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I had the opportunity recently to spend some time in Israel. I spoke with many Israelis and Palestinians – Israelis who served in Beirut with Ariel Sharon; Maronite Christians in Jaffe; a young female manager of a sand-bagged café in Tel Aviv; and my Israeli driver. The driver traveled with me in the West Bank, had a degree from Harvard’s Kennedy School and kept a gun between us in the front seat.

The conversations, at some point, always came around to the effect of the increasing violence on the Israeli and Palestinian economics.

The economic reality in Israel, the West Bank and Gaza is simple; it is terrible.

On the day I left Israel, my hotel manager said that with no recent suicide bombings, his 15 percent occupancy rate would fall even further since his media guests would return home. With less bloodshed, there would be fewer media, but certainly no tourists.

That same day in the West Bank, I had an equally ironic conversation with an Israeli and a Palestinian restaurant owner. Many Palestinian villages occupy rocky hilltops circled by narrow rock terraces used to grow food. For the first time in decades, more terraces are being built so more food can be grown, even though crops cannot be harvested in Israel due to the exclusion of Palestinian workers for security reasons. Two conversations, each conveying the same reality – without peace, prosperity is impossible, and without the hope of prosperity, there is less hope for peace.

If Israel’s economy is in shambles, the Palestinian economy is worse. It is impossible to get precise figures, but nearly half of all Palestinians in the territories were until recently living on about $2 a day.

It has gotten worse. About 1 million Palestinians are cut off from their former jobs in Israel, tourism in the territories is nonexistent, and businesses in the territories are nearly impossible to operate given the security checkpoints that slow travel to a crawl, at best.

In the Gaza Strip unemployment exceeds 50 percent, devastated by the extensive security network needed to protect the 7,000 Israeli settlers, who occupy about 40 percent of the territory, from the Palestinian militants among the 1.3 million Palestinians who occupy the rest.

In the mid to late 1990s, there was a concerted effort by certain Israeli businessman and politicians to use economic development in the territories as a way to realize hopes created by the Oslo accords. The idea was that development in the territories would raise Palestinian per capita income, generally estimated at anywhere from 5 percent to 10 percent of Israeli per capita income.

Many Palestinians and Israelis thought that by developing the Palestinian economy, and by promoting the idea of the Israeli and Palestinian economics as an economic link to Jordan, Saudi Arabia and the rest of the Middle East, Israelis and Palestinians could dominate banking, tourism and trade in the Middle East.

Progress was being made in this respect, helped by Israeli’s high tech boom of the late 1990s, the then strong world economy, and increasing foreign investment in the territories, including investment by Palestinian Americans.

I discussed this effort with Itamar Rabinovich, former Israeli ambassador to the United States and now president of Tel Aviv University. Although this effort was viewed by some Palestinians and many in the Palestinian Authority as a form of Israel colonialism, in his view progress was being made, despite the problems raised by the corruption endemic to the Palestinian Authority and the decades old Arab League embargo on Israeli businesses.

However, whatever progress was being made has been totally lost, he believes, another victim of the violence.

Despite the current bleak political and economic picture, many Israelis and Palestinians retain hope for peace and a cooperative future. I met in Jerusalem with a Brooklyn-born Israeli who moved to Jerusalem to run a venture capital firm. We spoke of how difficult it is for Israeli businesses (let alone Palestinian businesses) to raise money.

The last time this thoughtful man spoke with a Palestinian about businesses was over two years ago. He admits that his business future seems now to be completely divorced from that of Palestinians who live near him in the West Bank. He believes that the most important reason for lack of contact is lack of trust.

He recalled a negotiation where after weeks of effort a deal between Israeli and Palestinian interests had been negotiated. The Palestinian negotiator, a Jordanian in this case, was at last faced with signing the deal. He hesitated, then walked away, unable to take the step of working with Israelis. As many Israelis and Palestinians realize, by finding it virtually impossible to work together, the wealth and future of both sides are being squandered while the human tragedy grows in a cycle of retribution.