Mohammed Shaikha was 9 when the carefree rhythm of his village childhood - going to third grade, picking olives, playing hide-and-seek - was abruptly cut short.

Uprooted during the 1948 war over Israel's creation, he's now a wrinkled old man. He has spent a lifetime in this cramped refugee camp, and Israel's 60th independence day, to be celebrated with fanfare on May 8, fills him with pain.

"For 60 years, Israel has been sitting on my heart. It kicked me out of my home, my nation, and deprived me of many things," he said.

And each Israeli birthday makes it harder for 70-year-old Shaikha and his elderly gin rummy partners in the camp's coffee house to cling to dreams of going back to Beit Nabala, one village among hundreds leveled to make way for the influx of Jewish immigrants into the newborn Jewish state.

Israel's joy over independence after two millennia of Jewish exile has been the Palestinians' "naqba" - their catastrophe. The state they were to have in a partitioned Holy land was made stillborn by the 1948 war. The 1967 war that brought the West Bank and Gaza under Israeli rule doubled the catastrophe. And the negotiations that are meant to bring about a Palestinian state are bedeviled by constant violence and distrust.

Perhaps even more dispiriting for the Palestinians is the acrimonious ideological battle between Hamas' Islam radicalism and Palestinian President Mahmoud Abbas' embrace of Western ideas.

This year, the two sides couldn't even agree on joint "naqba" commemorations. Instead, on May 15, the date Palestinians mark the "naqba," Abbas' Fatah movement will sound sirens in public squares and hold large rallies, while Hamas plans a separate event.

A poll finds one-third of the young would emigrate if they could, weakening the social bonds that have held Palestinian society together.

The dreamed-of Palestinian state was always an unwieldy notion, uniting the West Bank and Gaza with Israel in between. Now the divide is more stark.

After last year's civil war, Hamas militants run Gaza, while Fatah moderates control the West Bank, separated by an Israeli travel ban and a Western boycott of Hamas.

As Abbas and Israeli Prime Minister Ehud Olmert pursue a peace deal, negotiations move at glacial pace and the idea of a Palestinian state alongside Israel looks ever more distant.

Gaza's 1.4 million people are getting poorer and more militant, three-quarters living on $2 a day and scrambling for such basics as cement, winter shoes and painkillers. So acute is an Israeli-induced fuel shortage that donkey carts are back.

The West has placed its hopes for peace in the West Bank, where Abbas rules, and is injecting massive foreign aid that has restored a limited sense of stability after eight years of fighting with Israel.

Israeli troops still carry out nightly raids in the West Bank in search of wanted militants and enforce stifling travel restrictions. But civil servants - the largest group in the labor force - get paid regularly, West Bank cafes are crowded on weekends, a hunger for education is packing universities, and there's a small building boom.

It all testifies to a determination, by a generation raised under Israeli occupation, to keep going.

This perseverance takes many shapes.

Iyad Hmeidan, a former Fatah supporter, has turned to religion and Hamas in his disappointment over the broken promise of statehood. "In this period, I rely on God," said Hmeidan, a 36-year-old accountant and grandson of a refugee from Jaffa near Tel Aviv. "Hamas relies on religion, the words of God."

In the West Bank, another Fatah activist disillusioned with peace efforts has started a microcredit bank, making grants and loans to small businesses, including 12 village women who produce olive oil soap.

"This is the only way to try and create some changes for the people ... and some hope," said the 52-year-old banker, Sami Saidi.

As Israel celebrates its achievements - robust economy, democracy and army - Palestinians look back on a history of failures. "We were the losers over the years ... and we will keep losing," said Luay Shabaneh, head of the Palestinian Central Bureau of Statistics.

The refugees and their descendants number 4.5 million today, or nearly half the world's 9.3 million Palestinians. Few refugees can realistically expect to go home again, because Israelis fear being swamped by a mass repatriation.

That makes the Palestinian predicament especially harsh, said Karen Abu Zayd, commissioner of the U.N. Relief and Works Agency which helps the Palestinian refugees.

Refugees can usually expect to go home once the crisis dies down, but here, she said, "we don't know when they'll go home. ... there is a lot more hopelessness."

About one-third of the refugees and their offspring live in 58 camps, some of them sprawling shantytowns, in the West Bank, Gaza, Syria, Lebanon and Jordan.

Mohammed Shaikha, his parents and five siblings settled in Jalazoun north of the West Bank town of Ramallah in the early 1950s, living first in a tent, then a two-room shack. He married, had eight children and worked in the laundry of a U.N. teachers' college. In 1980, he built a bigger house.

