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LINDA WERTHEIMER, HOST:

Secretary of State John Kerry is back in the Middle East. Tomorrow, he meets separately with Israeli and Palestinian leaders, hoping to reignite long-stalled peace negotiations. When he was in the region last month, Kerry said he's working on plans to attract major investments to the Israeli-occupied West Bank. He hopes that will help political discussions move along. But as NPR's Emily Harris has learned, the West Bank economy is all tied up in politics.

(SOUNDBITE OF CHISELING)

EMILY HARRIS, BYLINE: Under open sheds on the outskirts of a Palestinian village in the West Bank, dozens of men chisel stone slabs by hand. Extracting the white rock known around the world as Jerusalem stone is an important business here. This family company employs 60 people and brings in revenue of around $2 million dollars a year, says owner Ahmed Thwabta. But because his quarry is in a West Bank area where Israel controls industrial permits, business is unpredictable.

AHMED THWABTA: (Through translator) We work according to the Israeli mood. If the political situation is good, then we are OK. If the political situation is bad, then they come and pick on us and fine us.

HARRIS: The more modern end of the Palestinian economic spectrum also depends on Israel. Saed Nashef runs a venture capital firm with almost $30 million to invest in information technology in Palestinian areas. He says IT companies in the West Bank have more flexibility than traditional businesses. They don't need mining permits, for example. But, he said, there are obstacles.

SAED NASHEF: For example, Palestine cannot have 3G and cannot have 4G, because the Israeli authorities are preventing them from accessing these frequencies.

HARRIS: Some big multinationals have money in the IT sector here. Cisco's Israel office, for example, outsources work to 40 Palestinian engineers. But for face-to-face meetings, permits to leave the West Bank can take a week or longer. Palestinian goods manufactured in the West Bank have to be transferred to Israeli trucks to leave the occupied area.

COL. GRISHA YAKUBOVICH: I know that the crossing points are an obstacle.

HARRIS: Colonel Grisha Yakubovich heads the Israeli office that oversees all non-military activities in the West Bank. He says these obstacles help security. He recalls an attack in Israel nine years ago after two suicide bombers left the West Bank hidden in a commercial container.

YAKUBOVICH: Terrorists that killed 11 people at Ashdod Port using those civilian platform of economy, of trucks, of open gates. So there are those security measures that we were forced, we were forced to build.

HARRIS: Economic challenges in the West Bank aren't only due to Israeli rules. Twenty-five percent of the operating budget of the government - the Palestinian Authority - is covered by other countries, international donors. Udo Kock heads the International Monetary Fund office here. He says in the past couple of years, donations have become unpredictable. That means the Palestinian Authority has had trouble paying salaries, and bills.

UDO KOCK: And it's come to a point where now the private sector, some of them, are reluctant to provide services to the PA, because they're not getting paid. Then this private sector, of course, is reluctant to pay taxes that are due to the Palestinian Authority, and you get into a circle that's very harmful for the economy.

HARRIS: Right now, the IMF predicts growth will drop by half here in the next three years. But Rami El-Zogheir says he could grow his business: high-quality, hand-made shoes.

His factory in Hebron has tripled output over the past three years, and he's ready to expand into other Arab markets. The problem, Zogheir says, isn't money. It's politics.

RAMI EL-ZOHEIR: I would like to invest more money. But I can't guarantee the situation here. I'm afraid for tomorrow.

HARRIS: Afraid violence might flare up again, and afraid any promised new outside investment - if it materializes - could not overcome existing obstacles. Emily Harris, NPR News.

WERTHEIMER: You're listening to MORNING EDITION, from NPR News.

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