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The exportation of Palestinian labor services to Israel has long been a central feature of the economic relationship between Israelis and Palestinians. The historically large scale and mostly unregulated employment of Palestinians in Israel considerably helped both parties in the past (Kleinman, 1990). Income derived from Palestinian employment in Israel has been a substantial stimulus in the Palestinian economy and has accounted for as much as 22% of Palestinian Authority (PA) revenues. The relatively low cost of Palestinian labor has also benefited Israelis mainly through cheaper housing and agricultural products. Recently, however, substantial changes have taken place in the Israeli market for unskilled labor. The recent changes raise a question as to whether Palestinians can continue to rely on the Israeli labor market as a significant source of employment and economic growth in the future.

Perhaps the most …