There's a trio of economic articles at Business Week further analyzing the recesion in Israel, as well as the effect on the Palestinian economy.

Israel: The Economic Cost of War:

Defense spending is rising sharply, after plunging from 13.5% of gross domestic product (GDP) to 8.5% in the 1990s. This year, the security burden on Israel's economy is likely to jump back up to 9.5% of GDP. The danger for Israel is that its economy could slip back to what amounts to a charity project sustained by donations of the U.S. and world Jewry. Israel got by that way in the 1980s, when the currency was a joke, inflation hit triple digits, and the bank system required a bailout.
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Clearly, the status quo makes it impossible for Palestinians to reach their potential -- economic or otherwise -- and increasingly hampers Israelis' ability to reach theirs. Prosperity on both sides could help heal the wounds of war and build a lasting peace. Instead, the wealth of Israel is trickling away, bit by bit, in a deadly war of attrition.

The source of the recession is broadly identified as the intifada conflict, but the article does not go deeper and identify the settlements as the source cause. Though, Ha'aretz has a much finer-grained analysis as would be expected.

In Palestine, an Economy Left in Ruins

Before the intifada that began in September, 2000, the Palestinian economy looked like a winner. Growth of gross domestic product was 7.4% in 1999 and seemed set to hold up in 2000 until violence broke out. Private money and aid were pouring in, and Palestinian workers were benefiting from Israel's boom. Then came the intifada, and the Israeli response. Through the end of last year, they had cost $3 billion in economic losses and $400 million in damage to infrastructure and property, says the World Bank. The toll from the latest Israeli incursion will run tens if not hundreds of millions more.

WAITING FOR STABILITY. The territories now look more like a humanitarian disaster than a business prospect. Income dropped 19% in 2001, to $1,375 per capita. Unemployment stood at 35% at the close of 2001. Fueling the rise, says the World Bank, were the Israeli roadblocks that strangle movement and commerce. Work in Israel, a source of 20% of GDP in normal times, has been curtailed, while agriculture and light industry in the territories have been disrupted. Before the latest violence, 50% of Palestinians lived on less than $2 a day. Now, says Palestinian Authority Minister of Economics & Trade Maher Masri, "we are going to have a much higher level of poverty."

It's worth noting that while the Israeili economy is sufferring because of a ideological commitment by democratically-elected leadership to unsustainable settlements and an illegal occupation, the Palestinian economic woes are purely inflicted from without. The IDF actions that have obliterated the infrastructure of the Palestinian areas are retaliation for the actions of a small minority, yet by those very retaliations, the principle of vengeance¹ is given moral validity, and this fuels more fanatic homicide bombers. The Palestinian people, unlike the Israeilis, have no lever or power to (even theoretically) stop their economic woes.

The third article is an interview with Finance Minister Silvan Shalom, who is lambasted routinely in analyses by Ha'aretz. But it's worth reading what he has to say.

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¹ Vengeful retaliation is in and of itself immoral. Therefore it cannot be a principle upon which one should pursue or define policy. Pragmatically speaking, sometimes deterrent retaliation is required, but it is clear that in terms of the middle east conflict, the IDF has had zero deterrent value and actually had inciteful effect. Hence the phrase, "circle of violence"