In the occupied West Bank, a bedouin community whose school is made out of car tires and mud faces the same problem as a developer planning a whole new Palestinian town: building controls imposed by Israel.

As Israel enforces a partial, temporary freeze on building in its West Bank settlements, Palestinians and their government are struggling to develop their communities in large areas of the territory that fall under full Israeli jurisdiction.

Under interim peace agreements with the Palestinians, Israel exercises civil and military control in about 60 percent of the West Bank. Known as "Area C," the zone envelops settlements built since Israel occupied the West Bank in a 1967 war.

The Jahalin bedouin are Area C residents who gave up seeking permission to build long ago but want their children to read. They erected the makeshift school with the help of an Italian NGO this year, their community representative said.

"Many of our students are illiterate due to the difficulty of getting to school," said Mohammed Qarashan, spokesman for a community that decades ago settled on land which he said they rent from two Palestinian villages.

"We never apply for any permissions because we know in advance none are given."

On the grounds that it was an unlicensed building, Israel issued a demolition order against the school, said Shlomo Lecker, an Israeli lawyer who represents the local bedouin.

He secured a court injunction against the order. But in the meantime, Israeli settlers living on a nearby hill had launched their own petition to demand it be knocked down, together with the shacks where the Jahalin live, he said.

Compounding the threats, the community sits on land Israel has set aside to widen a highway used by both Palestinians and Israelis. The Palestinians had been ready to relocate their camp but the Israeli authorities had not agreed to a permit that would allow them to reassemble it elsewhere, Lecker said.

"They demanded demolition without any guarantee that they could rebuild," he said.

Reuters made repeated requests for comment from the official body which oversees Israel's activities in the West Bank but at the time of publication it had not provided a response.

Under the interim agreements, Israeli control of Area C should have ended 18 months after it was established in 1995, said Hassan Asfour, a former Palestinian negotiator.

"Israel uses it to choke the Palestinian Authority and to restrict regional expansion and building. While allowing the settlers to build settlements and have natural growth, it chokes Palestinian natural growth and expansion," he said.

The arrangements which resulted from the 1993 Oslo Accords are a far cry from the independent state in the West Bank and Gaza Strip which Palestinians hoped to have established by now.

Israel says that is the fault of Palestinians for not ending violence and threats against the Jewish state.

Sixteen years on from Oslo and one violent uprising later, the Palestinian Authority continues to exercise civil and internal security over islands of territory amounting to just 17 percent of the West Bank.

Palestinians do not need Israeli permission to build there. In the remaining 23 percent, or "Area B," the Palestinians have civil control while Israel is responsible for security.

Since the beginning of 2009, 180 Palestinian-owned structures have been demolished in Area C due to lack of building permits, says the U.N. Office for the Coordination of Humanitarian Affairs in the Occupied Palestinian Territories.

The last demolition was in July. The Israeli-controlled zone remains "to a large extent, off-limits for Palestinian use and development," the U.N. body said in a November report.

The government led by U.S.-backed Prime Minister Salam Fayyad feels the restrictions as much as ordinary Palestinians. Many of the large projects it is planning, including an airport and industrial zones, are designated for Area C.

While Israel has eased movement restrictions across the West Bank, contributing to economic growth, it continues to block most Palestinian development projects in the area, said Public Works and Housing Minister Mohammad Shtayyeh.

"What we are doing is preparing the ground, hoping that this situation will change," he told Reuters.

Earlier this year, Tony Blair, envoy for the international Quartet of Middle East mediators, called for a new planning system in the area so the Palestinians could develop their land.
Seeking to combat the system, the Palestinian government is encouraging farming in the area, Shtayyeh said. "If Israel is stopping us from building an airport, it does not stop us from cultivating the land."

In Israel's West Bank settlements, the 10-month construction moratorium announced in November allows settlers to press on with the building of some 3,000 homes already authorized.

Public buildings are exempt, as are West Bank settlements that fall within Israel's Jerusalem municipality, which extends deep into the territory. Prime Minister Benjamin Netanyahu has said building will resume at the end of the 10-month period.

Nonetheless, settlers are protesting, and were rallying in Jerusalem on Wednesday to demonstrate their will to build on.

Palestinian developer Bashar Masri says Palestinians must try to limit future settlement expansion by building more themselves. He is about to start work on the construction of a new town called Rawabi in the hills outside Ramallah.

The $300 million project is on terrain which falls under Palestinian jurisdiction. But the land upon which he needs to build an access road to the site does not. He says he has been awaiting Israeli approval for the road for two years.

"I want to see the road under Palestinian jurisdiction," said Masri, whose development will sit atop a group of hills across the valley from an Israeli settlement.

The town will initially be home to 25,000 but meet only a fraction of the growing Palestinian demand for housing. "The cities are already highly populated. That leaves very limited areas that you can really develop," he said.

"Area C is a huge problem."