The Palestinian prime minister, Salam Fayyad, was sharing his vision for the future. “The key requirement for a Palestinian state,” he began, speaking on a cellular telephone from his office in Ramallah. Then the line went dead, a dropped call. “You’ll have to excuse,” he said when he rang back. “We have a lot of competing cellular networks here, and sometimes our signals get crossed.”

He could just as easily have been talking about his political fortunes. A Western-trained economist praised by many in Israel and the United States, Fayyad has emerged in recent years as an unlikely Arab visionary—the “Ben Gurion of Palestine,” as Israeli President Shimon Peres recently called him. To hear most observers tell it, Fayyad governs like the Michael Bloomberg of Palestine—managerially, with seemingly little interest in politics over policy. But his ability to implement his vision is being hindered by old-guard interests on both sides of the Green Line, the demarcation that separates Israel from the West Bank. It’s one of those paradoxical realities of the Middle East that the heralded technocrat of Palestine has no democratic legitimacy but serves entirely at the pleasure of P.A. President Mahmoud Abbas, who appointed Fayyad to his position. Abbas last month announced his intention to resign as the Palestinian Authority president, citing Israeli intransigence on the peace process. If Abbas—Fayyad’s constituency of one—leaves, many observers of the region agree, that could create a power vacuum in the P.A. and lead to a third intifada, unraveling all of what Fayyad’s administration has accomplished. But, until then, his leadership provides what seems to be Palestinians’ best hope for a more functional future, and the prime minister seems unfazed that progress is being held hostage to factionalism. “We have competing ideologies and concepts,” Fayyad said. “But there are two ways of doing things: to sit on our hands and do nothing until we figure it out by talking, or to get on with it and act in a manner that’s consistent with a shared, broader outlook. I prefer to get on with it.”

And so he has. By all accounts, in the two years since Fayyad was named prime minister, the West Bank has been transformed from a besieged and impoverished bantustan into a rough sketch of what a functioning Palestinian state might look like—if it ever comes to fruition. In August, Fayyad laid out the most ambitious, bottom-up plan ever devised for Palestinian nationalism, “de facto statehood,” which is spoken of respectfully even by Israeli officials who oppose it (and most do). Meanwhile, Fayyad’s homegrown critics say his proposal conforms a little too nicely to Israeli Prime Minister Benjamin Netanyahu’s own designs for the occupied territories. He’s still combating cynical and entrenched PLO interests, held over from the Arafat era, who don’t like transparent government. He’s also jockeying to reunify Gaza and the West Bank, two regions separated in the midst of an internecine civil war in 2006 and now governed, respectively, by the Islamist party Hamas and the secular party Fatah.

A man apart and an agent of change in a territory with a 40-year status quo, Fayyad has, unsurprisingly, accrued enemies and skeptics, though his biggest cheerleaders are Americans. “He’s a real revolutionary,” said Jeffrey Goldberg, national correspondent for The Atlantic (and a Tablet Magazine contributor). “He’s done more to improve the quality of life in the West Bank than anyone else.” Indeed, concrete progress been made so rapidly under “Fayyadism”—New York Times columnist Thomas Friedman’s term for the prime minister’s ultra-pragmatic style of governance—that one former Bush administration official asked not to be identified for this article because “I don’t want to make Salam’s life more difficult by having someone like me praise him.”

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Fayyad speaks perfect English with an accent marked by his cosmopolitan upbringing. Though he grew up in the West Bank city of Tulkarm—he was 15 years old when the Six-Day War broke out in 1967—and went to college at American University in Beirut, all of Fayyad’s graduate work was done the United States. In Texas, to be exact: he earned an MBA at St. Edward’s University, a Jesuit-run liberal-arts college just outside Austin, and a doctorate in economics from the University of Texas at Austin. His thesis adviser was a leading macroeconomist, William Barnett, who told me that one memory that stands out of Fayyad the student was how badly in debt he always was—not necessarily a compliment for a budding economist. But this was because, Barnett explained, Fayyad was constantly bailing out friends who were even worse off financially. How did a Palestinian expat comport himself in George W. Bush country? “I am a Jew,” Barnett said, “and he chose me to be his thesis adviser. Does that answer your question?”

