JERUSALEM'S Palestinians are philosophical about the election of Benjamin Netanyahu in Israel's May elections. The result may have destroyed any hope that East Jerusalem will become the capital of a future Palestinian state in the next four years, but officials at Orient House believe that dialogue will continue and are now focusing their efforts on trying to attract much-needed investment into its fragile and isolated economy.

Faisal Hussaini, the PLO's representative in the city, believes that the new Israeli government will have no choice but to address the issue of Jerusalem in the final status talks despite its hardline rhetoric during the election campaign. 'I believe he (Netanyahu) has put himself in the position where he will come under (intemational) pressure. He now needs to take some steps to prove that he is not as bad as people believe,' Hussaini told MEED in an interview on 2 August. As for Orient House, which Netanyahu promised to close: 'Our legal position is strong. We expect a peace agreement and I don't believe that anyone has a right to undermine our position here.

The peace process is so important that noone can act to destroy it.'

Since both Likud and Labour argue that Jerusalem is Israel's undivided capital, Palestinian officials say that the Israeli election result will make little difference.

Certainly the two parties' position on Jerusalem was the same in public, but behind the scenes there were indications that Labour was prepared to be more flexible on the issue. Earlier this year, the Israeli press ran reports of secret meetings between Israeli and Palestinian academics. and more significantly between Israeli and Palestinian ministers.

According to the reports, Palestinian minister Abu Mazen and then Israeli cabmet minister Yossi Beilin drafted a series of understandings on the central issue to be tackled during the final status talks, including one on Jerusalem that apparently left the city undivided, but gave the Muslim holy places ex-territorial status. 'I don't know about that (meetings between Abu Mazen and Yossi Beilin),' says Hussaini.

'But nothing will stop these academic meetings. I believe that the meetings are still going on, but maybe not with the same people.'

With the prospect of slow progress in negotiating the final status of the city, Orient House is stepping up its efforts to revitalise the East Jerusalem's flagging economy. Israeli restrictions mean that the city is now virtually cut off from the rest of the West Bank and the social and economic centre for most East Jerusalemites is fast becoming Ramallah, which came under Palestinian National Authority control at the end of December. This is a trend Hussaini is eager to reverse. 'This is what the Israelis are aiming at, but I don't believe that this will work,' he says. 'Maybe we will be like other states and have a political capital and an economic capital. But Jerusalem will continue to be the capital of Palestine.'

Hussaini has travelled widely in the region to try and drum up business interest in East Jerusalem. 'We are not asking for help and charity. We are looking for business,' he says. The investment drive is being led by Kamel Hussaini, Director of Orient House's Private Sector & Investment Unit. He is anxious that the political situation should not deter business in the city.

'Economic development should happen in East Jerusalem regardless of the political situation,' he says.

In late September, a Moroccan business delegation will come to city, the first organised visit to the city by business people from an Arab state since 1967. The visit fol lows a visit to Morocco by Palestinian businessmen in May. The delegation included representatives from Palestine Development & Investment Company (Padico), Arab Bank and Cairo Amman Bank.

Despite the continuing difficulties in securing building permits from the Israeli authorities, investment in housing and tourism sectors remains the clear priority. Orient House is anxious that East Jerusalem secures its share of the 4 million-5 million tourists who are expected to descend on the city in 2000 and has drawn up plans to increase the number of hotel rooms from 2,061 to 8,000.

In the housing sector, five housing projects, costing $155 million, have been drawn up.

Projects include the renovation of the Old City and adding height to existing houses as well as new residential and commercial complexes.