On the day Israeli and Palestinian leaders were meeting in Washington in early September to re-launch direct peace talks under US mediation, Israel’s deputy Prime Minister Dan Meridor briefed reporters on his high hopes for the negotiations while standing in one of those contentious West Bank settlements at the heart of the dispute – Kochav Yaakov.Beside him sat a row of unfinished home foundations frozen since last year by the Netanyahu government’s 10- month building moratorium. But across the valley behind him was a massive, bustling, kilometer-wide quarry on the northern outskirts of Ramallah, which is steadily feeding the current Palestinian building boom in the West Bank.The contrast could not have been more stark! Jewish construction sites lay in silent limbo while the Palestinian side was abuzz with building activity. As columns of dust rose into the hot summer breeze, hydraulic stone-cutters hammered away along the quarry’s broad 100 meter-high cliff face, their constant drumbeat echoing over nearby hillsides.“This is another opportunity for peace,” said Meridor above the cacophony of the heavy machinery clanging in the background. “We very much hope this one will not be missed. The Israeli government has done what it could not only to allow these talks to start, but also to alleviate the situation on the ground… You will see today the Palestinian economic development in the West Bank.”His comments touched on the Israeli government’s double-edged policy under Prime Minister Benjamin Netanyahu. To entice Palestinian Authority chairman Mahmoud Abbas into direct negotiations, Netanyahu imposed a ban on all new housing starts in Jewish communities in Judea and Samaria since last fall. At the same time, he has eased travel restrictions on Palestinians and encouraged Israeli and foreign investment in the West Bank, helping fuel an impressive economic spurt.Abbas’s response was to stubbornly refuse to meet with Netanyahu, but heavy pressure from the Obama administration finally forced him into face-to-face talks. Still, the PA leader insists he won’t hang around unless Israel extends the building freeze past its September 26 expiry date.This threat prompted Meridor, considered the most dovish member of Netanyahu’s Likud party, to suggest several weeks ago that Israel should continue the building ban in more isolated communities deeper in Judea and Samaria, while resuming construction in the so-called consensus settlements – those larger settlement blocs built near the pre-1967 lines which Israel expects to retain in any final peace deal. But on this day, Meridor chose to focus on the disparity right now between the Israeli and Palestinian sides when it comes to building activity.“Nobody in the world asks for a total freeze on construction” he said. “They all want construction to continue, as long as it’s done by one side, the Arabs. We don’t think that’s an even-handed approach…”That inequality is especially obvious these days in Ramallah, the financial hub of the West Bank and for now the seat of the Palestinian Authority. A huge new shopping mall just opened in town, and high-rise apartments are going up all around. Cement consumption is up 30%. The local night life has become vibrant, even drawing crowds from suddenly drab east Jerusalem. The city is about to welcome its first five-star hotel, a luxurious Mövenpick complete with a grand ballroom, gymnasium and heated pool. And dealers say the number of new car sales is skyrocketing.Since taking office two years ago, the Netanyahu government’s moves to stir Palestinian economic growth have helped produce such remarkable results. Last year, the rate of growth in the West Bank hovered around 8%, and this year the rise in GDP is projected to be 11%. True, the Palestinians started from a relatively low position, unemployment is still high, and a third of the West Bank economy relies on foreign donations. But these figures still reflect real growth, and would be the envy of most Western nations still suffering from the market meltdown of late 2008.They are also the envy, and dread, of Jewish settlers looking on from adjacent hilltops.Avi Roeh, head of the Binyamin Regional Council, explained the difficulties his communities are facing due to the Israeli goodwill gestures toward the Palestinians. Not only are Jewish families leaving to build homes back across the Green Line, but the easing of travel restrictions to help the Palestinian economy also allowed Hamas terrorists the freedom to find Israelis to murder in the hours before the talks began.Roeh made a direct connection between the lifting of roadblocks and the sudden spike in terror attacks as the two sides met in Washington.