The Palestinian economy is facing serious risks, with a slowdown in growth and rise in unemployment in both Gaza and the West Bank. During 2008–10, the West Bank’s real GDP grew by an annual average rate of 9 percent, reflecting sound economic management and reforms supported by donor aid, and an easing of Israeli internal barriers. However, growth declined to 5 percent in 2011 and the first quarter of 2012, while unemployment rose to 19 percent in the first half of 2012 from 16 percent in the same period last year. The economic slowdown reflects continued fiscal retrenchment combined with severe financing difficulties, declining donor aid especially from regional donors, and slower easing of restrictions on movement and access. In Gaza, after a rebound in its real output by over 20 percent on average in 2010–11 following the easing of tight restrictions, growth has declined to 6 percent in the first quarter of 2012, and unemployment has risen to 30 percent from 28 percent in the same period last year. Looking ahead, with persisting restrictions, financing difficulties with aid shortfalls, and stalemate in the peace process, there is a high risk of a continued economic slowdown, a rise in unemployment, and social upheaval.

The Palestinian Authority (PA)’s severe financing difficulties in 2011 and so far in 2012 have led to a substantial rise in domestic payment arrears and debt to commercial banks. Steady institution-building and prudent fiscal management by the PA during 2008–10 enabled a significant improvement in the quality of spending and a sharp reduction in recurrent budgetary aid from $1.8 billion to $1.1 billion. However, in 2011 and so far in 2012, donor aid for recurrent spending and development projects has been lower than needed to finance the already tight budgets. The consequent liquidity difficulties have been compounded by shortfalls in revenue in the context of a decline in economic growth and slower-than-expected implementation of clearance and domestic tax administration measures, as well as higher pension payments. Domestic payment arrears, including to the private sector and public pension fund, are estimated to have risen by about $0.3 billion in the first half of 2012. The stock of government debt to domestic banks has increased to $1.2 billion (12 percent of GDP) at end-June 2012 from $1.0 billion at end-2010.

Given the high risk of continued aid shortfalls, it is important for the PA to promptly implement a contingency plan to cover the financing gap, which as of mid-September is projected at $0.4 billion for 2012. The PA already announced in mid-August a freeze in new public sector employment and promotions for the remainder of the year. The contingency plan should complement these measures by a reduction in the cost of living adjustment for public sector employees. Non-wage expenditures should be carefully prioritized, making full use of the cash management system, to ensure that in case of continued aid shortfalls non-essential expenditures take the brunt of the cuts. Any measures to alleviate the impact of the September fuel price increases should be offset by cuts in other non-essential spending, given the severe financing constraint. Development projects should only be implemented if there are matching funds from donors, to prevent the diversion of aid away from essential recurrent spending. While domestic revenue measures are unlikely to

start bearing fruit before the end of the year, nevertheless it is important to press ahead with the prompt implementation of the IMF technical assistance recommendations to improve tax administration, notably through enhancing compliance and widening the tax base.

Joint PA-Government of Israel (GoI) measures to raise clearance revenue should be implemented promptly to support the fiscal adjustment efforts. Given that clearance revenue, which is collected by the GoI on the PA’s behalf, represents 70 percent of the PA’s total tax revenue, the PA-GoI understanding reached in July 2012 to enhance the efficiency of the clearance revenue mechanism through joint PA-GoI measures has the potential to raise budgetary revenue and reduce the PA’s reliance on aid over time. To ensure a sustainable rise in the Palestinian economic and revenue base, economic cooperation should be broadened to include an easing of restrictions on movement and access.

