The Middle East peace process is still on track, or so Israeli Prime Minister Benjamin Netanyahu would have the world believe. The Israeli premier has visited Jordan and Egypt, and there has been a marked change of tone in his remarks about Syria. But the Palestinians remain out in the cold. Israeli troops have still to be redeployed from Hebron, and there is widespread concern that the new Israeli government will hold good its election promise to increase settlement activity in Gaza and the West Bank.

Speaking in Amman on 5 August, Netanyahu said he had relayed a proposal to Syria via the US to restart talks and was waiting for a response. However, the proposal did not address the issue of an Israeli withdrawal from the Golan Heights. the key dispute between the two countries. 'The proposal is to discuss something that we are already agreed on the withdrawal from Lebanon. In other words, evacuating the Israeli army from Lebanon,' Netanyahu's adviser David Bar-Ilan told reporters.

There has been a marked change in the Israeli tone with regard to Syria. In the aftermath of his May election victory. Netanyahu pointed an accusing finger at Damascus for supporting terrorism. But after talks with King Hussain, whose 3 August meeting in Damascus with President Asad marked an end to the recent tension between Jordan and Syria, Netanyahu struck a more positive chord. 'I was asked about what I learned from His Majesty from his discussions in Damascus.' Netanyahu said. 'And what I learned was that there was a clear expression of a desire to resume the quest for peace in Damascus and that's encouraging. It is something we will readily take up.'

The Lebanon-first approach by the new Israeli government is proving an effective way of engaging Syria without addressing the fundamental issue of the Golan Heights. Syria has not shunned the latest diplomatic moves, but it has made it clear that it will not agree to a Lebanon-first deal, under which Israel would pull its troops out of southern Lebanon in return for an end of attacks by Hezbollah fighters. 'This talk does not mean anything for the making of peace,' the official daily Tishreen said on 6 August. 'What kind of negotiations does Netanyahu want to resume while he still rejects withdrawal from the Golan and couples this rejection with the expansion of settlements and bringing more Jews to settle in the occupied Syrian lands?'

Avoiding the issue

Former Israeli prime minister Shimon Peres has also dismissed Netanyahu's Lebanon-first proposal. 'Under the present policies there is no chance for peace with Syria,' he said on 4 August. 'You cannot separate, from the Syrian point of view, the Golan Heights from Lebanon.. .from what I know, they will not go for any gradual solution or any piecemeal (solution).'

Jordans King Hussain, who has been more conciliatory towards the new Israeli government than any other Arab leader, is eager to kickstart the peace process and reap economic benefits from his 1994 agreement with the Jewish state. 'We are committed to breathe life into the Jordan-Israel peace treaty,' he said on 5 August. 'There have to be tangible benefits because that is what peace gives it gives the advantage of commerce and trade and improvement of living standards.' Hussain said that Netanyahu had given him assurances that his government would remove trade barriers giving Jordan access to the lucrative Israeli and Palestinian markets.

While Netanyahu has being making overtures to Jordan and Syria, the IsraeliPalestinian relations look as fragile as ever despite the recent meeting between Palestinian leader Yasser Arafat and Israeli Foreign Affairs Minister David Levy. On 5 August. the Israeli premier made a vague promise to renew talks 'in several weeks' on the promised Israeli redeployment from Hebron, but set no date for the pullout which should have taken place in June. During the LevyArafat meeting, the two sides agreed to form a steering committee to discuss the issue.

Israel has gradually eased the closure of Gaza and the West Bank, allowing more than 30,000 Palestinian workers into Israel. But the border closures imposed after the wave of suicide bombings inside Israel in February and March have had a devastating effect on the Palestinian economy. Latest estimates suggest that per capita gross domestic product (GDP) will decline by 20 per cent this year.

To alleviate the worst effects of the closures, international donors have been obliged to shelve medium and long-term development projects and channel funds into emergency employment programmes.

Despite the easing of the closure, the Palestinian economy continues to be affected by the current political uncertainty. 'The closure policies have killed potential investment,' says Khaled Abdel Shafi, Gaza officer for the UN Development Programme (UNDP).

'Investment has been stopped by the lack of clarity and this will continue until the political situation settles down.'

The issue of Jewish settlements looks set to rise to the top of the political agenda. On 2 August the Israeli government ended a fouryear freeze on settlement building, a move bitterly denounced by the Palestinians. 'The biggest issue will be settlements. If Likud builds new settlements and roads on a large scale then the whole peace process is in real danger,' says Abdel Shafi. 'There will be no point in the PNA [Palestinian National Authority] continuing the talks. They cannot give Likud cover by agreeing to continue the peace process while settlement building is going on. It will soon become clear whether it is worth continuing with the whole process.'