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Tax breaks, smaller government, a rationalized legal system? No, this is a long way from New Jersey. By Matt Beynon Rees, Global Post

RAMALLAH — More than two decades after declaring an independent state, the Palestinians now say they may be able to run one.

Palestine Liberation Organization Chairman Yasser Arafat declared an independent Palestinian state at a conference in Algiers in 1988. But in 2000, when presented with the basis for a state, he failed to agree to a final deal in negotiations with Israel. Current Prime Minister Salaam Fayyad unveiled a plan this week that would set up an independent state in the Palestinian areas in two years — whether Israel likes it or not.

“We must confront the whole world with the reality that Palestinians are united and steadfast in their determination to remain on their homeland, end the occupation and achieve their freedom and independence," Fayyad said at a press conference in Ramallah, where the Palestinian Authority has its seat of government. "We will be the initiators and set up a de facto Palestinian state."

Fayyad, as U.S.-educated economist, has been urging other Palestinian politicians to end the civil strife between the Fatah Party, which effectively governs the West Bank, and the Islamists of Hamas, which controls the Gaza Strip. Privately he has said for some time that the Palestinians need to be seen to be governing themselves, rather than stumbling along at Israel’s whim.

That feeble appearance had been particularly strong since peace talks between the Palestinian Authority and Israel broke down during the war in Gaza at the turn of the year. Since then, the Palestinians have refused to negotiate until Israel halts all building in its West Bank settlements.

At first the U.S. seemed to support that position and the Palestinians settled back to watch Israel’s new right-wing government sweat. But the Israelis have brazened it out, so that international politicians now appear to accept the idea that Israel can continue to build in its settlements provided that it doesn’t expand their boundaries.

After a meeting in London on Tuesday with Israeli Prime Minister Benjamin Netanyahu, British Prime Minister Gordon Brown accepted what Israelis call “natural growth” in the settlements. “They need kindergartens and houses for their families,” Brown said. “This doesn’t mean it’ll take up more West Bank territory.”

Perhaps Brown thinks the Israelis are planning to build new floors on top of existing homes in the West Bank. Anyone who’s watched the settlements expand knows that more West Bank territory is precisely what’ll be swallowed up as long as Israel doesn’t promise an absolute freeze. But Brown’s declaration demonstrates the formula international leaders are using to back down from their earlier pressure on Israel.

It’s clear to Fayyad and the more realistic Palestinian politicians that they’ve lost the initiative that seemed to be with them in June when President Barack Obama called for a settlement freeze. His 65-page plan is an attempt to regain that lost impetus.

Fayyad’s statehood plan includes an international airport, a sea cargo terminal, and an oil refinery.

If that state sounds more like New Jersey than Palestine, then wait until you hear the Americanized ideology behind it.

Fayyad says he wants to cut Palestine’s dependence on foreign aid by giving tax breaks to encourage foreign investment. He wants smaller government and a rationalized legal system.

Without Fayyad’s imprimatur, you’d have to say the plan was total bunk. After all, these are the same Palestinians who wasted most of the $4 billion in foreign aid they received during the decade after signing the 1993 Oslo Peace Accords, siphoning much of it off into corrupt projects and secret bank accounts.

I take that back. They aren’t the same Palestinians. They’re much worse off.

These days the putative Palestinian state is divided. Fayyad can only claim control over the West Bank. Hamas has Gaza, and they aren’t buying into his plan.

Sami Abu Zohari, a Hamas spokesman in Gaza, said Wednesday that Fayyad’s regime was “illegal” and the plan needs to be approved by the Palestinian parliament, which Hamas controls. Other Hamas officials in Gaza said that independence could only be achieved by “resistance” to Israel.

Such fiery declarations often go down well with Palestinians angered by Israel’s continued occupation. But Fayyad has made a success of small, boring measures, and Palestinians have come to appreciate that, too.

A former World Bank and International Monetary Fund official, he replaced the Hamas prime minister in June 2007, when the Islamists ran Fatah out of Gaza. Which is why Hamas thinks his position is illegal.

Since then, Fayyad has instituted economic reforms aimed at reducing corruption and waste. He has pushed security reforms, with the help of a U.S. adviser, so successfully that Israeli military chiefs cut 41 checkpoints in the West Bank recently, allowing much easier movement for ordinary Palestinians.

So does Fayyad have a chance?

First, if he hadn’t done this, then it was becoming clear the Palestinians might have waited a long time for any change of heart from the Israeli government. At this week’s Israeli cabinet meeting, Foreign Minister Avigdor Liebermann noted that it was 16 years since the Oslo Accords were signed.

“It will be impossible in the next 16 years to bridge the gaps on Jerusalem, on the refugees, or on Israel as a Jewish state,” he added.

Second, Fayyad’s plan is a way for those Palestinians who reject violence to chart a path that will give ordinary West Bankers a political alternative to the corrupt power of the militias. If it’s a success, it might also force Hamas to come out of its isolation, making peace with Fatah to get a piece of the action.

A true Palestinian state in two years may seem about as easy to achieve as universal health care for U.S. citizens. But aspects of Fayyad’s plan may be in place by 2011 to improve the lives of Palestinians, whether their state is a reality or not. After all, at his press conference Fayyad pledged to provide state housing and education for all Palestinians.

He also promised free health care.