Along with its efforts to address the immediate financing difficulties, it is important for the PA to employ its enhanced institutional capacity to press ahead with measures to further raise public sector efficiency and phase out reliance on recurrent aid. As set out in the IMF staff reports for the Ad Hoc Liaison Committee meetings in 2011, IMF staff considers that the PA is able to conduct the sound economic policies expected of a future Palestinian state, given its solid track record of reforms and institution building. A milestone reached in April 2012 was the WBG’s subscription to the IMF’s Special Dissemination Standards (SDDS). This is the outcome of the PA’s efforts to enhance the quality and transparency of economic and financial statistics, which compare favorably with those of IMF member countries that maintain high data management and dissemination standards. It is essential that the PA continues to build on its track record by taking measures toward comprehensive pension and civil service reforms, further strengthening the social safety net, completing the commercialization of electricity distribution, and enhancing the legal and regulatory framework facing businesses.

Additional aid is essential to sustain orderly reforms and fiscal adjustment. The delays in wage payments have already raised social tensions, and there is an increased public anxiety that, even with additional austerity measures by the PA, much needed social spending would be cut and wage payments delayed. It is thus critical that the PA’s efforts be complemented by the prompt disbursement of additional aid to help cover the 2012 financing gap. It is also important for the PA and donors to work closely to develop a donor coordination framework to enhance the predictability of aid, especially from regional donors.

To stem the risks of a continued economic slowdown, a rise in unemployment, and a deepening fiscal crisis—which are bound to fuel social upheaval—urgent and concerted actions are needed by the PA, the GoI, and the international community. The PA should do its utmost to prudently manage the current fiscal crisis and continue to lay the foundation for sustainable growth and financial self-reliance. However, the economic and financial base that allows the PA to operate in a sustainable manner and build institutions, and its ability to ensure broad-based public support for its reforms, would be seriously eroded without

sustained donor aid, including for public investment, and without an easing of Israeli controls on the WBG’s external trade and access to the West Bank’s Area C. The easing of these controls would relax a key constraint on private sector growth and employment, raise the WBG’s economic and budgetary revenue potential, and help ensure a sustained rise in Palestinians’ living standards.

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Abir Dandis, the mother of the two girls who were murdered in the Negev town of Al-Fura’a last week, couldn't find a police officer to listen to her warnings, neither in Arad nor in Ma’ale Adumim. Both police stations operate in areas where Israel wants to gather the Bedouin into permanent communities, against their will, in order to clear more land for Jewish communities. The dismissive treatment Dandis received shows how the Bedouin are considered simply to be lawbreakers by their very nature. But as a resident of the West Bank asking for help for her daughters, whose father was Israeli, Dandis faced the legal-bureaucratic maze created by the Oslo Accords.

The Palestinian police is not allowed to arrest Israeli civilians. It must hand suspects over to the Israel Police. The Palestinian police complain that in cases of Israelis suspected of committing crimes against Palestinian residents, the Israel Police tend not to investigate or prosecute them.

In addition, the town of Al-Azaria, where Dandis lives, is in Area B, under Palestinian civilian authority and Israeli security authority. According to the testimony of Palestinian residents, neither the IDF nor the Israel Police has any interest in internal Palestinian crime even though they have both the authority and the obligation to act in Area B.

The Palestinian police are limited in what it can do in Area B. Bringing in reinforcements or carrying weapons in emergency situations requires coordination with, and obtaining permission from, the IDF. If Dandis fears that the man who murdered her daughters is going to attack her as well, she has plenty of reason to fear that she will not receive appropriate, immediate police protection from either the Israelis or the Palestinians.

Dandis told Jack Khoury of Haaretz that the Ma’ale Adumim police referred her to the Palestinian Civil Affairs Coordination and Liaison Committee. Theoretically, this committee (which is subordinate to the Civil Affairs Ministry) is the logical place to go for such matters. Its parallel agency in Israel is the Civilian Liaison Committee (which is part of the Coordination and Liaison Administration - a part of the Civil Administration under the Coordinator of Government Activities in the Territories).

In their meetings, they are supposed to discuss matters such as settlers’ complaints about the high volume of the loudspeakers at mosques or Palestinians’ complaints about attacks by settlers. But the Palestinians see the Liaison Committee as a place to submit requests for permission to travel to Israel, and get the impression that its clerks do not have much power when faced with their Israeli counterparts. In any case, the coordination process is cumbersome and long.

