Over the road from the offices of the Palestinian prime minister, a new commercial tower is taking shape – one of countless projects that have sprung up across Ramallah.

The building site provides a noisy reminder of the economic boom under way in parts of the occupied West Bank, which registered growth of 8.5 per cent last year. Moreover, the upswing is taking place against a backdrop of relative stability and security.

Yet the man most commonly associated with the West Bank’s transformation is far from content.

Salam Fayyad, the Palestinian prime minister, says the recent growth is simply the result of injecting foreign aid into a small economy. With the flow of donor money already starting to fall, he is convinced that the boom is “unsustainable”.

Lasting growth, he told the Financial Times in an interview, could happen only once Israel lifted its restrictions on the occupied territory for good.

There is a deeper reason why Mr Fayyad has no intention of sitting back and enjoying the calm. To him, the recent improvements are markers, albeit important ones, on the road to a much grander destination – ending the Israeli occupation and establishing a Palestinian state.

At a time when many observers see little hope for a breakthrough, Mr Fayyad strikes a remarkably upbeat tone.

He said: “If we Palestinians believe that the state will happen, it will happen. If we want it, it will happen.”

Mr Fayyad’s confident prediction echoes a sentence written more than a century ago by Theodor Herzl, the father of Zionism, who rallied Jewish state-builders with the words: “If you will it, it is not a dream!”

Just as the early Zionists resolved to build their country bit by bit, so Mr Fayyad intends to lay the foundations of the Palestinian state one road, one school and one police station at a time.

“The essence of what we are doing is getting ready for statehood, in every way possible – in terms of having the capacity to govern ourselves, improving institutions and having adequate infrastructure,” he said.

The basic idea, along with a detailed programme for all areas of governance and the economy, is laid out in a document released by Mr Fayyad last August. It promises to deliver all the elements required for an independent Palestinian state by the middle of 2011.

The programme is about to enter its second and final year, or what Mr Fayyad calls the “home stretch to freedom”.

Almost 1,500 projects – from improving village roads to overhauling the state budget – have already been implemented.

Most measures are designed to improve the lives of ordinary Palestinians, but the “key objective” is to end the occupation, not least by making it easier for people to stay in the West Bank.

“This is not another development plan for another development country,” he said.

“This is development under occupation, in spite of occupation, to end the occupation.”

Perhaps the most important aspect of Mr Fayyad’s state-building plan is psychological.

“What we are doing is transformative in the sense that it is uplifting and gives people hope,” he explained. “As they begin to see things happening on the ground, the state of Palestine moves from being just a concept that people talk about into the realm of the possible – and then into reality.”

In addition, Mr Fayyad sees his programme as supporting the political negotiations between Israel and the Palestinians.

“The bet we are making is this: by the middle of next year, the political process will have produced an end to the occupation. If not, then the reality of Palestinian statehood will be so clear and compelling that it will exert so much pressure on the political process to produce [an agreement].”

His comments display an optimism that few in the region share. Critics point to the deepening rift between the West Bank and Gaza Strip, which is run by the Islamist group Hamas and remains off-limits to senior Palestinian Authority officials.

The Fayyad government’s crackdown on Hamas in the West Bank has won plaudits from Israel and the west, but it is also cementing Palestinian divisions. Among Palestinians, the response to Mr Fayyad’s efforts is mixed. He still lacks a power base and continues to score modestly in opinion polls. He says he is acutely aware that his programme lacks a democratic mandate – a shortfall that he tries to compensate for by spending at least one day a week visiting villages and towns across the West Bank.

This has encouraged speculation over Mr Fayyad’s own political ambitions. He agrees that he is running a “political campaign”, but insists that he is seeking support only for his programme, not for any future office.

“What kind of position are we talking about? What is there to vie for? We are not even a country,” he said.