Secretary of State Condoleezza Rice appointed James Wolfensohn on Thursday on behalf of the so-called quartet of Middle East peace mediators - the US, the EU, Russia and the UN. 

Rice said his task would include reviving the Palestinian economy and other issues such as the fate of Israeli housing blocks if Israel carries out its plan to evacuate all 21 illegal settlements in Gaza but just four of 120 colonies in the occupied West Bank.

She said he would try to rebuild Israeli-Palestinian trust. "The parties have shown good faith and political courage in recent months. But the obstacles before them remain substantial," she said.

Role defined

Wolfensohn's role as special envoy for Gaza disengagement will focus his efforts on two areas, according to the State Department.

The first is Palestinian-Israeli coordination over the nonmilitary aspects of the withdrawal, including the disposition of the assets that will be left behind.

The second is the revival of the Palestinian economy in the wake of the withdrawal.

The World Bank chief - who leaves his job on 31 May - is no stranger to the dire nature of the economy in the occupied territories.

Last December, Wolfensohn told the Israeli newspaper Haaretz that Palestinians must be given hope for the future by Israel if their economy is to be revived after it withdrawals its occupation forces and illegally settled colonists from Gaza.

Donors ready

"If you are trying to withdraw [from Gaza], that's a wonderful thing, but if you don't give hope at the same time ... you're not really achieving very much," Wolfensohn had said.

He also told Haaretz that donors were ready to increase levels of aid to the Palestinian Authority by $500 million a year if the situation on the ground improved.

Unemployed Palestinian workers
demonstrate in Gaza 

"The facts are that if we go out and raise money for a strengthening of a Palestinian area or a state, the only way to get money for that is if that area is viable," he concluded.

The World Bank currently donates an average of $930 million annually to the Palestinian authority, down from $1.25bn in 2002.

In 2004, the Palestinian Authority had a financing gap of $650 million and since the beginning of the Intifada, the per capita income in the occupied territories has dropped by half, to little more than $900 per year.

Poverty line

Nearly half of the Palestinian population lives below the official poverty line of $2 per day.

The economic crisis has been precipitated largely by the tightening of Israeli security in a climate of confrontation.

Almost a quarter of the Palestinian labour force has been employed within the state of Israel and the closure of borders has left many unable to reach their places of work.

The loss of wages has a direct impact on consumption within Palestine, leading to the collapse of many domestic business concerns.

Surprise choice?

Palestinian Finance Minister Salam Fayyad was unavailable for comment on Wolfensohn's appointment.

However, the choice of Wolfensohn was something of a surprise.

The World Bank chief has acknowledged spending his last five years at the helm of the development agency mostly at odds with the Bush administration, which kept him at arm's length.

But he has a better relationship with leaders in Europe and elsewhere.