Post-graduate stints at the St. Louis Federal Reserve and the World Bank followed, and then Fayyad went to work for the International Monetary Fund in 1995 as representative to the Palestinian Authority, which had been established a year earlier, under the Oslo Accords. He credits a sense of patriotism with his return home and his decision, in 2001, to accept the portfolio of P.A. finance minister, a job that Yasser Arafat was forced to offer him because of angry domestic protests about P.A. graft and corruption.

Throughout the 1990s, poverty was endemic in the West Bank, and yet Arafat and his wife, Suha, lived like royalty. The International Monetary Fund estimated that from 1995 to 2000 Arafat stole $900 million from the Palestinian Authority. Fayyad, with his advanced degrees, Italian suits, and reputation for incorruptibility, set to work modernizing and un-corrupting this third-world political economy. In 2003, he gave an interview to Lesley Stahl of 60 Minutes in which he accused Arafat of using a network of monopolies in commodities like flour and cement to siphon off most of the cash. According to David Samuels, who wrote about Arafat’s reign of corruption in a 2005 profile in The Atlantic, “the price of a ton of cement in Gaza [was] $74, of which $17 went into Arafat’s private bank account.” The biggest sieve, though, was the Petroleum Corporation, which operated as a P.A. slush fund. “If there was not money in the treasury, [Arafat] went to the Petroleum Corporation,” Fayyad told Stahl.

Ultimately, Fayyad shut down the petroleum company, prompting speculation that he would be murdered by vengeful agents of the PLO. What saved Fayyad’s life was a mixture of morality and cunning: in one of his first major reforms as finance minister, he started paying P.A. security forces by direct deposit. Previously, they’d been paid in cash, and officials who handled that cash—including even P.A. ministers—routinely skimmed from it. By popular estimate, 50 percent of P.A. security personnel’s income was stolen every pay cycle, so Fayyad’s switch to direct deposit effectively doubled their salaries. “After that,” Barnett said, “when Salam walked down the street, even in Gaza, the police saluted him. He was probably safer than Arafat.”

His name was soon synonymous with integrity and honesty among both Palestinians and Israelis. Fayyad became a fixture on both sides of the Green Line, frequenting both the American Colony Hotel in East Jerusalem and the King David Hotel in West Jerusalem. According to Haaretz, former Secretary of State Condoleezza Rice thought Fayyad was the only Palestinian the United States could ever trust, and his ease with President George W. Bush was apparent, if only in kitsch form, when the president greeted the onetime-Longhorn prime minister, on his first visit to the Oval Office, with the Texas “Hook ’Em Horns” sign.

“We found him easy to deal with,” a Likud Knesset member, Silvan Shalom, told Haaretz in 2007, “and [former Israeli Prime Minister Ariel Sharon] believed that if money is being transferred to the Palestinians then at least it should go directly to him.” Daniel Seaman, who now runs Israeli Government Press Office, agreed in an interview: “When it comes to accountability, especially with money, he’s the best the Palestinians have.” Fayyad’s universal charm was surreally captured in 2005, when he attended the wedding of the daughter of Dov Weisglass, the ultra-Likudnik legal adviser to Sharon. The future Palestinian premier was seated next to the acting Israeli one, and the two talked amicably about the chuppah.

