The last time chief executive officer Eyal Waldman had been to the Israeli-occupied West Bank was as a soldier. But when he needed to outsource some work for his fast-growing Israeli technology company, he chose an unconventional solution: hiring Palestinian programmers from Ramallah.

The year-old experiment has worked so well that the firm, Mellanox Technologies, expects to establish a research and development center in Ramallah. Even if it costs more than a similar operation in Eastern Europe, Mr. Waldman says there's an intangible upside: boosting political stability by employing Israel's neighbors.

"We think that it makes our whole economy and whole geopolitical situation better," he says.

The CEO's vision of business and politics harks back to the 1990s, when excitement about the Israeli-Palestinian peace process prompted talk of a new Middle East – including burgeoning economic ties between Israel and Arab countries.

But in the ensuing decade Israel erected a security barrier to prevent Palestinian attacks, making any cooperation with Palestinians at least seem like a pipe dream.

In recent years, however, the Palestinian uprising has subsided and Israel has relaxed some of its movement restrictions, giving the West Bank economy a chance to grow. It's also provided an opportunity for cross-border joint ventures.

A viable Israeli-Palestinian business model

Mellanox's development teams usually hold meetings via video conference, but Palestinian programmers also travel through Israeli military checkpoints at least once every two weeks for meetings. Waldman himself has twice visited Ramallah, where he was impressed by the building boom under way in the city – the seat of the Palestinian government.

Israel's technology industry – which lures investment from leading tech multinationals – is located less than 50 miles from Ramallah, a proximity that facilitates cooperation. Asal Technologies, the outsourcing firm that supplies programmers for Mellanox, gets 40 percent of its work from Israeli companies and Israeli branches of multinational companies such as Intel.

"We are close by, in the same time zone, and have the same [Friday-Saturday] weekend. They know us and we know them," says Asal chief executive Murad Tahboub, who sees the potential for boosting not only business but peace as well. "Palestine was never on the radar of the information-technology industry worldwide. But there is a viable business model, and it helps the region.... Having a good economy is good for the Palestinians, which makes people more open to living peacefully."

Indeed, for some Palestinians, the outsourcing business is one way of nourishing their own fledgling technology sector. Though the industry is still embryonic on a global scale, executives argue that it has the potential to one day serve as a pillar of the private sector.

"Any sector that depends on Palestinian brain power is a promising sector. Frankly speaking, this is about the only thing that we have," says Bashar Masri, a member of Asal's board of directors.

Despite differing politics, 'as a company we work together'

To be sure, not all Palestinian technology executives see outsourcing to Israel as the best way to prosper. Andre Hawit, the chief executive of Ramallah start-up gSoft Technology solutions, says the Palestinian technology sector shouldn't become dependent on Israel. Building original products is a better way to attract talented programmers and venture capital and is a growth model "more resilient to political and physical limitations on the ground," he says.

There are signs of optimism for Palestinian start-ups: This month, Sadara Ventures, the first-ever Palestinian technology venture capital fund, announced it had raised some $29 million from investors like Google, Cisco, and former America Online CEO Steve Case. It plans to expand to $50 million next year.

The fund is being comanaged by Yadin Kaufman, a veteran Israeli venture capitalist who joined with Palestinian software entrepreneur Saed Nashef after he realized that there is technology know-how in the West Bank but no capital to fund it. "It is an untapped opportunity," says Mr. Kaufman, who says the fund invests solely in Palestinian firms rather than Israeli-Palestinian joint ventures. "If a high-tech knowledge-based economy can flourish there, I think this is good for everyone in the region...."

Mellanox is also looking to invest more in the West Bank. If its research and development center opens by year-end as planned, Mellanox would become the first publicly listed Israeli technology company to open a branch in the West Bank.

Asked whether the Israeli-Palestinian conflict ever puts a chill on the daily relations between Israeli and Palestinian programmers, Waldman insisted that current events don't affect the work environment.

"They can have their own politics and we can have our own politics," he says, "but as a company, we work together as a team."