The Palestinian police has a family welfare unit, and activists in Palestinian women’s organizations say that in recent years, its performance has improved. But, as stated, it has no authority over Israeli civilians and residents. Several non-governmental women’s groups also operate in the West Bank and in East Jerusalem, and women in similar situations approach them for help. The manager of one such organization told Haaretz that Dandis also fell victim to this confusing duplication of procedures and laws. Had Dandis approached her, she said, she would have referred her to Adalah, the Legal Center for Arab Minority Rights in Israel, which has expertise in navigating Israel’s laws and authorities.

John Kerry revealed his long-awaited plan for peace in the Middle East on Sunday, hinging on a $4bn (£2.6bn) investment in the Palestinian private sector.

The US secretary of state, speaking at the World Economic Forum on the Jordanian shores of the Dead Sea, told an audience including Israeli president Shimon Peres and Palestinian leader Mahmoud Abbas that an independent Palestinian economy is essential to achieving a sustainable peace.

Speaking under the conference banner "Breaking the Impasse", Kerry announced a plan that he promised would be "bigger, bolder and more ambitious" than anything since the Oslo accords, more than 20 years ago.

Tony Blair is to lead a group of private sector leaders in devising a plan to release the Palestinian economy from its dependence on international donors. The initial findings of Blair's taskforce, Kerry boasted, were "stunning", predicting a 50% increase in Palestinian GDP over three years, a cut of two-thirds in unemployment rates and almost double the Palestinian median wage. Currently, 40% of the Palestinian economy is supplied by donor aid.

Kerry assured Abbas that the economic plan was not a substitute for a political solution, which remains the US's "top priority".

Peres, who had taken the stage just minutes before, also issued a personal plea to his Palestinian counterpart to return to the negotiations.

"Let me say to my dear friend President Abbas," Peres said, "Should we really dance around the table? Lets sit together. You'll be surprised how much can be achieved in open, direct and organised meetings."

Thick locks hug the front gates of shuttered shops, now covered in graffiti and dust from lack of use. Only a handful of customers pass along the dimly lit road, sometimes stopping to check the ripeness of fruits and vegetables, or ordering meat in near-empty butcher shops.

“All the shops are closed. I’m the only one open. This used to be the best place,” said 64-year-old Mustafa Sunocret, selling vegetables out of a small storefront in the marketplace near his family’s home in the Muslim quarter of Jerusalem’s Old City.

Amidst the brightly coloured scarves, clothes and carpets, ceramic pottery and religious souvenirs filling the shops of Jerusalem’s historic Old City, Palestinian merchants are struggling to keep their businesses alive.

Faced with worsening health problems, Sunocret told IPS that he cannot work outside of the Old City, even as the cost of maintaining his shop, with high electricity, water and municipal tax bills to pay, weighs on him.

“I only have this shop,” he said. “There is no other work. I’m tired.”

Abed Ajloni, the owner of an antiques shop in the Old City, owes the Jerusalem municipality 250,000 Israeli shekels (68,300 U.S. dollars) in taxes. He told IPS that almost every day, the city’s tax collectors come into the Old City, accompanied by Israeli police and soldiers, to pressure people there to pay.

“It feels like they’re coming again to occupy the city, with the soldiers and police,” Ajloni, who has owned the same shop for 35 years, told IPS. “But where can I go? What can I do? All my life I was in this place.”

He added, “Does Jerusalem belong to us, or to someone else? Who’s responsible for Jerusalem? Who?”

Illegal annexation

Israel occupied East Jerusalem, including the Old City, in 1967. In July 1980, it passed a law stating that “Jerusalem, complete and united, is the capital of Israel”. But Israel’s annexation of East Jerusalem and subsequent application of Israeli laws over the entire city remain unrecognised by the international community.

Under international law, East Jerusalem is considered occupied territory – along with the West Bank, Gaza Strip and Syrian Golan Heights – and Palestinian residents of the city are protected under the Fourth Geneva Convention.