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In 2006, Fayyad ran for a seat on the Palestinian Legislative Council, the P.A.’s parliament. He was on a so-called “Third Way” ticket with Yasser Abed Rabbo, a veteran politician, and Hanan Ashrawi, a human rights activist and disciple of the Columbia University postcolonial theorist Edward Said. Though the slate received a meager 2.4 percent of the vote, Fayyad and Ashrawi both won seats on the Council, and Fayyad’s reputation was strong enough in elite circles to ignite rumors that he’d be appointed prime minister in the forthcoming government. He responded at the time that he wouldn’t accept the position as long as Hamas—the Islamist party, which won the election in a landslide—refused to recognize Israel. So Fayyad instead once again became finance minister in a short-lived Fatah-Hamas coalition government. After Hamas attempted a coup in 2007, and a brutal civil war erupted between the two parties that left Hamas in control of Gaza, Abbas, the Fatah leader, named Fayyad prime minister of a new “independent” Palestinian Authority, governing the West Bank. The move violated the Palestinian Basic Law, a kind of proto-constitution, which mandates that a prime minister be approved by the Palestinian Legislative Council—where Hamas still held a majority—but Abbas invoked executive privilege, citing a time of “national emergency.” That Fayyad is technically an illegal prime minister is dismissed by his admirers. “Remember that Ben Gurion had very undemocratic techniques,” said Seaman of the Israeli Press Office. “Sometimes for the establishment of a country, that’s necessary.”

Two years after Fayyad’s installation, with the peace process again stalled and increasing signs that the Obama administration’s efforts to restart it are hopelessly idealistic, the socioeconomic disparity between Gaza and the West Bank is depressingly stark. Gaza now faces massive unemployment and starvation, worsened by last winter’s Israeli war against Hamas, while the West Bank’s economy is expected to grow at 5 percent in 2009, according to Fayyad’s old employer, the World Bank, usually a purveyor of gloomy annual forecasts. Ramallah is awash with construction cranes and new shopping centers. Since 2008, the World Bank found, 6,000 news jobs have been created. Trade with Israel is up 82 percent; tourism in Bethlehem is up 94 percent; and agricultural exports are up 200 percent. Since Netanyahu took office, the IDF has dismantled dozens of manned roadblocks, increasing mobility in the territory; according to numerous reports, there are also plans to allow several hundred Palestinian businessmen free access to Israel.

“They’ve been easing our restrictions, yes,” Fayyad acknowledged, “but we want more to produce a critical mass of change in a way that’s going to impress the business community. Incrementalism isn’t good.” The key to past and future successes, he said, is bolstering internal security, perhaps his biggest preoccupation: “The main reason we have seen improvements in the economic sphere is that—long before Israelis eased restrictions—there were improvements in our security. Security is as much a Palestinian need as it is an Israeli one.” Of the 25,000 members of the Palestinian Authority Security Forces, about 2,100 paramilitary troops have been trained by U.S. Army Lt. Gen. Keith Dayton; their capabilities are such that Fayyad has used them to conduct autonomous operations against sectarian militants, especially those affiliated with Hamas.

Fayyad is no longer “safer than Arafat” on the streets of Gaza. Since he replaced Hamas leader Ismail Haniyeh as P.A. prime minister, he’s become anti-Islamist No. 1 in the occupied territories. Hamas officials have called him a “traitor” and threatened an “earthquake” of a response to his administration. But so far, most of the tremors have been of Fayyad’s own making. In May, he ordered a raid on a Hamas stronghold in the West Bank town of Qalqilyah that resulted in two dead Hamas militants, three dead P.A. soldiers, and one dead bystander. According to Newsweek, PA security chiefs were “uniformly critical” of Fayyad’s decision not to give the militants more time to surrender. Hundreds of Palestinians saw the raid as a shameful echo of Israeli policy. “Dayton’s Army serves the Jews,” one 24-year-old Palestinian law student shouted at passing P.A. troops. Since Fayyad took office, his forces have arrested 8,000 Palestinians, 700 of whom are still in jail, prompting complaints of a creeping authoritarianism.

