Is it naïve to write about peace, reconstruction, and recovery at a time when the Middle East is engulfed in a renewed cycle of violence, this time involving Iran? Perhaps. Nonetheless, the push for peace, economic development, and a better life for the millions of victims of this conflict—especially the long-suffering people of Gaza—is more important than ever. Even the slightest chance of promoting peace in Gaza and restoring the region as a center of trade and culture, as it was centuries ago, justifies every effort.
Before the recent escalation, the first meeting of President Trump’s Board of Peace took place on Thursday February 19, 2026. Nine countries pledged $7 billion for Gaza’s reconstruction, in addition to $10 billion pledged by the United States. Combined with the earlier announcement of the World Bank’s Gaza Reconstruction and Development Fund—a financial intermediary fund receiving contributions from governments and private actors and transferring them to the Board of Peace to finance approved reconstruction activities—some see signs that adequate financing may be emerging.
However, given the political uncertainty and heightened investment risks in Gaza, the current framework must be strengthened in four ways to succeed: (1) agreement on Gaza’s final status within a Palestinian state; (2) governance reforms giving Gazans a voice in reconstruction; (3) economic reforms to attract private investment, support small and medium enterprises (SMEs), and connect Gaza to world markets; and (4) financial instruments providing partial risk guarantees for investors and expanding the role of the World Bank Group—the World Bank, the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA).
A set of core challenges
What matters for reconstruction is not pledges but actual disbursements that support projects benefiting Gazans. Pledges often exceed eventual commitments as political enthusiasm meets fiscal realities. Even committed funds may be delayed or halted when projects stall.
Such obstacles are common in Gaza. Israel’s blockade and dual-use rules pose serious challenges for project implementation. Donors do not provide blank checks; they finance specific goods and services required for projects. If those inputs cannot enter Gaza, disbursements do not occur. With complex import approvals, implementation remains extremely slow—even under normal conditions. As a result, donors often cannot disburse funds quickly because goods and equipment remain blocked at the border.
Beyond implementation challenges, the scale of pledged financing is insufficient. The Board of Peace has secured $17 billion, while the World Bank estimates Gaza reconstruction will require more than $70 billion. Among the 26 member countries of the Board of Peace, most financing—aside from the United States—will likely come from Gulf states and wealthier Muslim-majority countries. Yet, as I pointed out in an October 2025 policy brief, many of these countries have already financed Gaza’s reconstruction four times since 2005. Whether they will continue funding repeated cycles of destruction and rebuilding remains uncertain.
Long-term peace requires growth and job creation driven by private investment in manufacturing, agriculture, and services. Infrastructure investments—energy, telecommunications, ports, and airports—would also be more efficiently carried out by the private sector. Yet private investment in Gaza has historically been limited. Earlier Palestinian and Israeli investments in industrial zones collapsed due to conflict and border closures, often ending in destruction during fighting. Convincing investors that this time will be different remains a major challenge.
Reconstruction for peace and peace for reconstruction
A thriving and inclusive Gazan economy—one that offers opportunity and dignity—is essential for lasting peace. Reconstruction must therefore go beyond repairing infrastructure or building skyscrapers. It must focus on job creation and an open, cohesive economy.
At the same time, reconstruction itself requires political settlement and peace. Public financing from Arab and Muslim-majority countries will be more forthcoming if linked to a credible path toward ending the cycle of war. Likewise, private investors will not enter a war zone without a peace agreement.
Given the disappointing experience of the Oslo Accords, any future peace agreement will require strong guarantees from the United States and support from key regional actors. Rosler and Yakter (2026) argue that the United States and President Trump are currently well positioned to support such an agreement.
In theory, a two-state solution remains feasible. The 2026 Arab Barometer survey reports that 71 percent of Palestinians and 54 percent of Israelis support some form of two-state outcome, ranging from separate states to a confederation.
The alternatives are deeply problematic. The first is the status quo: roughly seven million Israeli Jews ruling over a similar number of Palestinian Arabs under an apartheid-like arrangement that is both unsustainable and morally unacceptable. The second is the forced migration of Palestinians from the West Bank and Gaza—an act of ethnic cleansing that the international community would reject. The third is a single democratic state with equal rights for all, which many Israelis oppose because it threatens the country’s Jewish character.
This is why former US Ambassador to Israel, Special Envoy for Middle East Peace, and Executive Vice President of the Brookings Institution, Martin Indyk (2024), wrote that “if the conflict is to be resolved peacefully, the two-state solution is the only idea left standing.” Delaying agreement on such a framework only prolongs uncertainty and undermines Gaza’s reconstruction prospects.
Governance and institutional reforms
A peace agreement would create political space for institutional reform. Effective institutions and transparent governance are essential for reducing risk and attracting investment. Private investors avoid corrupt systems, and public donors require credible accountability mechanisms.
Governance in Palestine remains weak. A 2023 opinion poll found that 87 percent of Palestinians believed the Palestinian Authority (PA) was corrupt and 72 percent said the same about Hamas. Addressing corruption requires reforms ensuring: (1) transparency and free flow of information, (2) citizen participation and oversight, and (3) accountability for public officials.
Governance reforms are also necessary to ensure Palestinian support for reconstruction. Community participation has played an important role in successful post-conflict reconstruction efforts, such as in Indonesia and Timor Leste. Community consultations in Gaza—covering reconstruction priorities and project implementation—could be organized with support from civil society organizations.
