June 30, 2008, Oakland Ross, Middle East Bureau, TheStar.com

RAMALLAH, WEST BANK–Basem Khoury eventually abandoned the idea of trying to support his family by selling spices and coffee out of a shop in East Jerusalem.

He began casting around for a better business model and hit on a plan with three vital components.

First, he decided to open an Italian restaurant. Second, he chose to call it Pronto. And third, he opted to locate it – not in East Jerusalem, formally a part of Israel – but eight kilometres to the north, in the Palestinian city of Ramallah, squarely situated in the restive West Bank.

Now, 11 years later, Khoury believes he made the right decision.

“Ramallah has been booming,” says Khoury, an ebullient fellow with gelled hair and a stylish fuzz of chin stubble, who is wearing black leather shoes, blue jeans, and a black sport shirt with a Ralph Lauren insignia. “Ramallah has all the restaurants and cafés.”

Unlike the rest of the Palestinian territories, and in dramatic contrast to East Jerusalem in particular, this mostly modern city is experiencing a political, cultural, and economic renaissance that has quickened in the past 12 months.

“I call it the five-star occupation,” says Sam Bahour, a prominent Ramallah businessman. By “occupation,” he means Israel’s ongoing military presence in the territory. “This is probably the only place in the West Bank where there’s genuine economic activity.”

The upswing has two main sources, including the resumption last year of hundreds of millions of dollars in annual funding to the Palestinian Authority by international donors.

More recently, the soaring price for petroleum has garnered huge additional revenues for Qatar and other oil-rich Gulf states, money that has to be invested somewhere.

“We are receiving some of that petro-dollar spin-off,” says Bahour.

Meanwhile, to the south, beyond a network of Israeli checkpoints and roadblocks – not to mention an impenetrable eight-metre-tall security wall – resides East Jerusalem, the still mainly Arab half of a city known to Palestinians as Al-Quds.

It is the dream of almost every Palestinian to one day see that city, or at least its eastern section, crowned as capital of an independent state called Palestine.

But East Jerusalem is controlled by Israel, just as it has been for the past 41 years. Largely as a result, the Arab sections of the Holy City are a stagnant and declining backwater.

For more than four decades, ever since they seized the eastern city from Jordan following the Six Day War, Israeli authorities have promoted Jewish settlement in East Jerusalem while discouraging Arabs from living there.

Nowadays, Arab neighbourhoods of East Jerusalem are mainly shabby places with pot-holed streets, few sidewalks, inadequate street-lighting, and sporadic garbage collection, where more than half the residences are illegal because it is next to impossible for an Arab to get a building permit in Jerusalem.

Meanwhile, in Ramallah, a construction boom is underway.

To meet the pressure of natural population growth, Palestinian authorities are planning to build 30,000 new units of affordable housing in the next five years, most of it in and around Ramallah.

In a separate project, the government of Qatar is aiming to invest $350 million to build the West Bank’s first planned community, to be known as Rawabi, just north of Ramallah.

“Right now, the action is focused on Ramallah,” says Bahour. “The economic activity here is not normal compared to the West Bank.”

Ramallah was already growing in political importance and cultural sophistication well before these recent infusions of donor-funded largesse.

As he chats with a visitor, Bahour is seated in the dining room at Pronto, the restaurant owned by Khoury.

It’s a bohemian-flavoured spot with Palestinian tapestries on the ochre walls, where patrons sip glasses of beer or huddle over their laptops, while the Arabic anthems of a Lebanese chanteuse warble through the still afternoon air.

Across Al-Rashid St., beyond a pair of miniature rubber trees, another restaurant bar – the Pink Parade – is also doing a steady weekday business, while a half-block up the boulevard, well-heeled patrons lounge on the shady outdoor terrace of the swank Café de la Paix.

This is Yuppiedom, Palestinian-style.

In addition to smart cafes and restaurants, Ramallah boasts two centres for the arts, as well as the Ramallah Cultural Palace, whose 740-seat auditorium is the largest in the Palestinian territories.

Of three “national” Palestinian newspapers, only one is based in East Jerusalem. The other two have their offices in Ramallah, no surprise considering this city has been the de facto political capital of the territories since the 1990s.

And yet it is all but impossible to find a Palestinian who believes the eventual seat of government of an independent Palestine should be located anywhere but in Jerusalem.

“The majority of Palestinian children have never seen Jerusalem,” says Bahour.

“But it’s part of their mindset. Don’t assume too quickly that Jerusalem could not be reconstructed as our centre of life.”

Until then, however, Ramallah rules.