“Any excesses or violations of basic rights do not reflect government policy,” Fayyad told me. As to claims that he’s overseeing the emergence of a micro police state, Fayyad was quick to indicate what preceded him, a West Bank mired in “a very bad state of lawlessness and chaos.” Part of the goal of his administration, he insisted, is to build public and civil institutions that ensure that “excesses and violations” are dealt with accordingly, and that West Bankers feel safe but not sorry. “Now we have confidence in our capacity to deal with our own security by improving detention facilities, banning any form of abuse, mental or physical, dealing with crowds and demonstrations,” Fayyad said. As evidence that abuses are on the wane, he mentioned an anti-government protest that occurred 10 days before our conversation. “There was not a single cited violation by security services. We even received letters from the demonstrators acknowledging that.”

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If any of Fayyad’s policies is liable to undermine his reputation as a law-and-order dogmatist, it’s the one with unquestionably revolutionary import. In late August, the prime minister announced the boldest Palestinian plan for nation-building ever conceived: the creation of a de facto Palestinian state by 2011. In a 65-page “blueprint,” Fayyad laid out a reunified country with enough infrastructure, municipal services, and tax incentives for foreign investors to make actual statehood viable—and, he hopes, legal statehood ultimately inevitable. Fayyad envisioned an oil refinery in the West Bank, an international airport in the Jordan Valley, and a reclaimed Qalandia airport just north of Jerusalem “to receive [President Obama] landing in his Air Force One,” as he gleefully told U.S. officials upon unveiling his blueprint. Obama seems willing to help that contingency come to pass; he promised an additional $20 million in aid to the P.A. shortly after Fayyad’s announcement.

Indeed, Fayyad’s goal to “end the occupation despite the occupation” by creating material conditions—or “facts on the ground,” as he puts it, co-opting a slogan of the Israeli pro-settlement community—enjoys broad international support. In September, Tony Blair, chief envoy of the Quartet on the Middle East—a diplomatic conglomerate that represents the United Nations, the United States, the European Union, and Russia—hosted the Ad Hoc Liaison Committee for Assistance to the Palestinians on the sidelines of the U.N. General Assembly in New York. There, donor nations offered $400 million to the P.A. by the end of 2009.

It also resembles, at first blush, Netanyahu’s own call for “economic peace,” which likewise places the immediate emphasis on bottom-up Palestinian development in anticipation of a formal political statehood. But if Fayyad is seconding an Israeli agenda, he’s the last to admit it. “Look, I’m an economist by training, not someone who would cast any doubts on the importance of economic improvements,” he told me. “Nevertheless, economics is just one leg on which a future Palestine must stand. To think that ‘economic peace’ is going to be a substitute for the political tract—that’s not something I would agree with.”

That doesn’t seem to be a risk. While Fayyad conceded that Israeli officials have read over his document “carefully and methodically,” he said he’s discouraged that both Netanyahu and Israeli Foreign Minister Avigdor Lieberman have balked at de facto statehood, arguing that it violates the letter of the Oslo Interim Agreement, established in 1994, which recognizes the PLO as the sole Palestinian negotiating partner for a permanent-status agreement. The Interim Agreement prohibits either side from taking “any step that will change the status of the West Bank and the Gaza Strip, pending the outcome of the permanent status agreement,” something that Netanyahu and Lieberman suggest Fayyad is in fact undertaking unilaterally. “My response to that,” Fayyad countered, “is that what we’re building toward statehood and getting ready for statehood, and that’s a Palestinian responsibility. It is unilateral. But it is positive unilateralism. Nowhere in that document do we mention the unilateral declaration of statehood. That’s a political declaration and that’s the purview of the PLO. So we’re very careful there.”

But Israel also hasn’t rejected Fayyad’s proposal outright, as Seaman of the Government Press Office points out. “What we’re doing is not negotiating through the media,” Seaman said. “You don’t just accept something like that. Anytime there’s a position we see as being acceptable or having room for thought, it becomes a starting point that deteriorates from there. Compared to everything else—Oslo, the Cairo Accords, President George W. Bush’s “road map”—what Fayyad’s suggesting is not inconceivable. But we worry that people on their side are not serious about taking responsibility”—he means security responsibility, Palestinians preventing attacks on Israel—“for what comes along with the plan.”

