Data Reportby The Hanover InstituteSeptember 29, 2026

How Does Israel Control the Palestinian Economy Under Occupation? Reading the Signed Protocol, the Revenue Deductions and the Permit Registers

Israel collects the customs and VAT the World Bank calls the Palestinian Authority’s primary revenue source. What the signed texts and registers record.

How Does Israel Control the Palestinian Economy Under Occupation? Reading the Signed Protocol, the Revenue Deductions and the Permit Registers

Israel controls the largest revenue channel of the Palestinian economy through the 1994 Protocol on Economic Relations. Under it, Israel collects the customs duties and import VAT that the World Bank calls the Palestinian Authority’s “primary revenue source.” The signed text contains no power to withhold those transfers. Even so, the World Bank puts Israeli deductions in 2025 at over NIS450 million a month, roughly double the pre-conflict average, and records no transfers at all for May to August 2025.

Put plainly, the question is who holds the switch on each flow of money, goods, labour and land. The signed record answers it one clause at a time.

Key Findings

  • The 1995 Supplement to the Paris Protocol lets Israel keep 3% of each transfer of import and indirect taxes it collects for the Palestinian side. That fee is not in the 1994 Protocol itself (Israel and the PLO, 1995).
  • Israeli deductions from clearance revenue rose to over NIS450 million a month in 2025, about $128 million, roughly double the pre-conflict average (World Bank, 2025).
  • No clearance revenue transfers were received for May, June, July and August 2025, on the World Bank’s count as of 31 August 2025 (World Bank, 2025).
  • Israel’s Civil Administration recorded 87,000 valid permits for Palestinians working inside Israel as of 1 March 2020 (Israel Civil Administration, 2020). The Protocol transfers 75% of the income tax collected from them to the Palestinian side (Government of the State of Israel and the P.L.O., 1994).
  • Gaza’s recovery and reconstruction needs over the next decade stand at $71.4 billion, on an assessment covering October 2023 to October 2025 (World Bank, European Union and United Nations, 2026).

Which channels of control does the signed economic agreement create?

The 1995 Supplement to the Paris Protocol lets Israel deduct 3% “from each transfer to the Palestinian side of import taxes and other indirect taxes,” to cover “Israel’s administrative costs in collecting these taxes.” The fee is not in the 1994 Protocol. It was added seventeen months later, in Annex V to the Interim Agreement of 28 September 1995 (Israel and the PLO, 1995).

The base instrument was signed in Paris on 29 April 1994 and incorporated as Annex IV to the Gaza-Jericho Agreement. It has eleven articles and states that it “will cover the West Bank and the Gaza Strip during the interim period” (Government of the State of Israel and the P.L.O., 1994). Three of those articles do most of the work.

The first is the customs envelope. Article III, paragraph 10 provides that, apart from goods on Lists A1 and A2, “both sides will maintain the same import policy,” with classification, valuation, licensing and standards “all as applied by Israel with respect to its importation.” The same paragraph adds that “Israel may from time to time introduce changes in any of the above,” subject to prior notice.

The second is collection. Article III, paragraph 15 allocates import-tax revenue “based on the principle of the place of final destination.” It sets the transfer “within six working days from the day of collection.” The earlier report on who owns the import taxes sets out the ownership question behind these clauses.

The third is money. Article IV leaves the new Israeli shekel circulating in the Palestinian areas as a means of payment. Section four below takes that up.

Channel What the text provides Source
Import policy Israel’s regime is the common envelope; exceptions only for Lists A1, A2, B Paris Protocol, Art. III(10), 1994
Clearance Revenue allocated by final destination, transferred within six working days Paris Protocol, Art. III(15), 1994
Handling fee Israel deducts 3% of each transfer 1995 Supplement, para. 4
VAT Palestinian rate not lower than 2% below Israel’s 1995 Supplement, Appendix 2

The Supplement also replaced Articles V and VI of the Protocol outright. A clause cited from “the Paris Protocol” can therefore belong to either of two documents, seventeen months apart.

Is it often said the Palestinian economy depends on Israel’s?

