As the new U.S. administration lays the groundwork for resolving the Arab-Israeli conflict, it is worth considering how such a process might unfold. On a recent visit to the West Bank and Israel, I witnessed the importance of an integrated approach that combines progress on political negotiations, implementation of Road Map obligations and day-to-day realities. Economic progress is a key component in this strategy and must be fostered, but development will only be sustainable and help bring an end to the conflict if it is carried out in concert with advancement on other fronts.

My visit was focused on developing a new type of insurance designed to mitigate risk for Palestinian businesses resulting from checkpoint and border delays and political violence. Along with partners from the Middle East Investment Initiative (MEII), U.S. Overseas Private Investment Corporation (OPIC), USAID and Marsh, a global insurance broker, I met with a number of Palestinian businessmen, insurance companies and Palestinian Authority (PA), Israeli and U.S. government officials. Over the course of a week, we learned about the challenges facing Palestinian businesses, the progress that has been made thus far and what is necessary to move forward.

Meetings with Palestinian businessmen revealed a set of shared basic problems affecting their daily lives and the viability of their companies. These issues, which were repeatedly emphasized, include the loss of the Gaza market—as much as 50 percent of one company’s business—as a result of the closure of the Gaza borders; an import ban on needed chemicals; the holding of imported goods at Israeli ports for long periods of time; and the arduous export process created by internal checkpoints and border crossings. While the businessmen themselves are largely apolitical, these pressing problems are inextricably linked to the political process. They require solutions that will create a better environment for Palestinian businesses, but also ensure Israeli security.

A key piece to this puzzle is progress on the ground. Bassem Khoury, the newly appointed PA minister of national economy, told us that the Obama administration’s actions offer a sense of optimism that progress can be made towards a two-state solution. Nevertheless, he emphasized that much work remains to be done on day-to-day issues to improve people’s lives. That sentiment was echoed by a Palestinian businessman who told of standing in line at the Qalqiliya checkpoint between Ramallah and Jerusalem the day after President Obama’s speech in Cairo. The frustration of waiting in crowded lines to move between cities, he said, overshadowed the hope that he had felt during President Obama’s speech the day before.

Helping to relieve some of these issues was the central reason for the trip. Middle East Progress, a project of the Center for American Progress, and MEII are working with OPIC and the National Insurance Company, a local Palestinian insurance company based in Ramallah, to create a new form of insurance called Palestinian Political Risk Insurance (PPRI). PPRI, initiated by President William J. Clinton at the 2005 Clinton Global Initiative (CGI) annual meeting and a CGI commitment to this day, would protect Palestinian businesses against losses resulting from trade disruption and political violence. Businesses eligible for the insurance would be required to follow certain internationally accepted supply chain management systems that would build economic capacity and enhance security for both Israelis and Palestinians.

By working to protect against losses and improve business practices, PPRI will help businesses to grow, create jobs and develop a framework for economic stakeholders in the peace process. The project will also further develop the Palestinian insurance sector and increase the capacity of local insurance companies.

Other efforts are also underway to develop Palestinian economic institutions and build the economy. MEII is in the midst of implementing a loan guarantee program to help change lending practices in the Palestinian territories from a collateral-based system to a cash-flow-based system. As of March 2009, the loan guarantee portfolio consisted of 76 loans totaling nearly $28 million. MEII and its on-the-ground partner CHF International estimate that these loans will create nearly 3,000 new jobs in the West Bank.

Moreover, there is progress on the governmental levels. Minister Khoury is implementing a 100-day plan that focuses on developing the relationship between the Palestinian private sector and the government and includes strategies to address movement and access issues in the West Bank and reconstruction in Gaza. The strategy incorporates an effort to create standard operating procedures for Palestinian companies to improve their business practices.

The Israeli government has also expressed interest in working on these issues as part of a larger strategy and has begun to remove some checkpoints and roadblocks. The Israeli government officials we met said that, while Israeli security was their primary concern, they hoped to increase dialogue with the Palestinians to better understand their needs and capacities to determine possible means to improve the situation on the ground.

Taken together, PPRI, the loan guarantee fund, Minister Khoury’s economic plans and actions of the Israeli government offer routes for improving the Palestinian economy and the situation on the ground. They are not enough, however; they must be carried out as part of a greater strategy to bring about a sustainable two-state solution.

Over the course of the week, nearly all of the people we spoke to stressed that work on the larger movement and access and political issues is even more important. These challenges, including access to Gaza, imports of certain banned goods, time consuming and unpredictable procedures at crossing points and other issues, cannot be solved by developing economic institutions alone. Instead, this work must be combined with the continued strengthening and professionalization of Palestinian security forces, the removal of obstacles to movement and access and progress on the political track.

In the northern West Bank town of Jenin, for example, a coordinated political, economic and security effort has brought progress to a previously lawless city encircled by checkpoints. Then-U.S. Special Envoy for Middle East Regional Security (and current National Security Advisor) General James Jones, Quartet Special Envoy Tony Blair and U.S. Security Coordinator General Keith Dayton worked with the Palestinian and Israeli governments to change the situation on the ground. Now, life in Jenin has begun to improve: crime is down; businesses are beginning to grow; and Israeli Arabs can receive permission to shop in the city. In November 2008, the city was judged safe enough for then-Secretary of State Condoleezza Rice to visit. Observers have attributed Jenin’s success to an integrated approach of strengthening Palestinian security forces; implementing economic projects; and removing roadblocks and checkpoints. This coordination was made possible due to a period of political progress between Israelis and Palestinians that allowed for increased cooperation and provided a political horizon that encouraged steps towards economic and security reform.

In the end, the trip offered hope. We heard many difficult stories—of businesses having to shut down entire sections of plants as a result of import regulations and of the PA’s inability to pay back $1 million to a local manufacture due to lack of funds. Yet we also witnessed the great lengths Palestinian businesses will go to survive in a difficult economic environment and the possibility of progress if it is pursued in an integrated fashion. PPRI is one piece in this larger puzzle, which, put together correctly, will lead to a viable Palestinian state living side-by-side in peace and security with Israel.