Jerusalem has historically been the economic, political and cultural centre of life for the entire Palestinian population. But after decades languishing under destructive Israeli policies meant to isolate the city from the rest of the Occupied Territories and a lack of municipal services and investment, East Jerusalem has slipped into a state of poverty and neglect.

“After some 45 years of occupation, Arab Jerusalemites suffer from political and cultural schizophrenia, simultaneously connected with and isolated from their two hinterlands: Ramallah and the West Bank to their east, West Jerusalem and Israel to the west,” the International Crisis Group recently wrote.

Israeli restrictions on planning and building, home demolitions, lack of investment in education and jobs, construction of an eight-foot-high separation barrier between and around Palestinian neighbourhoods and the creation of a permit system to enter Jerusalem have all contributed to the city’s isolation.

Formal Palestinian political groups have also been banned from the city, and between 2001-2009, Israel closed an estimated 26 organisations, including the former Palestinian Liberation Organisation headquarters in Jerusalem, the Orient House and the Jerusalem Chamber of Commerce.

Extreme poverty

Israel’s policies have also led to higher prices for basic goods and services and forced many Palestinian business owners to close shop and move to Ramallah or other Palestinian neighbourhoods on the other side of the wall. Many Palestinian Jerusalemites also prefer to do their shopping in the West Bank, or in West Jerusalem, where prices are lower.

While Palestinians constitute 39 percent of the city’s population today, almost 80 percent of East Jerusalem residents, including 85 percent of children, live below the poverty line.

“How could you develop [an] economy if you don’t control your resources? How could you develop [an] economy if you don’t have any control of your borders?” said Zakaria Odeh, director of the Civic Coalition for Palestinian Rights in Jerusalem, of “this kind of fragmentation, checkpoints, closure”.

“Without freedom of movement of goods and human beings, how could you develop an economy?” he asked.

“You can’t talk about independent economy in Jerusalem or the West Bank or in all of Palestine without a political solution. We don’t have a Palestinian economy; we have economic activities. That’s all we have,” Odeh told IPS.

Israel’s separation barrier alone, according to a new report by the United Nations Conference on Trade and Development (UNCTD), has caused a direct loss of over one billion dollars to Palestinians in Jerusalem, and continues to incur 200 million dollars per year in lost opportunities.

Israel’s severing and control over the Jerusalem-Jericho road – the historical trade route that connected Jerusalem to the rest of the West Bank and Middle East – has also contributed to the city’s economic downturn.

Separation of Jerusalem from West Bank

Before the First Intifada (Arabic for “uprising”) began in the late 1980s, East Jerusalem contributed approximately 14 to 15 percent of the gross domestic product (GDP) in the Occupied Palestinian territories (OPT). By 2000, that number had dropped to less than eight percent; in 2010, the East Jerusalem economy, compared to the rest of the OPT, was estimated at only seven percent.

“Economic separation resulted in the contraction in the relative size of the East Jerusalem economy, its detachment from the remaining OPT and the gradual redirection of East Jerusalem employment towards the Israeli labour market,” the U.N. report found.

Decades ago, Israel adopted a policy to maintain a so-called “demographic balance” in Jerusalem and attempt to limit Palestinian residents of the city to 26.5 percent or less of the total population.

To maintain this composition, Israel built numerous Jewish-Israeli settlements inside and in a ring around Jerusalem and changed the municipal boundaries to encompass Jewish neighbourhoods while excluding Palestinian ones.

It is now estimated that 90,000 Palestinians holding Jerusalem residency rights live on the other side of the separation barrier and must cross through Israeli checkpoints in order to reach Jerusalem for school, medical treatment, work, and other services.

“Israel is using all kinds of tools to push the Palestinians to leave; sometimes they are visible, and sometimes invisible tools,” explained Ziad al-Hammouri, director of the Jerusalem Centre for Social and Economic Rights (JCSER).

