Almost everything about the second Palestine Investment Conference held in Bethlehem in early June, which I had the honor of attending as a member of President Barack Obama's official delegation, was encouraging.

The Conference, which was designed to promote private sector development, was held at the elegant and modern Convention Center facility in Bethlehem from June-2-3. President Mahmoud Abbas welcomed around 2,000 participants including Palestinian and Arab business people from around the world, impressive entrepreneurs from Gaza, and many international institutional representatives and investors. The message, summed up by the Quartet Envoy Tony Blair was simple: Palestine is open for business!

While the first Investment Conference in 2008 focused on large development and public-private partnership initiatives, this Conference focused properly on small to medium-sized businesses, which account for about 90% of Palestinian businesses.

Over $950 million was slated for a variety of projects that should have a significant impact in developing the Palestinian economy and society. Panel discussions, business-to-business interactions and corporate displays filled the two days of meetings.

The Conference itself is becoming an institution, and work is already underway for a third investment conference in May 2011, this time focusing on health and education.

I was deeply struck by the extent to which security is now taken for granted in the areas under Palestinian Authority control such as Bethlehem. This is an extraordinary transformation from recent years in which lawlessness often prevailed, and when constricting Israeli controls would have rendered such an event both unthinkable and practically impossible.

Israel, though clearly present at the Bethlehem checkpoint, was cooperative. It allowed around 100 Gaza business persons to attend the conference and facilitated the participation of Arab financiers and entrepreneurs from states that do not have diplomatic relations with Israel.

I was impressed and proud, after our delegation met with US Consulate officials, of the extent of our government’s involvement in the conference and its workings, far beyond our Presidential delegation. The United States has clearly committed major effort and resources to the program of state and institution building undertaken by the government of Prime Minister Salam Fayyad. Supporting the PIC was an important and visible expression of the Administration’s commitment. Our six-member Presidential Delegation of very senior-level officials and private individuals was led by Special Envoy George Mitchell, which underlined the seriousness with which our government takes both negotiations and the state building process.

The Conference, and the thrust of the policy of the PA, is to promote Palestinian economic development is not just a drive for prosperity, but can only be understood in the context of the state and institution building program. Going beyond the notion of “economic peace,” Palestinians are purposefully building and preparing for political independence.

In my meeting with Fayyad he said that the Palestinians aim for a convergence between the program of building the essential elements of statehood and the diplomatic negotiating process to end the occupation, and the conflict, in order to achieve a sustainable peace.

Palestinians understand that their state can only be achieved by a negotiated peace agreement with Israel shepherded by the United States, but they will not simply sit back waiting for politics and diplomacy to align in order to move forward. Instead, they are taking the initiative, after the strides they made on security, to create the institutional, administrative and economic framework of their independent state under the occupation, in order to end the occupation.

The Bethlehem Conference highlighted both the importance of Palestinian efforts to develop their society and its institutions and the centrality and effectiveness of the new security regime they created, with our help, in the limited areas under their control.

Just as it is crucial for Israel not to stifle or suffocate Palestinian economic development, it is essential that it begins to allow the Palestinian security services to assume responsibilities in ever greater areas of the Occupied Territories. The two go hand in hand: without security, economic development is impossible, and without economic development, security would be an unsustainable tool of coercion. However, government and institution building, economic development and improved security cannot be ends in themselves. They must ultimately lead to a peaceful Palestine alongside a secure Israel. Absent a political solution, both security and the economy will collapse.

The impressive economic development work done at PIC offers Palestinians, the international community and Israel, another important vehicle for moving in the right direction. This is a political conflict that requires a political solution, but that solution needs to be buttressed by economic development that expands the circle of stakeholders in its success and the development of institutions that ensure that Palestine will not be a failed state, but will be secure and prosperous.