Robert Pollock says the journey to Middle East peace has to begin by instituting the rule of law.

In 1996, Mahmoud el Farra returned to the Gaza Strip. He had lived 30 years in Los Angeles, where he raised a family and built a construction business. He was precisely the sort of entrepreneur the emerging Palestinian Authority sorely needed, and in those heady days he built its first modern flour mill. But the business struggled against competition from Israeli imports, and PA officials began pressuring Mr. Farra to sell them shares. Led by Mohammed Rashid, Yasser Arafat’s money man, they soon gained control of the company. Two days later they closed the market to Israeli flour.

Meanwhile in Ramallah, Mohamed Masrouji of Jerusalem Pharmaceuticals struggled with the large cuts Israeli importers took on the drugs he bought for his distribution company. Then one of Arafat’s ministers formed a pharmaceutical distribution company of his own. In one day the official registered dozens of drugs with the Palestinian Ministry of Health, a process that often took Masrouji a year, and began importing drugs from Egypt. …At a time like this, with violence a daily reality and the peace process all but forgotten, it might seem that a lack of economic freedom is the least of the Palestinians’ problems. But with bread riots becoming almost as common in the Palestinian territories as anti-Israel demonstrations, many Palestinians see the lawlessness and economic misery inflicted by Arafat & Company as a major factor in a generalized rage. “We want to be a democracy,” says Khalil Shikaki, a Palestinian scholar and pollster. “We don’t want to be a corrupt, mismanaged entity—just another Arab country.”