In the Palestinian Authority's chaotic world, Nablus, a center of Islamic militancy, has just inaugurated a cinema. Young professionals watch American movies and then crowd into new fashionable coffee shops to discuss business and entertainment. In relatively peaceful Bethlehem, however, a Fatah conclave attempting to reconcile its warring factions erupted in riot. Recent reports of prosperity returning to the impoverished West Bank cities were truly astonishing. Arabs usually pour fire and brimstone on Israel when talking to the press. Now they are talking about how a reduction in terrorism enabled Israel to remove barriers in the West Bank and generated a dramatic economic recovery (7% growth!). Well-groomed young Palestinian Arab men, and amazingly also women, fearlessly told Israeli TV how terrific it was to ignore inflammatory politics for a while and enjoy life instead. But the fights in the Bethlehem Fatah conclave were a reminder that belligerency still dominates Arab politics and may frustrate the yearning for a respite among a more prosperous, younger generation. Unfortunately, the politics of violence is generously rewarded by various "peacemakers" who help foment major crises out of minor issues. TAKE THE issue of Jewish settlements in the West Bank. They are supposed to be an insurmountable obstacle to peace, choking Palestinian growth. But they occupy less than 4% of the land in a 90% empty West Bank. There is plenty of space there for everyone, and Jews should be able to live there just as Arab Israelis are allowed to live in Israel. Still, even Palestinian Authority Prime Minister Salaam Fayad, a respected economist who understands the crucial importance of peace for development, had to run on an Israel-bashing platform to stand any chance of election. The Fatah conclave resulted in a takeover by a younger, more radical generation. They unseated President Mahmoud Abbas's cronies, who lived high on the billions in aid money. These "young Turks" (most are 50 and older) are determined to get their share of this booty, and for this, militancy serves them well. For decades Arab terrorism has kept the UN, the State Department, European chancelleries and legions of "human rights" organizations pushing for a Palestinian state as if it was the only human rights issue in the world, no matter how brutally the PA is already treating its people. No one seemed concerned by the likelihood that an irredentist Hamas-style state will wage a bloody jihad against Israel with Iranian help. The hope for a quick political fix that more Israeli "accommodations" will produce springs eternal, as the present Obama initiative proves. Most policy wonks seem indifferent to the proven connection between the rule of law, economic development and a less militant political culture. But the fact is that for two decades, from Israel's occupation of the West Bank and Gaza in 1967 to the first 1987 intifada, the disputed territories enjoyed an intense "economic peace process." Israeli occupation maintained a framework of law and order, and the integration of these backward territories with the advanced Israeli economy let them flourish economically and socially. Arab agriculture was revolutionized, employment was full, the population's standard of living quintupled, while health, education and women's rights all advanced dramatically. TRUE, OCCUPATION, even a relatively benign one, will provoke resistance. But could not other creative political arrangements be devised to encourage moderates among the Palestinian Arabs and suppress the radicals and terrorists, so as to permit continued economic growth and the evolution of a peace-seeking civil society? Instead the Europeans, the Americans and, yes, the Israeli peace camp promoted radical Arab factions. The Oslo agreements imposed the rule of a terrorist organization. The disasters that ensued were predictable. It took decades before the US managed (through Gen. Keith Dayton) to help train Palestinian militias to restrain terrorist activity in the West Bank, because it was impossible to convince Arafat and later Abbas that the West Bank could be taken over, like Gaza, by Hamas terrorists. When Arafat consistently, and Abbas intermittently, did everything to inflame the conflict and encourage terrorism, little was done to stop them. Pending a political resolution, could an interim cessation of hostilities not have been enforced in the West Bank and Gaza long ago to assure peace-promoting economic development and the creation of a civil society? Would it not be more productive than providing billions to radical leaders, assisting them to build militant dictatorships? Lasting peace must grow from the bottom up, from an "economic peace process" that proves what advantages peace has to offer on a daily basis. It cannot come from signing peace agreements with radical and corrupt entities propped up by corrupting Western handouts. Prime Minister Binyamin Netanyahu suggested that Israel initiate such an "economic peace process" to accompany the political one. The Palestinian leadership, habitual naysayers, responded with contempt. They obviously prefer their masses to be miserable so they can exploit their rage for a jihad against Israel. But even some less-opinionated politicians and pundits accused Netanyahu of using the economic initiative to delay instant political salvation. Perhaps the young Arab men and women interviewed recently on Israeli TV had a message for them that should be taken seriously? The writer is director of the Israel Center for Social and Economic Progress (ICSEP).