My Lords, almost four decades of protracted occupation and conflict have left the Palestinian territories with what might be best described as a “war economy”, with all the implications that has for social, economic and political development.

The Palestinian economy relies heavily on donor aid, including the temporary international mechanism devised by the European Union and the World Bank, which bypasses the Hamas-led Government and provides aid direct to Palestinian people. Although I support this mechanism and the work of the diplomatic quartet established by the United Nations, the United States, Russia and the European Union, I have concerns over the cutting of funding. For example, one effect of the freeze in aid is that salaries of some 160,000 government workers have gone largely unpaid. That cannot but further undermine the Palestinian economy and civil society.

A significant share of donors’ assistance in the last four years has been for relief efforts aimed at poverty alleviation. Poverty will undoubtedly continue to be a serious problem as long as current political conditions persist. Certainly, the grotesque levels of poverty in some Palestinian territories, especially in the Gaza Strip, remains a recruiting sergeant for disaffected and alienated youth. It is right therefore that poverty alleviation should have a high priority in Palestinian development strategy.

Micro-financing has helped to develop economies around the world and I believe there is no reason why it cannot be part of the solution in Palestine. I have seen for myself the success of micro-financing in some parts of the globe, including in the Indian subcontinent, where micro-financing of very small scale enterprises has proved a significant stimulus to economic growth and the creation of new breeds of entrepreneur. It has also provided women with the opportunity to gain empowerment, through gaining success with funding and resources, and start small home businesses. That is especially important at the current juncture. In effect, they can help themselves and their local communities through such small entrepreneurial schemes, which will help to circulate finance within local villages and communities.

Yesterday I was with the High Commissioner of Bangladesh, discussing at length the micro-credit and financing arrangements in Bangladesh and the success of the operations. Some of what they do can perhaps be replicated in the Palestinian territories. I have recently been asked to become involved with a group carrying out micro-financing operations in the Palestinian territories. I believe that micro-financing could provide some Palestinians with the key to improving their own living standards and aiding economic development. Could the Minister kindly tell the House what steps, if any, have been taken to support micro-financing schemes in the Palestinian territories?

Unfortunately, I feel that providing relief and development is only a short-term solution. It is important to recognise the adverse effect of economic dependence of the Palestinian territories on Israel, formed over the past decades. On the point, may I ask what measures Her Majesty’s Government are taking for a new policy framework to move from providing relief and development only to one which helps support the Palestinian people become more economically empowered?

Without such empowerment all forms of peace proposals and dialogue, although valuable, threaten to remain ineffective. As poverty aids violence, so wealth creation will aid stability, for both the Palestinian territories and Israel.

Experience in the Holy Land has shown that hopelessness leads to violence, but the prospect for empowerment leads to peaceful co-existence.