Over the last six months, there have been numerous reports on the apparent signs of hope in West Bank cities such as Ramallah, Nablus, and Jenin. The Palestinian prime minister, Salam Fayyad, has also enjoyed flattering coverage in the likes of Newsweek and the New York Times, with his unilateral state-building strategy praised by a variety of commentators. The Israeli government, for its part, has trumpeted improvements in Palestinians' daily lives – from the easing of restrictions on movement, to a boosted economy. Yet as I discovered during a visit at the beginning of this year, these sunny reports bear no relation to Israel's colonisation of East Jerusalem and West Bank, where the permanently-temporary occupation continues to defy state-building efforts.

The first problem with the West Bank progress story is that even in economic terms the prospect of genuinely sustainable Palestinian growth is compromised by Israel's regime of control. Back in November, Israeli prime minister Binyamin Netanyahu claimed that as a result of his government's actions, there is "unprecedented prosperity in the Palestinian Authority". This and similar claims have often referred to a report last September by the International Monetary Fund, which predicts in its executive summary that "real GDP in the West Bank is projected to rise by about 7% in 2009".

Yet, speaking to me by phone, one of the report's authors, Oussama Kanaan, pointed out that since the economy was "starting from such a low base, even a modest relaxation of [Israeli] restrictions will have a significant impact on growth". But Kanaan also made clear that "prosperity has to do with per capita GDP – not growth". In terms of "the wealth of the economy", he said, "it was much better in 1999".

Another problem is that the Palestinian economy continues to be kept afloat by external sources, particularly in that the Palestinian Authority – and all the salaries it sustains – is heavily supported by international donations. On a smaller scale, a city such as Jenin has benefited from Palestinian citizens of Israel coming through a checkpoint to shop – but this is not helping self-sufficiency. Driving north out of the city takes you past rows of shuttered-up businesses and workshops, and even the promised "industrial zone" is as yet unrealised.

This dependency is further compounded by a second, fundamental problem. Kanaan stressed that continued growth in the Palestinian economy would not only require "direct access to the rest of the world and a lifting of the restrictions on exports", but also a "removal of restrictions on the use of 60% of the West Bank, Area C". This, he said, is because "you have to have an adequate resource base, ie control of land, for economic activity to occur there".

Yet Israeli colonisation continues apace in Area C – an area where, as reported by the UN's OCHA in December, Palestinians are almost entirely prevented from building. This is because the majority of this land "is earmarked for the settlements, the army, nature reserves or a buffer zone around the separation fence", and in the rest, almost all Palestinian building permits are refused. Last year, close to 200 Palestinian structures in Area C were demolished by the Israeli military.

As the space for state-building is unilaterally delineated by Israel, the latter is also continuing to develop the mechanisms of separation and control that render Palestinian "sovereignty" a joke. Netanyahu may have overseen the removal of some checkpoints but, at the end of last year, there were still 69 staffed checkpoints in the West Bank, and some further 500 obstacles to Palestinian freedom of movement.

Thus the third flaw with the West Bank state-building project is that Israel shows no intention of permitting the emergence of an independent, sovereign, Palestinian state. From Rabin's desire to help create an "entity" that would be "less than a state", to Netanyahu's vision of a "Palestine" forbidden from having a military and surrounded by Israeli-controlled territory, Israel is intent on maintaining its domination of all Israel/Palestine.

This is Bantustan-building, not a state-in-waiting. Even since I first visited in 2003, the occupation has become more entrenched, Israel's absorption of colonised swaths of Jerusalem and the West Bank further consolidated. From the checkpoint "terminals" and the separation wall, to the expanding settlements and transportation network around East Jerusalem – Israel is putting down the apartheid infrastructure of permanent domination.

A New York Times columnist once wrote that the creation of a Palestinian state was almost certain. "But," he continued, "it will be a state of a peculiar kind. Its citizens will often have to go through Israeli security checks in travelling from one part of their own country to another. In entering or leaving the new Palestine, they will be subject to rigorous Israeli controls. The state will be utterly dependent on Israel economically." That was 11 years ago, after almost a decade of "peace process" – and a year before the Palestinian uprising.

This brief analysis does not even take into account the siege of Gaza, the Israeli consensus that Jerusalem is the "undivided Jewish capital", and Israel's refusal to recognise the Palestinian refugees' rights. Yet even purely focusing on the West Bank is enough to show that the latest bout of "state-building" is merely a prelude for the next intifada.