It is often said that the Palestinian economy depends on Israel’s, and on the fiscal measure the World Bank’s September 2025 update agrees. It calls clearance revenue, “mostly VAT and import duties” that Israel collects under the Paris Protocol, the Palestinian Authority’s “primary revenue source,” and reports that the shortfall forced salary payments down to an average of 70% of full wages since October 2023 (World Bank, 2025).

The same starting point runs through the Bank’s earlier reports to the donor coordination committee. Its September 2023 report describes Gaza as “under a near-blockade and effectively cut off from the West Bank since 2007” (World Bank, 2023).

The premise needs one reframe, and it concerns what is being measured. “Primary revenue source” describes the government budget, not Palestinian output or employment. It measures how exposed the Authority is to a single transfer, and it says less about the private economy.

The two territories also differ sharply. In the third quarter of 2023, the Palestinian Central Bureau of Statistics put Gaza’s output at USD 672 million at constant 2015 prices, against USD 3,346 million for the West Bank (Palestinian Central Bureau of Statistics, 2023). Unemployment followed the same split. The World Bank, relaying the Bureau’s survey, gives 46.4% in Gaza and 13.4% in the West Bank for the second quarter of 2023 (World Bank, 2023). By 2025 the Bank puts Gaza’s share of Palestinian GDP at below 3%, against 17% before the conflict (World Bank, 2025).

The Bureau is a Palestinian official statistics office, a party to the events it reports, so its counts are its own. The World Bank measured none of these labour figures itself.

On the fiscal channel, then, dependence is large and the Bank says so in terms. Across the rest of the economy, its size varies by territory, and the territorial gap is itself a finding.

How much Palestinian revenue has Israel deducted or withheld since 2023?

Israeli deductions from Palestinian clearance revenue rose to over NIS450 million a month in 2025, about $128 million, “roughly doubling the pre-conflict average,” on the World Bank’s September 2025 Economic Update. The Paris Protocol sets a six-working-day transfer and contains no clause allowing either side to withhold or suspend it (World Bank, 2025; Government of the State of Israel and the P.L.O., 1994).

The Bank reports that the deductions produced “a more than 50 percent decline in the PA’s primary source of income.” It then records a further step: “the Government of Israel has halted clearance revenue transfers entirely, with no disbursements received by the PA for May, June, July and August 2025, as of writing.” These are the World Bank’s figures. Israel’s Finance Ministry does not publish a matching monthly series among the records assembled here, as section ten sets out.

Because the Protocol has no withholding clause, any deduction rests on a decision or instrument outside Article III. The text supplies the standard, six working days, against which each month’s transfer can be measured. It does not supply the deduction.

The Bank traces the effect to salaries. The Authority paid an average of 70% of full wages from October 2023; the May 2025 payment was made at 60%, protecting those earning NIS3,000 a month or less, and the June payment at 50%, protecting those earning NIS2,000 or less.

Source: World Bank, 2025, Economic Update, September 2025.

The scale matters because of what the transfer funds. When the budget’s primary source shrinks by more than half, salaries and services absorb the difference. The Bank adds that the latest payments were financed by domestic borrowing that pushed public debt beyond the prudential limits of the Palestine Monetary Authority.

Why must Palestinian banks clear shekels through Israeli banks?

Article IV of the 1994 Paris Protocol provides that “The New Israeli Sheqel (NIS) will be one of the circulating currencies in the Areas and will legally serve there as means of payment for all purposes including official transactions.” It leaves a Palestinian currency to future talks: the sides “will continue to discuss, through the JEC, the possibility of introducing mutually agreed Palestinian currency” (Government of the State of Israel and the P.L.O., 1994).

The banking dependence follows from that clause rather than from a separate rule. The same article provides that “Both sides will allow correspondential relations between each others’ banks,” and lets the Palestinian Monetary Authority convert excess shekels into foreign currency at the Bank of Israel, up to amounts set by a formula and agreed at annual meetings.

The article creates the Monetary Authority and gives it banking supervision, the role of lender of last resort and control of foreign exchange dealing. It gives it no currency of its own to issue. The Monetary Authority can supervise the banks. It cannot replace the shekel as their settlement unit.