Al-Hammouri told IPS that at least 25 percent of the 1,000 Palestinian shops in the Old City were closed in recent years as a result of high municipal taxes and a lack of customers. “Taxation is an invisible tool…as dangerous as revoking ID cards and demolishing houses,” he said. “Israel will use this as pressure and as a tool in the future to confiscate these shops and properties.”

A new poll has revealed that a majority of Israeli Jews believe that the Jewish State practises "apartheid" against Palestinians, with many openly supporting discriminatory policies against the country's Arab citizens.

A third of respondents believe that Israel's Arab citizens should be denied the vote, while almost half – 47 per cent – would like to see them stripped of their citizenship rights and placed under Palestinian Authority control, according to Israel's liberal Haaretz newspaper, which published the poll's findings yesterday.

About 20 per cent of Israel's nearly eight million people are Israeli Arabs, Palestinians who hold Israeli citizenship and live within the borders of Israel proper. The views echo hardline opinions usually associated with Israel's ultranationalist and ultraorthodox parties, and suggest that racism and discrimination is more entrenched than generally thought.

The poll, conducted by Israel's Dialog polling group, found that 59 per cent out of the 503 people questioned would like to see Jews given preference for public-sector jobs, while half would like to see Jews better treated than Arabs.

Just over 40 per cent would like to see separate housing and classrooms for Jews and Arabs. The findings "reflect the widespread notion that Israel, as a Jewish State, should be a state that favours Jews," wrote Noam Sheizaf, an Israeli journalist and blogger. "They are also the result of the occupation … After almost half a century of dominating another people, it's no surprise that most Israelis don't think Arabs deserve the same rights."

Human rights groups have long decried existing Israeli policies that discriminate against Arabs, citing classroom shortages, smaller municipal budgets, and unequal property ownership rights as proof of Israeli Arabs' status as second-class citizens.

That many Jews believe that Israel has adopted "apartheid" policies is surprising, given that the term is usually deployed only by Israel's most vociferous critics, and suggests that the government-led narrative that the Jewish State is the only democracy in the Middle East is unconvincing to some.

But such self-awareness does not mean that Israelis are ashamed of it. Nearly 70 per cent of those questioned would object to the 2.5 million Palestinians living in the West Bank obtaining the vote if Israel was to annex the Palestinian territory, suggesting that they effectively endorse an apartheid regime. Nearly 75 per cent favour separate roads there for Israelis and Palestinians – although most view such a step as "necessary," rather than "good." Although nearly 40 per cent support annexation, that remains a distant prospect for the moment.

The survey "lays bare an image of Israeli society, and the picture is a very, very sick one", wrote Gideon Levy in Haaretz in a piece to accompany the poll. "Now it is not just critics at home and abroad, but Israelis themselves who are openly, shamelessly, and guiltlessly defining themselves as nationalistic racists.

"If such a survey were released about the attitude to Jews in a European state, Israel would have raised hell. When it comes to us, the rules don't apply."

In the three years since Benjamin Netanyahu's right-wing Likud party took control of the Knesset in an uneasy coalition with religious and ultranationalist parties, rights groups have charted a shift to the right that has accompanied a stalemate in efforts to find a solution to the long-running Israeli-Palestinian conflict.

Many now see the two-state solution, even though publicly backed by Mr Netanyahu at the outset of his term, as an increasingly distant prospect, given the expansion of Jewish settlement in the occupied West Bank and East Jerusalem – territories that along with Gaza the Palestinians want as their future state. That leaves the prospect of a one-state solution, an outcome favoured by some Palestinians, but anathema to Israel as it would threaten the country's Jewish majority.

Many Israelis also fear such an eventuality because it would undermine the Jewish State's democratic values if it were forced to adopt discriminatory policies to retain its Jewish character.

