GDP per capita in the Palestinian territories rose by 7% per year from 1968 to 1980 but slowed during the 1980s. Between 1970 and 1991 life expectancy rose from 56 to 66 years, infant mortality per 1,000 fell from 95 to 42, households with electricity rose from 30% to 85%, households with safe water rose from 15% to 90%, households with a refrigerator rose from 11% to 85%, and households with a washing machine rose from 23% in 1980 to 61% in 1991.
Economic conditions in the West Bank and Gaza Strip, where economic activity was governed by the Paris Economic Protocol of April 1994 between Israel and the Palestinian Authority, deteriorated in the early 1990s. Real per capita GDP for the West Bank and Gaza Strip (WBGS) declined 36.1% between 1992 and 1996 owing to the combined effect of falling aggregate incomes and robust population growth. The downturn in economic activity was due to extensive corruption in the newly governing Palestinian Authority, and to Israeli closure policies in response to terrorist attacks in Israel, which disrupted previously established labor and commodity market relationships. The most serious effect was the emergence of chronic unemployment. Average unemployment rates in the 1980s were generally under 5%; while by the mid-1990s it had risen to over 20%. After 1997, Israel's use of comprehensive closures decreased and new policies were implemented. In October 1999, Israel permitted the opening of a safe passage between the West Bank and the Gaza Strip in accordance with the 1995 Interim Agreement. These changes in the conduct of economic activity fueled a moderate economic recovery in 1998–99.
As a result of the Israeli blockade, 85% of factories were shut or operated at less than 20% capacity. It is estimated that Israeli businesses lost $2 million a day from the closure while Gaza lost approximately $1 million a day. The World Bank estimated the nominal GDP of the territories at US$4,007,000 and of Israel at US$161,822,000. Per capita these numbers are respectively US$1,036 and US$22,563 per year.
For 30 years, Israel permitted thousands of Palestinians to enter the country each day to work in construction, agriculture and other blue-collar jobs. During this period, the Palestinian economy was significantly greater than the majority of Arab states. Until the mid-1990s, up to 150,000 people—about a fifth of the Palestinian labor force—entered Israel each day. After Palestinians unleashed a wave of suicide bombings, the idea of separation from the Palestinians took root in Israel. Israel found itself starved for labor, and gradually replaced most of the Palestinians with migrants from Thailand, Romania and elsewhere.
In 2005, the PNA Ministry of Finance cited the Israeli West Bank barrier, whose construction began in the second half of 2002, as one reason for the depressed Palestinian economic activity. Real GDP growth in the West Bank declined substantially in 2000, 2001, and 2002, and increased modestly in 2003 and 2004. The World Bank attributed the modest economic growth since 2003 to "diminished levels of violence, fewer curfews, and more predictable (albeit still intense) closures, as well as adaptation by Palestinian business to the contours of a constrained West Bank economy". Under a "disengagement scenario" the Bank predicted a real growth rate of −0.2% in 2006 and −0.6% in 2007.
In the wake of Israel's unilateral disengagement from Gaza, there were shortages of bread and basic supplies due to closure of the al Mentar/Karni border-crossing into Israel. Israel's offer to open other crossings was turned down by the Hamas-run Palestinian authority.
Following the January 2006 legislative elections, decisively won by Hamas, the Quartet (apart from Russia) cut all funds to the Palestinian Authority led by prime minister Ismail Haniyah(Hamas). The PA had a monthly cash deficit of $60 million-$70 million after it received $50 million – $55 million a month from Israel in taxes and customs duties collected by Israeli officials at the borders. After the elections, the Palestinian stock market fell about 20%, and the PA exhausted its borrowing capacity with local banks. Israel ceased transferring $55 million in tax receipts to the PA. These funds accounted for a third of the PA's budget and paid the wages of 160,000 Palestinian civil servants (among them 60,000 security and police officers). The United States and the European Union halted direct aid to the PA, while the US imposed a financial blockade on PA's banks, impeding the transfer of some of the Arab League's funds (e.g. Saudi Arabia and Qatar). In May 2006, hundreds of Palestinians demonstrated in Gaza and the West Bank demanding payment of their wages. Tension between Hamas and Fatah rose as a result of this "economic squeeze" on the PA.