The operational channel is the correspondent relationship, and the World Bank’s September 2025 update describes how it is kept open. Transactions are processed through the Bank of Israel and private Israeli banks, and “the Israeli Government has long provided time-bound ‘letters of indemnity and immunity’ to shield Israeli banks from potential legal exposure.” The Bank records that the letters were renewed three times in 2024, in March, June and October, and then extended by the Security Cabinet for one year, through 30 November 2025 (World Bank, 2025).

The Bank lists the resulting strain: Palestinian banks hold excess physical shekel cash they cannot repatriate while digital shekel balances in correspondent accounts run short. What the text and the record show together is the direction of the dependence and its source. The Joint Economic Committee is the only mechanism the Protocol offers for changing it.

How much Palestinian wage income runs through Israeli work permits?

Israel’s Civil Administration recorded 87,000 valid work permits for Palestinians employed inside Israel as of 1 March 2020, plus 35,000 for Palestinians working in the West Bank itself (Israel Civil Administration, 2020). The Paris Protocol ties that income to the Palestinian budget: Israel transfers 75% of the income tax it collects from Palestinians employed in Israel, and the full amount from those employed in settlements.

Every permit rests on one legal premise, which COGAT states in the opening clause of its 2022 register. Under a 1967 order, the West Bank “is a closed military area and not to be entered or exited without a permit issued on behalf of the military commander” (COGAT, 2022). The same register sets standing quotas by sector.

Source: COGAT, 2022, Status of Authorizations; Israel’s own published instrument.

A quota is a ceiling, not a count of workers. The ten standing rows in the 2022 register add to 95,870. That total is arithmetic on the register, which prints no total of its own. COGAT, a unit of Israel’s Ministry of Defense, is the restricting authority, so these are its own published figures. Employment inside the West Bank’s industrial zones and Israeli communities is listed “with no quota.”

The income-tax link comes from the Protocol’s Article V, paragraph 4, and its 1995 replacement. The replacement widened both transfer rates to Palestinians “from the West Bank and the Gaza Strip” (Israel and the PLO, 1995). Wages earned under Israeli permits therefore feed the Palestinian budget through the same collect-and-transfer mechanism that carries the import taxes.

The Protocol itself leaves the door with the receiving side. Article VII subjects the movement of labour to “each side’s right to determine from time to time the extent and conditions of the labor movement into its area,” and requires only that a side suspending it give “immediate notification.” No published register in these records states the total wages the permits carried. The detailed quota mechanics are set out in the report on the permit instrument.

Who issues the permits for building and farming in Area C?

The 1995 Interim Agreement transferred planning and zoning in Areas A and B to the Palestinian Council. For Area C, it promised gradual transfer through three further redeployments, to be completed within 18 months of the Council’s inauguration. In the meantime, Article XI(2) hands over in Area C only “civil powers and responsibilities not relating to territory,” so building and farming permits there stay with the Israeli side (Israel and the PLO, 1995).

The agreement defines Area C by what is left over: “areas of the West Bank outside Areas A and B.” Areas A and B are defined by red lines and shading on an attached map. No area percentage appears anywhere in the Agreement. Any share of the West Bank attributed to Area C is therefore a later measurement by some other body.

Article XVII(4)(a) names the authority that holds the rest: “Israel, through its military government, has the authority over areas that are not under the territorial jurisdiction of the Council.” Article XII(5) ties the settlements to Area C by definition. Article XXXI(5) set permanent status negotiations to begin “not later than May 4, 1996.” The 18-month schedule and that date are what the text promises. They are not a record of what followed.

Beneath the 1995 layer sits Military Order 59, signed on 31 July 1967 by the commander of Israeli forces in the West Bank. It defines government property by who owned it on 7 June 1967, principally the Jordanian state. Article 2 empowers a Custodian, in a working English rendering of the Hebrew, to take possession of that property and any step he deems necessary for it (Commander of IDF Forces in the West Bank Area, 1967). The order has no official English text. Its issuing authority lists nine later amendments to it.

Registration shapes what a farmer can prove. Fayyad and Al-Sinnawi (2023), in a peer-reviewed study, report that a large majority of West Bank land remains unregistered. They also find that the Palestinian Authority has not settled a registration strategy, relying on regulations they describe as contradictory.

