The economy of the West Bank and Gaza is forecast by the World Bank to grow by 5 percent this year, 6.5 percent in 2010 and 7.5 percent in 2011.

But it's hardly the talk of Wall Street.

The Palestinian economy cratered in 1999 and is still clawing its way back up the graph. Per capita GDP dropped from around $1,500 (926 pounds) in 1999 to just over $1,000 last year.

So the notion that the West Bank is some kind of world-class recession beater, as Israeli ambassador to the United States Michael Oren wrote recently in the Wall Street Journal, has people here shaking their heads.

The Palestinian Authority government remains the West Bank's major investor and employer, and half of its funding is in the form of foreign assistance.

"While the projected recovery may appear impressive," says a June World Bank monitoring report, "it would still leave living standards below ... levels in 2000," when a Palestinian uprising triggered Israeli restrictions on movement and access.

Palestinians looking through the prism of 42 years of occupation are suspicious even of supposed "good news."

Oren's claim that they are already enjoying "the seeds of what Israeli Prime Minister Benjamin Netanyahu has called 'economic peace'" was too much to swallow.

"Imagine an annual economic growth rate of 7 percent, declining unemployment, a thriving tourism industry and a 24 percent hike in the average daily wage," Oren wrote.

"Where in today's gloomy global market could one find such gleaming forecasts? Singapore? Brazil? Guess again."

The West Bank is an archipelago of cities and land fragmented by a maze of Israeli no-go zones and three levels of administration -- Israeli, shared and Palestinian.

Israel controls roads, telecommunications, energy, air space and access to land and water. A World Bank report says "estimates of the total restricted area are difficult to come by but it appears to be in excess of 50 percent of the land."

This is not a sovereign state, like Norway or Morocco, to which classic econometrics may be applied.

ENDING "CLOSURE"

The World Bank estimates real GDP growth in 2008 at about 2 percent "which translates to an almost 1 percent decline in real per capita terms."

The wage bill of the Palestinian Authority, it says, accounts for 22 percent of total GDP of about $4 billion.

Eventual independence and statehood might change that, though it remains to be seen how much. Stalled peace talks may resume in the next couple of months, under the aegis of U.S. President Barack Obama, setting borders and conditions.

Meanwhile, Palestinian ministers dismiss the notion the economy is roaring ahead because Israel removed some checkpoints.

"We don't wish to view the issue based on bits here and there," said Economy Minister Bassem Khoury. "Anyone who knows economics can see that the major impediment to development in Palestine is the closure regime imposed by the occupation."

The current growth rate of 4 percent is down to Palestinian efforts, not Israeli concessions, Koury said, and it is still way short of the true potential of the West Bank's 2.5 million people.

"Removing a checkpoint one day and putting it back the next will not produce genuine economic activity," the minister said.

But Israel has removed -- or unmanned -- some major army checkpoints that crippled mobility in the West Bank for years following the Palestinian uprising, and so far they have not sprung up again overnight.

The effects have been immediate and obvious in the cities of the West Bank, from Jenin in the north to Hebron in the south.

People and trucks find it a bit easier to move around, and Arab Israeli shoppers long barred from the West Bank by Israel are coming back. Trade is reviving and jobs are opening up.

The Palestinian Central Bureau of Statistics says the unemployment rate dropped from 19.5 percent in Q1 2009 to 15.9 percent in Q2, due to "seasonality and working in agriculture."

Both sides agree the radical improvement in law and order through the establishment of a U.S.-trained Palestinian security force has laid the foundation for these changes.

AIRPORT AND TAX-CUTS

From opposite ends of the conflict, Palestinian Prime Minister Salam Fayyad and Israel's Netanyahu are stressing the power of prosperity to brighten hopes of peaceful coexistence.

Netanyahu, in power since March, says 15 major 24-hour manned checkpoints have been removed and more will go.

Fayyad, whom many credit for overhauling finances and trying to curb corruption, says Palestinians could have a state ready to move into in two years, if they starting building it now instead of waiting for a final agreement with Israel.

Presenting guidelines this week, Fayyad said that in addition to "challenging the occupation and confronting its measures," Palestinians can build infrastructure, secure energy sources and water, and improve housing, education and agriculture to "get our economy out of the cycle of dependency."

Objectives set by the Western-backed premier include an international airport near the Dead Sea, rail links to neighbouring countries and tax cuts for local and foreign investors.

But these are wishes, not firm plans, and Fayyad makes the point that the economy would continue to rely on outside support for a considerable time even after a peace deal was concluded.

In the meantime, lifting Israel restrictions on movement will only have a significant effect, say businessmen, if investors are given a pledge that they will not reappear again at Israel's political whim.

The World Bank says the restrictions hindering Palestinian economic development are not just physical obstacles but a comprehensive system of bureaucratic policies, which still has to be loosened, including access to export markets.

The IMF-projected growth rates in the West Bank hold only if easier movement and access are maintained and extended.

"Even with the assumed relaxation of Israeli restrictions starting in 2009, real income per capita in 2011 would still be about 27 percent below its level in 2000," say the World Bank's June monitoring report.

This leaves aside the 1.5 million Palestinians living in the Gaza Strip under the rule of the militant Islamist Hamas group which refuses to renounce violence or accept Israel and is at daggers drawn with West Bank leaders.

The coastal enclave, separated from the West Bank by 45 km (27 miles) of Israeli territory and under blockade, was battered by a three-week Israeli offensive in January to force Hamas to stop firing rockets into Israel.

Reconstruction has still not begun and Gaza is essentially cut off from the economy of which it was once a vital part, with unemployment of 40 percent and poverty levels rising.

(Additional reporting by Mohammed Assadi, Ali Sawafta and Erika Solomon, Editing by Robert Woodward)