While he clings to the mantra of return to Beit Nabala, his native village, his son Wajih, 42, has put down deep roots in Jalazoun, now home to 13,000 people squeezed into 65 acres of drab box-shaped houses.

He bought a supermarket and is building two large homes with money earned in 11 years as a supermarket clerk and limousine driver in Paterson, N.J. He says he returned to Jalazoun for a sense of community that was lacking in Paterson.

Wajih's daughter Mais, 18, misses Paterson, but considers Jalazoun home, and said she failed to establish an emotional connection to Beit Nabala during a roots trip with her dad a few years ago.

The 1948 war had largely separated Israelis and Palestinians, except for some 150,000 Palestinians who stayed put and became Israeli citizens. With Israel's capture of the West Bank, Gaza and east Jerusalem in the 1967 Mideast War, the two peoples became painfully entangled again.

While the Palestinians under Yasser Arafat took to bombings and hijackings to make the world notice their existence, Israeli Jews poured into the West Bank as settlers claiming the land as their biblical birthright. A six-year Palestinian uprising ended when Arafat negotiated an interim peace deal with Israel, but it fell apart when negotiations for a final treaty reached critical mass and a fresh Palestinian uprising broke out, this time using guns and suicide bombers. Nearly 5,000 Palestinians and more than 1,000 Israelis have been killed in the past eight years.

Today, Arafat's portrait is the centerpiece of the public square in Jalazoun, but Israeli control of Palestinian lives is ubiquitous.

Israel's separation barrier and roadblocks, built to stop suicide bombers, now carves up the territory into separate regions for Palestinians and protects the Jewish settlers.

Israel pulled out of Gaza in 2005, but controls access from land, air and sea, and, along with Egypt, imposed a near-total blockade after the violent Hamas takeover last June.

The symbols of occupation - settlements, army bases, roadblocks - are visible across the West Bank. Jalazoun's immediate neighbors are a large army base and the settlement of Beit El, whose red-roofed houses tower above the camp. In all, some 450,000 Israelis have settled in war-won east Jerusalem and the West Bank in the past four decades.

Today, many of those who fought Israel in the two uprisings are dead, in prison or building new lives.

Ex-gunman Emad al-Shani, 39, accepted Israel's offer of amnesty for members of the Al Aqsa Martyrs' Brigades, a Fatah offshoot. The father of five now sells bread in the West Bank city of Nablus, and after years on the run enjoys sleeping in his own bed. "I finished my role and returned to my normal life," he said.

Like al-Shani, many focus on their private life.

Natalie Zananiri, a 21-year-old information technology student at Bethlehem University and a part-time beautician, hopes to land a job abroad with a large corporation after graduation. She dismisses the peace talks as "nonsense" and doubts she'll see a state in her lifetime.

Others say Israelis and Palestinians can no longer be untangled and are doomed to share one state. Such a view is especially common among disappointed Palestinian peace activists, such as Firas Husseini, scion of a prominent Palestinian family whose uncle was among the first PLO officials to meet with Israelis.

Yet after years of fighting, the current lull and influx of foreign aid have given the West Bank's middle class and business community a sense of opportunity.

Abbas' government plans to build 30,000 apartments in several new suburbs, and the road leading into Ramallah, the West Bank business hub, is lined with high-rise construction. Rich Palestinian exiles have been invited to an investors' conference in Bethlehem next month.

Patriotism means setting up new businesses, said Monib al-Masri, one of the West Bank's richest men whose castle-like home rises above the Nablus skyline.

"We'd like to ask more people to come and invest," said Masri, 70.

Meanwhile, no roadblock or free-fire zone can keep out the winds of globalization. China has glutted the West Bank with imports that even include black-and-white checkered keffiyehs, the Palestinian headdress of choice.

In Gaza, by contrast, 10 months of blockade have shut nearly all the factories for lack of raw materials, and tens of thousands have lost their jobs.

Yet Palestinians don't publicly blame it on Hamas' refusal to recognize Israel or stop the daily firing of rockets. Instead they blame Abbas, Israel and the West for refusing to accept the election result that favored Hamas.

Hamas says Abbas is welcome to negotiate on behalf of all Palestinians, provided a deal is put to a referendum, but its rocket attacks have repeatedly soured the climate for negotiations.

Amid the division and hopelessness, anthropologist Sharif Kaananeh urges his fellow Palestinians to take the long view and learn from Jewish history: "If they waited 2,000 years to claim this country, we can wait 200 years."