• 59% want preference in public jobs for Jews over Arabs
• 49% want the state to treat Jews better than Arabs
• 33% object to Israeli Arabs having the right to vote
• 69% object to giving Palestinians the right to vote if Israel annexes the West Bank
• 74% support separate roads for Jews and Palestinians in the West Bank
• 42% object to their children going to the same schools as Arabs

Tzipi Livni, Israel's former opposition leader who crashed out of politics this year after losing her party's leadership contest, is poised to make a political comeback as head of a new party ahead of early elections in January.

Ms Livni, right, who enjoys broad support in the West and was once regarded as Israel's prime minister-in-waiting, will reportedly make a decision "within days" on whether to contest the next elections, but sources say she is preparing to run.

The politician's fall from grace in March deprived Israeli politics of its last heavyweight figure with serious pro-peace credentials and the Palestinian issue is expected to take centre stage in a Livni campaign.

Sources said she believed the failure of Prime Minister Benjamin Netanyahu's right-wing government to reach a peace deal with the moderate Palestinian leader, Mahmoud Abbas, was a "huge missed opportunity". Mr Netanyahu, whose pro-settler coalition has talked up the Iranian nuclear threat to the detriment of the peace process, is expected to win easily in January's elections, but he will have to court other parties to form a ruling coalition. The two other centrist parties likely to get a strong showing are a new party headed by former talkshow host Yair Lapid and the once influential Labour party, headed by Shelly Yacimovich. The former has voiced a hardline position on the Palestinian issue, while Ms Yacimovich has sidestepped the debate.

Recent polls suggest that Ms Livni, who failed to shine in opposition, would win as many as 16 seats in the 120-seat Knesset, substantially less than the 28 seats she won in 2009.

Although her party emerged victorious then, Mr Netanyahu took the helm after succeeding in forming a coalition with right-parties.

The stark depiction of the Palestinians' economic woes is likely to revive fears in the West of further unrest in the Occupied Territories amid a stagnating peace process and a week of protests against the Palestinian Authority in the West Bank.

Demonstrations have rattled the Palestinian leadership, prompting one senior official to threaten scrapping the Oslo Accords, a 1993 interim agreement intended as the basis of a two-state solution, and which included accompanying agreements detrimental to the Palestinian economy.

Such a move would have far-reaching repercussions, placing financial and security responsibility for the West Bank on Israel's shoulders. Since the end of the second intifada, the Authority has played a critical role in restoring calm, even as Israel entrenches its occupation of the West Bank, which it captured during the 1967 Six-Day War.

The Authority is facing a £250m budget deficit this year, the World Bank said, money needed for the timely payment of 150,000 civil servants' salaries, already delayed several times this year. It urged international donors to fulfil pledges to support the Palestinian economy, but warned that unless Israel eased its physical and economic control over the West Bank, any recovery would be temporary.

"Donors do need to act urgently in the face of a serious fiscal crisis facing the Palestinian Authority in the short term," said Mariam Sherman, World Bank country director for the West Bank and Gaza. "But even with this financial support, sustainable economic growth cannot be achieved without a removal of the barriers preventing private sector development," she added.

In a separate report, the International Monetary Fund said that economic growth in the West Bank and Gaza was likely to fall to 6.2 per cent this year from 9.9 per cent last year, with unemployment expected to reach 20 per cent.

Under the Oslo Accords, Israel controls 60 per cent of the West Bank, classified as Area C. Jewish settlements, viewed as illegal by the international community, have rapidly expanded in the past two decades, and now control some of the most fertile land in the West Bank.

Palestinian investment is almost totally barred in Area C, even though Palestinians could reap substantial revenues if they were permitted to develop it, the bank said. Israeli industrial settlements in the West Bank are said to produce £185m worth of goods for export to Europe.

Oslo, which allowed a measure of Palestinian self-governance, was only ever intended as an interim measure to pave the way to a final status agreement. Instead, negotiations have dragged on for nearly 20 years, and with the rise of a right-wing government in Israel, the peace process has been pushed almost entirely off the agenda in recent months.