“Opening these checkpoints is risky, as we saw last night,” he said, referring to a drive-by shooting just a few miles away that left two Binyamin residents wounded. A brutal roadside ambush the previous evening had claimed the lives of four Israeli motorists further south near Hebron. After months of relative quiet, tensions were definitely back on the rise in the territories due to the deliberate Hamas attempt to undermine the renewed peace talks. But Netanyahu’s cabinet has taken a calculated risk in lifting roadblocks in the hope that improved living conditions for the Palestinians will persuade most to choose reconciliation and progress over the destructive Islamist agenda.Roeh said he understood the logic behind these efforts, but wanted the means to a better life restored to his communities as well.Roeh was reluctant to answer hypothetical questions about what his communities would do if the Israeli government ordered a forced evacuation in the West Bank, as occurred in Gaza five years ago. He also was not eager to answer inquiries about whether he would live inside a Palestinian state if its leaders agreed to let some Jewish settlements remain, as certain politicians are proposing. He did suggest, however, that as long as the security of the settlers is assured, there are all sorts of creative ideas out there for allowing everyone to remain in their homes.“No one here would like to be made to leave their home. The main condition is that there be security for these communities; if that can be guaranteed, we can go far in resolving the conflict.”After wishing Roeh a “Shana Tovah” for the Jewish new year, we headed north through rolling hills spotted with Jewish and Arab villages, down a winding side road to an area where the first new Palestinian city in some 40 years is being built, about half-way between Ramallah and Nablus. The area is under full Palestinian control, so we needed a heavy IDF escort to get there.The new town will be called Rawabi, and resembles the massive Israeli construction sites that have become so familiar around here. A row of cement mixers sat idling near the summit of the embryonic city. A steady queue of large dump trucks were being filled by front-end loaders. Catepillar graders, engines roaring, cast clouds of dust into the air. But this was all Palestinian-owned machinery.This first “modern” Palestinian city was dreamed up by Bashar Masri, a wealthy Palestinian businessman who hopes to attract affluent families in Ramallah and other nearby towns. He’s building 4,000 luxury apartments in neatly contoured rows that will eventually house up to 30,000 people. His target market is young professional couples who will be able to buy upscale apartments at very affordable prices and enjoy a contemporary suburban lifestyle.The $700 million dollar project is being largely funded by investors from Qatar – one of the oil-rich Arab Gulf states. And it will include an industrial zone where leading Israeli hi-tech companies plan to open branch offices.In fact, Rawabi is being built with total Israeli cooperation, including from the army. The town was even designed by the same famous Israeli city planner who mapped out the mushrooming city of Modi’in, which can be seen rising only 10 miles away.But off to the south, just one hilltop away, sits the small Jewish settlement of Ateret. Residents there have been watching closely as Rawabi takes shape day by day, while they are under a construction ban. The frustration has been building, and some local settlers have begun staging protests. This has presented yet another security challenge for the regional IDF commanders, on top of the ever-present Hamas threat.Maj. Peter Lerner, spokesman for the IDF Central Command, tried to strike a balance between the need to fight terror and the effort to enhance living conditions for Palestinians.“The improved security situation here in the region is what has enabled the building of thousands of housing units within the Palestinian Authority. The Rawabi project is just one of those,” said Maj. Lerner. “The foundations of this have been built over the past two years based on our security activities and our close cooperation with Palestinian authorities.”Indeed, a measure of law and order has been restored on the streets of West Bank cities in recent years, in part thanks to the deployment of several battalions of PA security forces trained by US commander Gen. Keith Dayton. The resulting stability brought on by the Dayton forces and their Israeli counterparts has contributed to the more conducive environment for economic development.It has also allowed Israel to lift numerous roadblocks, and Maj. Lerner and several other army commanders who spoke off the record took pride in the fact that IDF checkpoints in the West Bank have been reduced from 41 to only 14.The upbeat assessment of those tasked with defending Israelis in the sprawling hills of the Shomron was a bit surprising, given the lethal roadside ambushes of recent days. It also seemed odd that this particular Israeli leadership had decided to impose a settlement freeze that is slowly drying up Jewish communities in these areas while deliberately helping fuel an economic boom among the Palestinians which is assisting them in building a de facto state.So whatever is transpiring in the fragile Washington peace talks, there is a sense in the territories that a Palestinian state is slowly but surely rising from the ground up, with full Israeli cooperation.Such a policy could be dangerous for Israel, however, as even officials in the Netanyahu government admit. There are mounting concerns among Israeli leaders and analysts that the Palestinians want to achieve statehood without having to end the conflict with Israel. Under those conditions, such a state would give the Palestinians an enhanced platform from which to continue waging their struggle against Jewish sovereignty anywhere in the Land.Thus the challenge is to keep the Palestinian boom from triggering an Israeli bust.