Almost everything about the second Palestine Investment Conference held in Bethlehem earlier this month, which I had the honour of attending as a member of the US president Barack Obama’s official delegation, was encouraging.

The conference was designed to promote private sector development in the Occupied Territories, and was held at the Convention Centre in Bethlehem on June 2-3. The Palestinian president Mahmoud Abbas welcomed about 2,000 participants including Palestinian and other Arab businesspeople from around the world, entrepreneurs from Gaza, and many international institutional representatives and investors. The message, summed up by Tony Blair, the Quartet envoy, 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 on small to medium-sized businesses, which account for about 90 per cent of Palestinian businesses.

More than $950 million (Dh3.49 billion) was slated for a variety of projects that should have a significant effect on 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 meeting 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 co-operative. It allowed about 100 businesspeople from Gaza 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 the US government’s involvement in the conference and its workings, far beyond the presidential delegation.

The United States has clearly committed major effort and resources to the programme of state and institution building undertaken by the government of the Palestinian prime minister Salam Fayyad. Supporting the investment conference was an important and visible expression of the US administration’s commitment.

Our six-member presidential delegation of senior officials and private individuals was led by the US special envoy George Mitchell, which underlined the seriousness with which the US government takes both negotiations and the state-building process.

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

Mr Fayyad said that the Palestinians aim for a convergence between the programme 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 that are 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 this latest investment conference 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. The circle of stakeholders who share in this success should be expanded and institutions developed that ensure that Palestine will not be a failed state, but will be secure and prosperous.