In 2010, 4.6 million people visited the Palestinian territories, compared to 2.6 million in 2009. Of that number, 2.2 million were foreign tourists while 2.7 million were domestic. This number of international visits is misleading, however, since most tourists come for only a few hours or as part of a day trip itinerary. In the last quarter of 2012 over 150,000 guests stayed in West Bank hotels; 40% were European and 9% were from the United States and Canada. Major travel guides write recently that "the West Bank is not the easiest place in which to travel but the effort is richly rewarded."
Agriculture is a mainstay in the economy. The production of agricultural goods supports the population's sustenance needs and fuels Palestine's export economy. According to the Council for European Palestinian Relations, the agricultural sector formally employs 13.4% of the population and informally employs 90% of the population. Around 183,000 hectares of land in the Palestinian territories are cultivated, of which around half is used for olive production. Olive products earn more in export income than any other agricultural crop.
Over the past 10 years, unemployment rates in Palestine have increased and the agricultural sector became the most impoverished sector in Palestine.
Palestinian agriculture suffers from numerous problems, blockades to exportation of produce and importation of necessary inputs, widespread confiscation of land for nature reserves as well as military and settler use, confiscation and destruction of wells, and physical barriers within the West Bank. Because the root of the conflict is with land, the disputes between Israel and Palestine are well-manifested in the agriculture of Palestine.
A wide variety of handicrafts, many of which have been produced by Arabs in Palestine for hundreds of years, continue to be produced today. Palestinian handicrafts include embroidery work, pottery-making, soap-making, glass-making, weaving, and olive-wood and Mother of Pearl carvings, among others. Some Palestinian cities in the West Bank, particular-ly Bethlehem, Hebron and Nablus have gained renown for specializing in the production of a particular handicraft, with the sale and export of such items forming a key part of each city's economy.
Stonecutting is a traditional source of income for the Palestinian economy. The annual average output per worker in the stone industry is higher than in any other sector. There are 650 stone production outlets in the West Bank, 138 of them in Beit Fajjar. The quarried material is cut into a rich range of pink, sand, golden, and off-white bricks and tiles known as Jerusalem stone.
The World Bank estimated in 2016 that restrictive measures placed by Israel on telecommunication operators in the West Bank have had a notable negative impact on the development of the Palestinian telecommunications networks, which is sustaining losses in the range of $1 billion. These restrictive measures include the denial to operate in 60% of the West Bank under Israeli military administration (Area C), limitations on the importation of technology for ICT companies, requiring Palestinian operators to access international links via a company with Israeli registration, delaying in the provision of mobile broadband, the failure to set in place an independent regulator for the sector in the territories, and Israeli operators who lack appropriate authorizations who continue to operate in the Palestinian market
During the 2000s, a high-tech sector emerged in the Palestinian territories, supported by its proximity to Israel, and by 2013, 4,500 Palestinians worked in the IT sector, specializing in software outsourcing (including outsourced work from Israeli companies), telecommunication development and manufacturing equipment. The Palestinian IT sector grew from 0.8% of GDP in 2008 to 5% in 2010. The industry has seen a 64% increase in foreign business since 2009. The majority of Palestinian IT companies are concerted in the city of Ramallah north of Jerusalem.
In May 2018, the World Bank published a major report into the Palestinian technology sector entitled, "Tech startup ecosystem in West Bank and Gaza." According to the report, as of early 2017, there were 241 active tech start-ups in Palestinian Territories, which has created a total of 1,247 jobs. The report also recorded 51 active investors in Palestinian tech companies (around 75 percent angel investors and 25 percent venture capital firms). Among the major VC firms listed are Sadara Ventures, Ibtikar Fund and Oasis500. Venture capital firms reported having invested just under US$150 million in over 40 Palestinian tech companies by 2017. The report also recorded 20 start-up accelerator programs, 19 of which are in the West Bank, and one (Gaza Sky Geeks) in the Gaza Strip.