Real peace between Palestinians and Israelis will be preceded by two conditions: an Israeli withdrawal from most, if not all, of the occupied territories and genuine democracy in the Palestinian Authority. Attention has usually focused on the first factor, but it has become increasingly evident that the second is just as important. The failure to reform Palestinian institutions will doom any attempt to bring about lasting peace in the Middle East.

The need for reform has been increasingly clear in recent months. The most glaring failure is the Palestinian Authority’s inability to maintain law and order within its own territory. That government’s failure to rein in Islamic extremists has raised serious questions about its commitment to peace. No matter what one thinks about Israeli policy, no government can participate in, or turn a blind eye to, acts of terrorism without undermining its own credibility and legitimacy.

Israeli Prime Minister Ariel Sharon has consistently demanded a ceasefire before he will negotiate with Palestinian leader Yasser Arafat. Mr. Sharon’s position is disingenuous, particularly since his policies have gone a long way toward undermining the Palestinian institutions that have to provide law and order. Nevertheless, he is right to demand that the Palestinian authorities disavow the extremists and their terror tactics, make real efforts to crack the terrorist networks and bring the perpetrators of such atrocities to justice.

Palestinians reject any interference in their internal affairs. That argument would be more persuasive if Palestinian security forces were not intimately involved in acts of violence against Israeli citizens; links between Palestinian officials and various extremist groups have become more apparent in recent weeks, disclaimers of “official” involvement notwithstanding.

The more sophisticated charge is that no Palestinian leader can afford to crack down on the terrorists without undermining his or her own legitimacy. That argument concedes the “justness” of the terrorists’ cause and, in the aftermath of Sept. 11, has worn increasingly thin. More importantly, however, it overlooks the deeper roots of disaffection within the Palestinian community. Israel’s policy has compounded Palestinian misery, but the real source of that misery is homegrown: the failure of Mr. Arafat’s government to deliver on promises of prosperity and development that accompanied the birth of the Palestinian Authority nearly a decade ago. For example, Hamas, the Islamic organization that has taken credit for many of the suicide attacks, has won popular support as a result of its community efforts, programs that should have been provided by the Palestinian government.

The Palestinian leader himself deserves much of the blame. While Mr. Arafat embodied the Palestinian cause when he was in exile, he has proven to be a far less capable political leader. He has concentrated power in his own hands and been careful to dole out the spoils to friends and supporters. The result has been nepotism, corruption and mounting disaffection among the Palestinian people. That in turn fuels the extremist cause: Martyrdom is much more appealing when people have nothing to lose.

The international community has become increasingly disenchanted with Mr. Arafat’s rule. The United States, Israel and the European Union have all demanded reform within the Palestinian Authority. They want Mr. Arafat to call new elections and root out the corruption that exists throughout his government. In response to the mounting pressure, Mr. Arafat promised parliamentary and presidential elections in the winter and regional and municipal polls this year. Then, true to form, he qualified his pledge by questioning whether fair elections could take place while Israel continued to occupy Palestinian territory and imposed travel restrictions on Palestinians.

Elections will not solve the Palestinian problems if institutions are not reformed and accountability is not introduced. The bloated bureaucracy — estimated at two or three times the needed size — must be cut back. The security forces in particular must be consolidated and reduced. Government accounts, as well as those of government-authorized monopolies, need to be transparent. Hiring should be based on merit, not connections. Ultimately, power has to pass from Mr. Arafat’s hands to ministers and officials who can actually manage the government rather than administer it for the benefit of friends and family. It will be a wrenching adjustment for a man who has been accustomed to ruling without challenge — which is why reform is so desperately needed.

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