For the last couple of years many of the towns in these areas have been little better than open-air prisons. Arafat himself has been a virtual inmate in his Ramallah compound for more than two years.
The bright hopes of an economic and political renaissance that Oslo generated have been dashed. Investors, once enthusiastic, have been scared off, and the economy has crashed. According to the U.N., nearly 50% of Palestinian households lost half their income from 1999 to 2003. Some 2 million of the 3.5 million of the territories' residents are dependent on food aid. "This has become a humanitarian crisis," says Sam Bahour, a Palestinian-American businessman in Ramallah in the West Bank.
MAJOR MISJUDGMENT. Palestinians and other Arabs blame the Israelis for such setbacks -- with considerable justification. But sometimes you have to make your own luck. Things didn't have to be as bad as they are now.
Arafat, in the view of many experts, misjudged a good opportunity to reach a deal with Israel in the last days of the Clinton Administration. While it's hard to divine for sure what role he played in the intifada, he certainly didn't do much to restrain the violence that has damaged the Palestinians and their cause far more than it has the Israelis.
The question then is whether the Palestinians, once they've mourned the old man, can put him in the past and move on to the future. If they can -- and they'll need help from the U.S. and probably the Israelis as well -- a region that now has more than its usual share of turmoil might be in for a badly needed mood change.
UNPREDICTABLE FORCES. The Middle East is on the cusp right now. Along with Arafat, leaders who dominated for a generation or more -- Saddam Hussein in Iraq, Hafez al Assad in Syria, and King Hussein in Jordan -- are either dead or overthrown. Others such as Hosni Mubarak in Egypt and Muammar Qaddafi in Libya are in their twilight years.
Generational change and disgust with the failures of the prevailing regimes are unleashing powerful and unpredictable forces. Stock markets across the region are booming. But so is the jihadist Islamic extremist movement. The jihadis' best recruiting tools are the war in Iraq and the festering situation in the Palestinian areas.
If progress could be made on ending either conflict, the appeal of joining such movements might fade. Younger, more constructive leaders would have a better chance of exerting influence.
ROUTE TO LEGITIMACY. So far the omens of what follows Arafat's death have been mostly positive. Little infighting has so far occurred, with the exception of the outburst by Arafat's widow, Suha Arafat, against his aides. Arafat's longtime sidekick, Mahmoud Abbas, has taken over the Palestinian Liberation Organization while Prime Minister Ahmed Quereia remains in charge of the Palestinian Authority.
They're reaching out to other groups, such as Hamas, which seem inclined for the moment to play along. "I am surprised by how smoothly the transition is going," says Rashid Khalidi, Edward Said professor of Arab studies at Columbia University.
An election to replace Arafat is now being planned. Some Palestinians fear that a campaign in such a highly charged atmosphere could wind up being a violent distraction. But Khalidi and other analysts think elections are the only route toward choosing a legitimate leadership that could negotiate with the Israelis and the U.S.
LETTING IT BURN. Arafat's passing presents an opportunity. Abbas and Quereia will likely never throw in the towel and accept a nonviable Palestinian entity. But they're said to recognize that the intifada has been a disaster and may be able to prevail on the various militant groups to tamp it down. Particularly tricky will be Gaza, where the writ of Arafat's men is less strong than in the West Bank.
While the Bush Administration, which was content to let the Israeli-Palestinian conflict burn during its first term, has been cautious, it might be persuaded to intervene more now -- especially if conditions look more auspicious.
Britain's Prime Minister Tony Blair, President Bush's key ally in Iraq, is pushing hard for progress on the Palestinian question. He says a solution of the Israeli-Palestinian conflict is the key to easing political tensions across the Middle East.
The odds still seem long against some major change. A lot of political and psychological damage was done throughout the region in the last few years before Arafat's death. But the chances for improvement already seem better than just a few days ago. Reed is BusinessWeek's London bureau chief