Bad for Palestinians, Worse for Jerusalem

Why Smotrich’s settlement plans will strangle Jerusalem’s economic future

Last week, Israeli Finance Minister Bezalel Smotrich announced that he planned to approve tenders to build more than 3,000 housing units in the E1 area between Jerusalem and the settlement of Ma’aleh Adumim in the West Bank. He said the move “buries the idea of a Palestinian state,” adding that “this is Zionism at its best – building, settling, and strengthening our sovereignty in the Land of Israel.” The reason these plans are so alarming to supporters of the two-state solution is because they would potentially divide the West Bank into a northern and southern part, while also preventing the development of a wider Palestinian region connecting East Jerusalem to Bethlehem and Ramallah. However, according to Peace Now the approved plans are actually for a separate neighborhood of Ma’ale Adumim, one that would connect the built-up area of the city (whose population has been stagnant at around 38,000 for the past decade) to the industrial zone to its east.

The current government would build in E1 if it could, though, and if it does, it won’t just be “burying the idea of a Palestinian state,” it will also be severely curtailing Jerusalem’s future as a proper global city. Because the Bethlehem – East Jerusalem – Ramallah corridor isn’t just a natural metropolis for the Palestinians; it’s also the natural hinterland for Jerusalem full stop. In preventing Palestinian statehood and territorial contiguity, E1 also risks strangling Jerusalem’s natural economic potential. By severing Israel’s capital from its hinterland of Ramallah and Bethlehem through settlement construction and bypass infrastructure (for example the Orwellian-named ‘Fabric of Life’ road), Israel is constraining Jerusalem’s own development as a world-class metropolitan area, all in the name of a diminished form of shtetl Zionism.

Throughout history, successful cities have thrived through integration with their surrounding areas, creating mutually beneficial relationships between core and periphery. Take London, where I grew up. The Greater London metropolitan area extends far beyond the administrative boundaries of London itself, incorporating areas like Surrey, Essex, and Hertfordshire (where I went to school). High-value services concentrate in central London, while manufacturing, logistics, and residential development spread across the broader region. The result is a £500 billion economy that benefits from economies of scale, labor mobility, and complementary specializations.

Despite recent problems, the San Francisco Bay Area offers another example of how urban integration can transcend political boundaries. San Francisco, Oakland, San Jose, and dozens of smaller cities function as a single economic unit despite being governed by different municipalities and counties: venture capital and headquarters in San Francisco, technology in Silicon Valley, port facilities in Oakland, and diverse residential options throughout the region.

Jerusalem, meanwhile, is artificially isolated from its natural hinterland. Ramallah, Bethlehem, and even Jericho – all Palestinian cities – are closer to Jerusalem than Tel Aviv. Together, they represent a significant economic unit that is potentially larger than many European capitals, but in practice they are fragmented into disconnected enclaves. The result? Jerusalem’s economy remains heavily dependent on government employment, religious tourism, and a small technology centre. For one of Israel’s poorest cities, this represents a significant underutilization of the region’s human and geographic capital.

It wasn’t always thus. During the late Ottoman period, Jerusalem, Bethlehem, and Ramallah were administratively integrated within the Mutasarrifate of Jerusalem, with Bethlehem becoming a municipality in 1894 and Ramallah achieving municipal status in 1911. The region functioned as an integrated economic unit, with Jerusalem serving as the administrative and religious center while surrounding towns contributed specialized functions – Bethlehem with its tourism and crafts, Ramallah as an educational hub, and the broader hinterland providing agricultural products and seasonal labor. This integration persisted through the Mandate period, when improved transportation links further strengthened economic ties between Jerusalem and its natural suburban communities, creating the foundation for what could have developed into a major Middle Eastern metropolis.

The Jewish community of Ottoman Jerusalem, which from the middle of the nineteenth century was the largest ethnic group in the city, was deeply integrated into these broader regional economic networks. The Ottoman Empire’s commercial structure relied heavily on minority communities, creating opportunities for Jewish merchants and traders. Jerusalem’s Jewish community, which included both established Sephardic families and older communities, operated within trade networks that extended throughout the region’s towns and villages. While Jerusalem had historically been a relatively peripheral city within the Ottoman Empire, the mid-nineteenth century brought economic growth and investment, driven partly by European power involvement and accompanying waves of immigration. During this period, Jewish merchants and craftsmen benefited from Jerusalem’s growing role as a regional administrative and pilgrimage center, with their businesses serving customers from Bethlehem, Ramallah, and surrounding villages who came to the city for religious, administrative, or commercial purposes.

