Given the deadly confrontation off the coast of Gaza, the recent froideur in U.S.-Israeli relations, Iran's defiant pursuit of a nuclear weapon, not to mention two ongoing wars in Iraq and Afghanistan and the broader fight against al-Qaida, it's perhaps forgivable that the biggest news story to emerge from the Middle East in years has been eclipsed. But no one can accuse the Palestinian prime minister of neglecting to call attention to himself.

Since his appointment as prime minister of the Palestinian National Authority in 2007, following the Fatah-Hamas civil war that led to Hamas' takeover of Gaza, Salam Fayyad has completely transformed the West Bank from an immiserated backwater into a thriving, integrated society. Ramallah, the capital, where not too long ago Yasser Arafat's compound was encircled by IDF tanks, now resembles an embryonic Tel Aviv, featuring state-of-the-art office buildings, expensive boutiques and shopping malls, and ads for imported luxury goods. The casbahs of Nablus, once the cynosure for the second intifada, are busier than ever, and one can even mark the improved quality of life by the criminal indicators: This year Nablus saw its first arrest for drunken driving. Better that than suicide bombings.

Urban revivification is impressive under normal circumstances, but in the face of a global recession and a regional occupation, it's extraordinary. The West Bank's economy grew by 8.5 percent in 2009 and is expected to grow an additional 5 percent to 7 percent this year. Meanwhile, the Palestinian security forces have been refashioned, thanks largely to U.S. training, from a ragtag assortment of ideologically promiscuous mercenaries into a professionalized police corps whose effectiveness at keeping the peace is proved by Israel's willingness to dismantle roadblocks and checkpoints.

Ask any Israeli how this is being achieved, and he'll point to Fayyad, a University of Texas-educated former World Bank economist whose technocratic style is a welcome counterpoint in a world more accustomed to violent utopianism unburdened by the expectation of material progress. Fayyad's own political independence helps—he ran unsuccessfully for the PA Legislative Council in 2006 in the so-called Third Way Party, which polled a meager 2.6 percent—as does his shrewd positioning within Israeli society. He has outed himself as an agnostic on the crucial question of Israel's self-designation as a "Jewish state," and he has said publicly that a future Palestine would allow full citizenship to Jews. An easy presence on both sides of the Green Line, Fayyad's stature with his Israeli counterparts is famous. When Ariel Sharon was still Israeli prime minister, Fayyad sat next to him at a wedding and chatted comfortably about the chuppah, or Jewish nuptial canopy.

About a year ago, Thomas Friedman thought to affix an "ism" to Fayyad's name and dubbed the resulting coinage "the most exciting new idea in Arab governance ever," setting the bar not nearly so high as Israeli President Shimon Peres, who, while introducing Fayyad at last February's national policy conference in Herzliya, Israel, labeled him the "Palestinians' first Ben Gurionist." Coming from an elder statesman who knew Israel's founding father, this comparison was neither glib nor ill-considered. Indeed, what Fayyad is doing in the West Bank resembles nothing so much as what Zionists were doing in the Mandatory Palestine of the 1920s, that is to say, focusing on a careful ground-up state-building enterprise in order to make actual statehood an inevitability. As with Ben Gurion and the early architects of the Histadrut and Haganah—respectively, the trade union organization that handled everything from health care to housing to banking in the Mandate's Jewish community, and the security force that later evolved into the IDF—Fayyad walks a knife edge of antagonism and accommodation with an occupying authority that has it in its power to prolong or hasten that inevitability.

In London last August, he outlined his program of "de facto statehood" in a 38-page blueprint for infrastructure and institution-building. Rooted in free-market principles and an ethos of law and order designed to attract foreign investors, Fayyad's plan seems the joint brainchild of Rudy Giuliani and David Petraeus. (To get a sense of how his private-sector development has shaped up, see this useful "map" by the Portland Trust, a British foundation.) As Fayyad told the Times of London, his overall strategy is for "ending the occupation, despite the occupation" using the grammar of interest rates rather than that of armed struggle. Fuzzy on the details of how the West Bank would reunite with Gaza under a single government, Fayyad nonetheless envisioned a sovereign state of Palestine by 2011 to be outfitted with its own international airport (to receive, among other precious cargo, Air Force One), an oil refinery, and other key indicators of national maturity. Concomitant with the nurturing of the Palestinian economy was its disentanglement from the settlements.

If Fayyad's stock has gone down in Israel, it's because of his emergence as the public face of the settlement-boycott movement in the West Bank—a policy that Israeli Prime Minister Benjamin Netanyahu calls "economic and political warfare" and settlers call "economic terrorism." Fayyad has attended protests, which now average 40 per week, as well as various "bonfire" ceremonies, where settlement-made goods are incinerated. The Palestinian Authority has said that by the end of the year, all West Bankers employed in settlement industries must find alternative means of income. His most provocative measure so far was organizing the failed attempt to prevent Israel's entry into the Organization for Economic Co-operation and Development, because he says it is keeping a single ledger for domestic and settlement accounts. Only the former, he insists, should make it eligible for inclusion.

Israeli admirers say that Fayyad is merely doing what any politician in the region has to do: indulging in the theatrics of "resistance" in order to maintain credibility with the people. Many Palestinians wonder at Fayyad's true political motives; the settlement-boycott movement began at the grass-roots level and, depending on whom you talk to, the Palestinian Authority has either hijacked it in order to claim credit for the idea or infiltrated it in order to tame its more radical exponents and forestall a worst-case scenario: the outbreak of a third intifada. As one of Fayyad's own officials recently told The Economist, that dreaded contingency is all too real, particularly beyond the well-patrolled cities of the West Bank.

Fayyad the politician may have to triangulate himself between extremists and moderates (an activity with which Ben Gurion was also quite familiar), but Fayyad the economist is still acting in a manner wholly consistent with de facto statehood. The commitment to avoiding another eruption of violence is built right into this nationalist agenda and is non-negotiable: It's no accident that Palestinian Authority President Mahmoud Abbas recently called the second intifada "one of our worst mistakes." If another were to break out tomorrow, it would scupper everything Fayyad has spent the last 18 months building. De facto failed statehood is not something he or his constituents can afford at this point.

For a man who prefers Brooks Brothers suits and fat cigars to kaffiyehs and Kalashnikovs, Fayyad also faces a bit of an image problem: He doesn't conform to the Orientalist conception of a Palestinian leader. Israeli Arab Jerusalem Post correspondent Khaled Abu Toameh argues that Fayyad will never be a true leader of his people because he hasn't spent a single day in an Israeli prison. Hamas has called for his prosecution for "collaborating" with Israel, and Fatah hard-liners have derided de facto statehood as a "governmental intifada"—and they don't mean that as a compliment. Last summer Fayyad ran for the executive committee of the Palestinian Liberation Organization, still the only body legally entitled, under the Oslo Interim Agreement, to negotiate with Israel toward a final status agreement. He lost.

De facto statehood is decidedly at odds with the kind of grand-gesture, revolutionary romanticism that, from T.E. Lawrence on, is supposed to be the sine qua non of Arab independence. According to Hussein Ibish, a senior fellow at the American Task Force on Palestine, Fayyad has done a dangerous thing, all right: He has given Palestinians agency, responsibility, and much to lose, creating a new paradigm that many die-hard adherents to the "cause" find threatening to their idealism. As Ibish puts it, "nation-building is supposed to be a glorious top-down endeavour, not a mundane and workaday set of policies."