Palestinians aren’t unified behind Fayyad’s plan, either. Never mind Hamas; even Fatah power brokers have unequivocally dismissed Fayyad’s two-year plan as a bureaucrat’s capitulation to Zionism—a “governmental intifada.” And Fayyad’s attempt to get himself elected to the PLO executive committee in August was rejected. “The PLO is dominated by Fatah members and Fatah senior cadres and not all of Fatah is supportive of Fayyad because he represents a new way of doing things,” said Hussein Ibish, a senior fellow at the American Task Force on Palestine, a Washington-based group devoted the emergence of a Palestinian state existing peacefully alongside Israel. “Fatah and the PLO have a long history of being revolutionary armed movements, and Fayyad’s approach is furthest from that.”

Fayyad isn’t reluctant to challenging PLO orthodoxy. In mid-August, right before he released his blueprint, Fayyad told Haaretz that he was agnostic on the question of whether or not Israel should be classified as a Jewish state—one of Netanyahu’s preconditions for restarting the peace process. “Israel’s character is Israel’s business and nobody else’s,” Fayyad said. A month earlier, he had told a large crowd at the Aspen Institute in Colorado that Jews would be allowed to live in any future nation of Palestine and they “certainly will not enjoy any less rights than Israeli Arabs enjoy now in the state of Israel.” That same month, the only substantive resolution passed at Fatah’s General Assembly was the one recommending an investigation into how, exactly, Israel assassinated Arafat.

But the prime minister is quick to play down these differences. “Both constitutionally and morally, the government I have is a Palestinian government, so clearly there cannot be a situation where there’s a Fatah contradiction or difference in position or view. I’m an independent, but we all operate under the umbrella of the PLO.” Ibish suggests that he’s done more to separate party and state than he cares to admit: “The president’s cabinet contains fewer Fatah members than it did before Fayyad came to power.” But the bulk of the credit, Ibish insists, is owed to the Palestinian president. “What Abbas acknowledged is that it’s healthy both for Fatah and the government to have some distance between each other. Fayyad’s approach to governance is consistent with the Abbas policy on the future of Palestine—that it is more important than pleasing every Fatah figure.”

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Now that Abbas is likely on his way out—determined, he keeps saying, not to stay on as president—one must wonder if Fayyad harbors political ambitions of his own, to go along with his enormous geopolitical ambitions. He says he does not. “I have no plans to run for the presidency,” he told me. “I’m campaigning for de facto statehood on the strength of what we’ve been able to accomplish over the past several years.” Ibish, too, doesn’t see Fayyad breaking out of his administrative mold into a glad-hander and baby-kisser. “He’s not a politician in the classic sense, although he does have a party and they do stand people for elections. The time when he can stand as a viable independent candidate for president, however, is a long ways off.”

And, anyway, the fate of democracy itself in Palestine is uncertain. Hamas is planning to boycott the parliamentary elections set for January, and Ibish doesn’t see how a secular party like Fatah can ever realign with an Islamist party—and Iranian patron—like Hamas. “That’s a circle you can’t square,” he said. But he also noted, pointedly, that “a reconciliation that sacrifices the Fayyad strategy would not be worth it.” Fayyad disagrees. “Ultimately, reunification is going to happen because it’s a popular demand,” he said, insisting that it’s the sine qua non for Palestinian statehood. But the prime minister is vague—like, one might note, a politician—on how two fratricidal groups with contradictory purposes can be brought together again. He puts the most faith in his people’s awakening to material conditions.

Fayyad thinks like an economist, and though he may not be a political climber, his strategy is undoubtedly shrewd—offer the Palestinians a kind of Pepsi Challenge of self-determination: misery and religious totalitarianism in Gaza, or prosperity and growing freedom in the West Bank. Fayyad’s mantra is the economist’s version of the screenwriter’s imperative to show, not tell. “We’re not different from other countries with different parties and ideologies,” he said. “Our future will be decided by the Palestinian people, not by arguing on split-screen television. I am trying to produce results on the ground and then let the people decide.”