Yet deeper reforms are needed to ensure long-term stability. The last Palestinian presidential elections took place in 2005, when Mahmoud Abbas won a five-year term, and the last legislative elections occurred in 2006, when Hamas won. Elections scheduled for 2021 were postponed indefinitely.
As a result, Palestinians have lived under the same leadership for nearly two decades. According to the Arab Barometer (2023), public trust in both the PA and Hamas has declined sharply. Prior to October 7, only one in five Palestinians trusted President Mahmoud Abbas and just one in three trusted Hamas.
Renewing Palestinian leadership through elections would strengthen legitimacy. Elections under occupation would not be easy, but credible political progress toward peace would reduce the likelihood that voters support platforms centered on armed resistance.
Economic and social policy reforms
Strong institutions would enable economic reforms needed to attract private investment, create jobs, and establish social safety nets. According to a 2025 report by the U.S. State Department on the Palestinian economy, “due to the small size of the local market, access to foreign markets through trade is essential for private sector growth.” Around 85 percent of Palestinian exports go to Israel, making them vulnerable to political shocks and border closures.
Diversification therefore requires greater connectivity with global markets. In a 2005 congressional testimony, Jim Wolfensohn—the Quartet’s Gaza envoy—emphasized the importance of building a seaport and airport in Gaza. Although an airport was constructed, it was later destroyed, and the seaport was never built. Completing these projects would signal that this reconstruction effort is different.
Reintegration into global markets must also address liquidity constraints facing the Palestinian private sector. The PA’s difficult fiscal situation has led to large arrears. Clearance revenues—customs duties collected by Israel on behalf of the PA—represent about 70 percent of PA revenues. Deductions by Israel for services and penalties reduce amounts and delays in transfers puts pressure on the PA’s fiscal position. Israel routinely uses deductions and delays to exert political pressure on the PA.
As a result, the PA’s revenues fall significantly short of expenditures. The 2024 budget deficit reached $2.1 billion. Financing gaps are partly covered by delaying payments to the private sector and public employees. In 2024 arrears to the private sector totaled $1.5 billion and arrears to public employees reached $1.3 billion.
This is especially damaging because 99 percent of Palestinian firms are family-owned SMEs employing fewer than 20 workers. Limited access to finance makes delayed payments particularly burdensome. Meanwhile, public sector jobs account for 22 percent of employment, so salary arrears reduce household consumption across the economy.
Reducing the PA’s deficit and ensuring timely transfer of clearance revenues are therefore essential for economic recovery.
The regulatory environment must also support private sector development and foreign direct investment. The World Bank’s Business Ready Report highlights needed improvements in insolvency regulations, market competition, and taxation. Reconstruction will require private investment in telecommunications, energy, ports, and airports, making regulatory reform critical.
Job creation will depend heavily on SMEs and youth entrepreneurship. Globally, SMEs generate more than half of employment, and Palestinian enterprises are already overwhelmingly small firms. Reconstruction programs should therefore prioritize SME financing, technology access, and market integration. The European Union’s programs for SME support offer useful lessons.
Inclusive growth is also important for reducing extremism and sustaining peace. However, economic growth takes time. In the short term, cash-for-work programs focused on reconstruction—similar to World Bank programs in Liberia and Yemen—could provide employment and income for young Gazans. Moreover, participation in the reconstruction effort would strengthen Gazan youth’s sense of ownership of the whole program.
Over the medium term, targeted cash transfer programs for poor households will also be needed, similar to Egypt’s Takaful and Karama programs.
Partial risk guarantees and expanding the role of the World Bank Group
The World Bank Group can play a central role by creating financial instruments that reduce investment risk and mobilize private capital, and by acting as an advisor and project implementor for the Board of Peace and the Palestinian Authorities.
Investment risks in Gaza—including war, border closures, and contractual uncertainty—will remain high for the foreseeable future. Partial risk guarantees covering non-commercial risks are therefore essential.
The West Bank and Gaza Investment Guarantee Trust Fund already provides such insurance. Managed by MIGA and sponsored by Japan and the Palestinian Authority, the fund could be expanded through additional financing or new sponsors.
However, the trust fund mainly supports SMEs. Larger infrastructure projects in telecommunications, energy, and transport require additional instruments, including public-private partnerships.
The IFC can support such projects by combining advisory services, equity and debt financing, and risk guarantees. IFC-supported investments elsewhere include telecommunications in Mali, electricity projects in Nigeria, airport infrastructure in Jordan, and seaport development in Egypt.
Beyond IFC and MIGA, the World Bank itself should play a stronger role in Gaza’s reconstruction. The Gaza Reconstruction and Development Fund currently appears designed mainly to collect contributions and transfer funds to the Board of Peace. Yet the World Bank possesses unparalleled expertise in Gaza’s economy and in post-conflict reconstruction worldwide, and its president is a member of the Board of Peace.
Accordingly, it should help design the reconstruction strategy, identify priority projects, mobilize financing, and supervise implementation. The World Bank should also advise Palestinian authorities on governance reforms and economic policies needed to support recovery.
Hope for peace?
The world has witnessed the terrible suffering of Palestinians in Gaza—death, destruction, displacement, hunger, and disease. We have also seen the suffering of Israelis who lost loved ones, were taken hostage, or were forced to leave their homes. The seven million Palestinians are not going anywhere, nor are the seven million Jews. They must find a way to live peacefully side by side.
Successful cooperation on Gaza’s reconstruction could become a step toward a lasting settlement. For that reason, it is essential to ensure that sufficient resources, institutions, and policies are in place to support Gaza’s reconstruction and recovery.