Title, planning and zoning thus run through separate instruments. How registration interacts with Israeli control is traced in the report on the registration record.

What economic damage has Gaza recorded under closure and war?

Gaza’s recovery and reconstruction needs stand at $71.4 billion over the next decade. That figure comes from the April 2026 Rapid Damage and Needs Assessment co-published by the World Bank, the European Union and the United Nations, which covers October 2023 to October 2025. The assessment measures the war period and does not separate the effects of the closure in place since 2007 from those of the war (World Bank, European Union and United Nations, 2026).

The same assessment puts physical damage at $35.2 billion and economic and social losses at $22.7 billion. It records the economy contracting by 84%. The needs figure looks forward and the damage figure looks back, so the two are not added together.

The assessment’s energy chapter records a pre-war dependence directly. Gaza’s demand was about 700 MW. Imports from the Israel Electric Corporation averaged 120 MW and the Gaza Power Plant averaged 70 MW of a nominal 140. Supply met under 35% of demand.

The pre-war economy was already small. The Palestinian Central Bureau of Statistics put Gaza’s unemployment at 45.3% in 2022. Its output per person in the third quarter of 2023 was USD 300.7, against USD 1,129.1 in the West Bank. On the Bureau’s own figures, that is about 26.6% of the West Bank’s level (Palestinian Central Bureau of Statistics, 2023).

Source: Palestinian Central Bureau of Statistics, 2023, quarterly national accounts.

The entry of goods during the war is recorded by COGAT, the Israeli body controlling the crossings. Its truck-level workbook counts 32,946 trucks between 21 October 2023 and 31 May 2024. Its live dashboard states: “According to the directive from the political echelon, no aid entered the Gaza Strip between March 2 to May 19 2025” (COGAT, 2026). Both are Israel’s own operational records at its own crossings.

Who controls West Bank water under the 1995 agreement?

Article 40 of Annex III to the 1995 Interim Agreement makes 28.6 mcm a year available to the Palestinians during the interim period, against “future needs” it estimates at between 70 and 80 mcm a year. It opens: “Israel recognizes the Palestinian water rights in the West Bank. These will be negotiated in the permanent status negotiations and settled in the Permanent Status Agreement relating to the various water resources” (Israel and the PLO, 1995).

The recognition and its deferral sit in the same paragraph, and paragraph 5 defers the ownership of water and sewage infrastructure the same way. The 28.6 mcm is itemised: part is an Israeli commitment to supply named towns, part a Palestinian responsibility to develop from the Eastern Aquifer, with the balance of the estimated needs left for the Palestinians to develop from “the Eastern Aquifer and other agreed sources.”

The Agreement’s Schedule 10, headed “Data Concerning Aquifers,” lists average annual extractions across three West Bank aquifers and a total recharge of 679 mcm. Adding its Palestinian lines gives 118 mcm, its Israeli lines 483 mcm, and a remaining 78 mcm in the Eastern Aquifer still to be developed. Those three totals are arithmetic on the schedule, which prints only the aquifer totals and calls its own figures “average annual estimates.”

Source: Israel and the PLO, 1995, Interim Agreement, Annex III, Schedule 10.

Control runs through a joint body. New wells, increased extraction and new water systems by either side require prior approval of a Joint Water Committee, which has an equal number of members from each side and decides “by consensus, including the agenda.” The text sets that rule; it does not record how the committee has used it.

Do economists attribute Palestinian stagnation to controls alone?

The World Bank ties specific movements to specific controls rather than to controls in general. Its September 2023 report attributes Gaza’s 2.6% year-on-year contraction in the first quarter of 2023 chiefly to agriculture and fishing. It links that fall to Israel’s restriction on sales of Gazan fish in the West Bank in August 2022 (World Bank, 2023).

In the report’s words, the sector “shrank by almost 30 percent after the GoI restricted the sale of Gazan fish in the West Bank in August 2022.” In the same quarter, the West Bank grew 4.3%, under the same customs envelope and the same currency. The divergence shows how much weight falls on one control in one territory.