Today, Ramallah, 15 kilometers north of Jerusalem, has a growing financial services sector, NGOs, and an emerging technology industry. Bethlehem, 10 kilometers to the south, has tourism assets, light manufacturing, and agricultural processing, while it was also the first Palestinian city to develop truly global connections. Under normal circumstances, these areas would function as integrated suburbs of a greater Jerusalem metropolitan area, each contributing specialized functions while sharing infrastructure, labor markets, and consumer bases.

Instead, the E1 corridor physically bisects this natural economic unit. Rather than facilitating integration, the planned development creates a barrier that forces circuitous travel between Jerusalem and Ramallah, increases transportation costs, and fragments what should be a unified labor market. While much has been written on the harm this does to Palestinians, less has been written on how it helps keep Jerusalem, one of Israel’s poorest cities, impoverished. The bypass roads (or, if one prefers, apartheid roads) represent the antithesis of metropolitan integration that any serious twenty-first century city requires.

Current policies prevent Jerusalem firms from accessing the growing talent pool in Ramallah, where the Palestinian Authority has invested heavily in technology education and where companies like Exalt Technologies and the Ibtikar Fund are already operating successfully. Tourism businesses cannot efficiently coordinate services across the Jerusalem-Bethlehem corridor (as a tour guide, I have frequently seen this problem first hand). Most critically, the region cannot develop the specialized districts that characterize successful metropolitan areas: a financial district, a technology corridor, industrial zones, and mixed-use residential areas, each located where land costs and zoning make most sense.

The E1 development and its associated bypass roads are designed to maintain separation rather than facilitate integration, contradicting everything we know about building successful cities. The Jerusalem light rail system, which is being expanded throughout the city, is highly welcome, but the plans to expand it into a ‘Jerusalem Metro’ will always remain stunted while it does not service Jerusalem’s actual metropolitan region, i.e. Bethlehem and Ramallah. Instead, the bypass road system being developed around the city creates what urban planners call “infrastructure apartheid” – separate systems for Israelis and Palestinians that prevent rather than enable economic integration. These roads may reduce commute times for specific populations, even for Palestinians travelling from Bethlehem to Ramallah, but they do so by fragmenting the broader metropolitan area into disconnected segments.

In fact, the economic integration that current policies prevent was actually a reality in the decades immediately following 1967, before the Oslo Accords and legitimate security concerns in the wake of suicide bombings made Palestinian access to Jerusalem more difficult. Between 1967 and the early 1990s, Palestinians from Bethlehem, Ramallah, and throughout the West Bank could move relatively freely to Jerusalem for work, commerce, and family visits. However, during the First Intifada (which began in December 1987), curfews and closures became more frequent, making travel to Jerusalem much harder. The closure system and checkpoint infrastructure were significantly tightened throughout the second half of the nineties and during the Second Intifada (2000-2005) in response to suicide bombings and other terrorist attacks, creating the permit regime and checkpoint infrastructure that fragments the region today. These security measures were undoubtedly legitimate responses to genuine threats and violence, but they also dismantled an integrated metropolitan economy that had benefited both Israelis and Palestinians. Crucially, they have persisted since then, even during periods when the security threats have diminished.

Critics, then, will correctly argue that calls for greater regional integration risk ignoring harsh security realities. Yet even within existing constraints, Israel could begin implementing policies that preserve future options rather than close them off permanently. After all, Rome wasn’t built in a day. Israel doesn’t need to immediately close down checkpoints or knock down the security barrier, but there should be smart planning that maintains security while not permanently destroying economic potential. Most importantly, Israel mustn’t foreclose future possibilities that might allow Jerusalem to finally develop into a proper city, which is precisely what massive construction in E1 would do. The Palestinians of Bethlehem and Ramallah aren’t going anywhere, and the aspiration should be for greater economic integration between them and Jerusalem, starting with practical steps like coordinated infrastructure planning, joint environmental projects, and gradual expansion of economic cooperation zones.

So when Smotrich encourages construction in E1, he’s not just making an ideological statement, he’s making a fundamental choice about Jerusalem’s economic future, one that will lead to a truncated city-state, artificially isolated from its natural hinterland and constrained in its economic potential, despite efforts to better connect it with the rest of Israel. The tragedy of E1 is not merely what it does to Palestinian aspirations for statehood, but what it does to Jerusalem itself. The result is a lose-lose outcome: Palestinians lose territorial contiguity and economic opportunity, while Jerusalem loses the chance to become the integrated, dynamic metropolitan area that its geography and human resources make possible. This stands in stark contrast to any rational vision of Israeli prosperity, let alone the prophet Isaiah’s vision of Jerusalem as a city where “all nations shall flow unto it” – a place of convergence and connection rather than division and separation.