Saeb Erekat, the Palestinians' chief negotiator, said this week that the Palestinian leadership was considering cancelling the Oslo Accords, according to the Israeli newspaper Haaretz, in light of what he claimed were Israel's efforts to sabotage any efforts to restart peace talks.

Officials, however, appeared to backtrack on that yesterday, suggesting that the Palestine Liberation Organisation was unlikely to cancel the agreements at any time in the near future, but that there were discussions about revisiting the terms.

"If there is any party that has done everything to undermine Oslo, it has been Israel," a Palestinian adviser said. "There is no indication that Israel has any political will to [restart peace talks]." But the leadership is nevertheless under growing domestic pressure to take a stance on the Accords, with protesters last week calling for cancellation of the 1994 Paris Protocol, which prevents the Palestinians from freely trading with the rest of the world.

The Palestinians reluctantly agreed to the terms after Israel promised to allow workers to enter Israel, but those numbers have dropped to a trickle.

Protesters have directed most of their anger at the Western-backed Prime Minister, Salaam Fayyad, demanding his resignation. Mr Fayyad has attempted to defuse tensions by undoing some of the government's austerity measures, and cancelling an increase in fuel prices. Israel, mindful of the risks of an economic collapse, advanced £40m in tax revenues that it collects on behalf of the Authority.

Indeed, Israel has rebutted suggestions that it is responsible for the Palestinians' economic woes, suggesting that the Authority had mismanaged its own budget, pushing it further into debt. It also pointed out that it had twice advanced the tax revenues it collects on behalf of the Palestinians to enable it to pay salaries.

A Hamas-run court has sentenced two Palestinian men who are members of a radical Islamist group to life imprisonment for the murder of an Italian peace activist in the Gaza Strip eighteen months ago.

Mahmud al-Salfiti, 24, and Tamer al-Husasna, 26, were found guilty of abducting and murdering Vittori Arrigoni, a member of the pro-Palestinian International Solidarity Movement activist group, and were each sentenced to 35 years in prison.

The court also sentenced a third man, Khadr Faruk Jerim, to 10 years for kidnapping. A fourth, Amer Abu Ghoula, was sentenced to 12 months in absentia for sheltering fugitives.

In a humiliating challenge to the authority of Hamas, Gaza's Islamist rulers, Tawhid and Jihad, a Salafist group said to draw inspiration from Al Qa'ida, kidnapped Mr Arrigoni, 36, in April last year. In exchange, the group demanded the release of a Salafist leader detained by Hamas a month previously.

A video released on YouTube showed a bloodied and blindfolded Mr Arrigoni, his head held up to the camera by the hand of a militant out of shot. Arabic text accompanying the video accused the Italian of "spreading corruption" and denounced Italy as an "infidel state."

Although the Hamas government was given some time to deliver Hisham al-Saidni, the jailed leader, in return for the release of Mr Arrigoni, the Italian was inexplicably killed before the deadline could be met. His body was found when Palestinian police stormed the building where he was being held. Authorities said that he had been hanged, but journalists were prevented from seeing the body to verify that claim.

Hamas, designated by Israel as a terrorist group, has struggled to keep in check Gaza's more radical Islamist offshoots, rivals to Hamas both ideologically and politically, and Mr Arrigoni's murder undermined its claim that it had stamped out such acts since taking control of Gaza in 2007. The authorities moved quickly to catch the alleged perpetrators, and two of the main suspects were killed in a gun battle with Hamas forces last year.

Mr Arrigoni arrived in Gaza in 2008 on a boat bringing humanitarian supplies to the besieged enclave. He spent much of his time in Gaza helping Palestinians, and would accompany fishermen as an international human shield to deter Israeli gunships, responsible for enforcing an Israeli-led land and naval blockade, from firing on them. He was also a vocal critic of Hamas's human rights record.

His abduction was the first of a foreigner in the Strip since Hamas seized power from its secular rival Fatah, and among the group's first acts was to release BBC correspondent Alan Johnston, who had spent 114 days in captivity.