Violent political conflict results in socioeconomic fragmentation and hampers economic development. In contrast, trade crucially depends on cooperation. The article empirically analyses at the micro-level whether economic interactions affect political attitudes. Trading relations between Israelis and Palestinians are found to be extensive despite the conflict.
Education and personal social networks facilitate contacts. Israeli traders do not see themselves as affected by the conflict, but wish for its quick settlement. This lends support to the Rational Group Conflict Theory and the Theory of Liberal Peace. Daily contacts are found to create positive functional interdependence which may be effective in fostering reconciliation in the Middle East.