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It depends on whether you believe that the other Arab States would recognize such a peace.

If you believe that the Arab States would not recognize such a peace or that they would respond with a "cold peace" like the Egyptian-Israeli peace, the economic benefits would be confined only to Israelis and Palestinians. From 1967-1987 (after the Six Day War but before the First Intifada), many Palestinians worked as guest workers in Israel, crossing the border on a daily basis to get to work and then again to go home. This led to a major growth in the Palestinian economy since Israeli wages (even for menial jobs) were much higher than could be found in Palestine. Additionally, Palestinian skilled professionals, such as doctors and lawyers, were able to form partnerships with Israeli counterparts and improve Palestinian access to Israeli hospitals and law offices as well as provide more services to Israeli citizens. Israel also had a larger market because its goods were sold quite commonly in the Palestinian Territories without issue. Also Israelis patronized Palestinian businesses. It is likely that if a peace occurred between Israel and Palestine that this type of mutual economic growth, with a stronger emphasis on Palestinian growth would be the natural result.

If you believe that the other Arab States would finally accept Israel as a regional player and partner for trade and development, a very different scenario could also occur. Of course, all of the Israeli-Palestinian stuff would also occur, but numerous other benefits would accrue. Israelis could easily invest in helping neighboring Arab countries improve their agronomy and Arab Students could have fellowships at Israeli universities. Additionally, numerous raw materials that Israel lacks, such as petroleum, cedar, and coal, could be traded for more advanced technological goods. There would likely be a minimization of the various armies in the region allowing the local governments to invest more in infrastructure, welfare, and civil society organizations, leading to the development of a more innovative and intelligent populace. Additionally, a peace between Israel and all of the Arab Countries would allow Muslims from all over the world to visit the holy sites of Al-Aqsa Mosque and the Dome of the Rock Shrine from which they are currently unable because of the relations that their governments have with Israel, leading to a boost in tourism for Israel or Palestine (whoever would control the holy sites).

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Q: What economic changes would occur if Israel and the Palestinians were to reach a lasting peace?
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