of these are going to work from our own past experiences, because that industrial park is going to be inside the Palestinian territory and goods need to move in and out,” said Dr al-Jaber, whose company generates 20 per cent of all Palestinian private-sector income.

“It looks very good in front of the international media to say that we have raised $7 billion in Paris. The question is, how many jobs is it going to create each month in Palestine? His mandate is to help the Palestinian economy and there is no way on earth you can help the Palestinians economy without removing the obstacles,” Dr al-Jaber said.

A tough nut to crack

— The GDP of the West Bank and Gaza in 2006 was £2.56bn. In per capita terms, that represented a 40 per cent drop from 1999

— According to Oxfam, Israel’s West Bank “security barrier” costs Palestinians 2-3 per cent of GDP each year

— Palestinians received £5bn in international funds between 1993 and 2007, yet 65 per cent live below the poverty line and 80 per cent of Palestinians are dependent on aid

— The World Bank said that even with recent donor pledges the West Bank economy would still shrink by 2 per cent a year if the issue of free movement was not addressed

— In Gaza 95 per cent of the private sector closed since the Hamas takeover last year

— Imports and exports to the West Bank are subject to Israeli checks and Customs, resulting in long delays and refusals of shipments