The September 2025 update assigns weight to both sides of the ledger. It links Gaza’s collapse in production to “ongoing hostilities and the near-total blockade,” and it separately calls on Palestinian decision-makers to commit to “reforms that prioritize efficiency, transparency, good governance, and fiscal sustainability” (World Bank, 2025). The records assembled here carry no World Bank measurement dividing growth between Israeli restrictions and Palestinian Authority policy, so no share can be assigned to either.

The growth record itself is volatile. For the combined economy, the World Bank reports real growth of 1.4% in 2019, a contraction of 11.3% in 2020, then 7.0% in 2021 and 3.9% in 2022. Its modelled poverty rate peaked at 26.5% in 2020 and fell to an estimated 24.3% in 2022 (World Bank, 2023).

The signed text provides a joint forum for disputes over its own terms. Article II of the Paris Protocol establishes a Joint Economic Committee of the two sides to follow up the Protocol’s implementation. Article III, paragraph 10 lets Israel change the shared import regime on prior notice. Changes to the envelope can therefore come from one side, while revision of the whole runs through the joint committee.

Which parts of economic control does no published register measure?

The last edition of COGAT’s published permit register is dated 8 February 2022. No later edition was located on the Israeli government’s site as of September 2026 (COGAT, 2022). The permit regime after the suspension of Palestinian work permits that followed 7 October 2023 therefore has no published Israeli quota record.

The other gaps are specific and can each be dated.

The deductions have no official Israeli series. The World Bank’s monthly averages are its own compilation, and no reconciled month-by-month series published by Israel’s Finance Ministry appears among the records assembled here.

The Joint Economic Committee has no published meeting record among these records. The committee is the one body the Protocol names for revising the arrangements.

Gaza has no World Bank economy. On a query of the World Bank’s economy list, 295 economies are returned, and one of them covers this territory: “West Bank and Gaza.” There is no Gaza-only GDP, unemployment or poverty series from the Bank (World Bank, 2026). The Palestinian Central Bureau of Statistics’ own table shows its last annual Gaza unemployment rate for 2022. It carries a dash in the Gaza column for 2023, 2024 and 2025 (Palestinian Central Bureau of Statistics, 2023).

The customs lists are not reproduced. Lists A1, A2 and B, which define the goods the Palestinian side may import on its own terms, are referenced throughout Article III but not reproduced in the Israeli Foreign Ministry’s posted text.

The correspondent banking relationship between Israeli and Palestinian banks has no published governing text among these records.

Each gap sits on a channel the signed texts create. The instrument that grants the control is published in every case. The record of how the control has been exercised month to month is thinner.

Methodology and limitations

This report draws on primary treaty texts, official statistics and peer-reviewed research, each labelled by type.

Treaty texts. The Protocol on Economic Relations of 29 April 1994 and the 1995 Interim Agreement, including Annexes I, III and V, were read in the English text published by Israel’s Ministry of Foreign Affairs. Israel is a party to both agreements, so where the exact wording matters, the text is named as that party’s posting. Military Order 59 of 1967 was read in the Hebrew text published by the Military Advocate General. English renderings of it are working translations, since no official English text exists.

Official statistics. Economic figures come from the World Bank’s September 2023 report to the donor coordination committee and its September 2025 Economic Update. Pre-war Gaza baselines come from the Palestinian Central Bureau of Statistics. Every Gaza-specific labour figure in the World Bank’s 2023 report is relayed from the Bureau. The Bureau reports for a party to the events, and its population figures after 2017 are projections from the 2017 census.

Damage and aid. Damage and needs estimates come from the April 2026 assessment co-published by the World Bank, the European Union and the United Nations. They are forward-looking estimates, not enumerations. Aid-entry counts come from COGAT, the Israeli Ministry of Defense unit that controls the crossings, and are its own records. Its truck counts are physical tallies at inspection, while its tonnages rest on shippers’ declarations.

Permits. Permit quotas come from COGAT’s register of 8 February 2022, a party’s own instrument. Permit holdings come from the Civil Administration’s Employment Unit page, which reports figures as of 1 March 2020.

Land registration. Evidence on registration comes from a peer-reviewed study by Fayyad and Al-Sinnawi (2023).

Disagreements and limits. The World Bank’s 2025 update ties Gaza’s contraction to hostilities and the blockade and also calls for Palestinian fiscal and governance reform. No measurement in the record apportions growth between Israeli restrictions and Palestinian policy.

Conclusion

So who holds the switch on each flow? On revenue, Israel does. It collects the taxes the World Bank calls the Palestinian Authority’s primary revenue source and keeps 3% for doing so. On the Bank’s count, it deducted over NIS450 million a month in 2025 and transferred nothing from May to August, under a text that provides for transfer within six working days and contains no withholding power.

On money, the Protocol’s monetary article leaves the shekel as a legal currency of the Palestinian areas and creates no Palestinian one, so settlement runs through Israeli banks kept open by time-bound Israeli indemnity letters. On labour, a 1967 order makes every entry a permitted exception: 87,000 valid permits in 2020, against quota ceilings that the 2022 register sets at 74,300 in home construction alone. On land, the 1995 Agreement kept planning and zoning in Area C with the Israeli side under an 18-month transfer schedule, and no registration strategy has taken its place on the Palestinian side.

The portrait the record draws is consistent across every axis it measures. The instruments are signed, published and precise about who collects, who issues and who approves. Gaza, where the controls were tightest, entered the war with a quarterly economy one-quarter the size per person of the West Bank’s, and now carries $71.4 billion in recovery needs. The documents granting each power are on the page. The monthly record of how each power was used is mostly not.

That leaves a question the numbers sharpen and cannot settle. An arrangement written in 1994 and 1995 for an interim period is still the frame through which a budget, a currency, a labour market and a map are run, three decades on. When the channels that were meant to be temporary become the permanent structure of a people’s economy, and one party can change them on notice while the joint committee that could revise them leaves no published trace, what does “interim” come to mean, and for whom?

Frequently Asked Questions

What VAT rate must the Palestinian side charge under the agreements?

The 1995 Supplement requires that the Palestinian VAT rate “shall not be lower than 2% below the Israeli VAT rate” (Israel and the PLO, 1995). It replaced the 1994 text, which had set a Palestinian band of 15% to 16% against an Israeli rate of 17%.

Who inspects goods at the Palestinian customs points?

Article III, paragraph 14 of the 1994 Protocol gives the Palestinian Authority “full responsibility and powers” at its customs points on the Jordan River and Gaza crossings, with Israeli customs officials present and entitled to ask for inspection (Government of the State of Israel and the P.L.O., 1994). A disputed shipment can be held for up to 48 hours pending a joint sub-committee decision.

Did the income-tax transfer originally cover West Bank workers?

No. The 1994 Protocol’s Article V covered Palestinians “from the Gaza Strip and the Jericho Area” employed in Israel, at 75%, and in settlements, at 100% (Government of the State of Israel and the P.L.O., 1994). The 1995 replacement kept both rates and widened them to Palestinians from the West Bank and the Gaza Strip.

Does the 1995 water article apply to Gaza?

No. Paragraph 25 of Article 40 states that existing arrangements for Gaza’s water “shall remain unchanged,” and Schedule 11 keeps the water systems supplying the settlements then in Gaza with Mekoroth Water Co. (Israel and the PLO, 1995). Article 40’s aquifer data and quotas are West Bank figures only.

How is the Joint Water Committee composed?

Paragraph 13 of Article 40 provides that the committee “shall be comprised of an equal number of representatives from each side,” and paragraph 14 that all its decisions “shall be reached by consensus, including the agenda” (Israel and the PLO, 1995). Its prior approval is required for new wells and increased extraction by either side.

How many crossings carried goods into Gaza before October 2023?

COGAT’s December 2025 document on aid to Gaza states that “Prior to October 7th, only two crossings operated for transferring goods into the Gaza Strip” (COGAT, 2026). It lists five inspection points and three transfer points in operation by late 2025, as Israel’s own account of its own crossings.

Why do the World Bank’s Gaza figures come from the Palestinian bureau?

The World Bank publishes one economy for the territory, “West Bank and Gaza,” and no Gaza-only series (World Bank, 2026). Its 2023 report sources every Gaza labour figure to the Palestinian Central Bureau of Statistics, which is the only body publishing Gaza separately.

Sources

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