The original conception of the Government’s report on reviving the Palestinian economy, published yesterday, was a good one – when Gordon Brown commissioned it two years ago.

The aim was to find ways to bolster that economy, deliberately separate from the politics. It is an honourable principle that there are few situations so bad that they cannot be improved, even if they cannot be resolved. The approach appealed to Brown, when Chancellor, as a way to avoid Tony Blair’s grandstanding, while tackling problems on the ground.

But the past two years have made a nonsense of this approach – and incidentally, of Blair’s new job, which is supposed to focus on the Palestinian economy. Hamas’s victory in the January 2006 elections, the collapse of the joint Hamas-Fatah Government, Hamas’s seizure of Gaza in June, and the disintegration of the economy under Israeli security curbs make it impossible to divorce the economic from the political. Without political progress, there will not be economic progress; there may not even be much worth calling a Palestinian economy.

In a devastating pair of reports in March and May, the World Bank showed how Israeli security clampdowns since the second intifada have helped to fracture the economy. It called the West Bank a “shattered economic space”, divided by Israeli settlements, their access roads and checkpoints. It said that “freedom of movement for Palestinians within the West Bank is the exception rather than the norm”, and that the permits which curb Palestinian movement between cities restrict access to more than half of the land. It added that “while Israeli security concerns are undeniable and must be addressed”, it believed that curbs also helped to expand settlements, which have more than doubled since the 1993 Oslo Accords.

But yesterday’s report, by Jon Cunliffe, the Prime Minister's Adviser on International Economic Affairs, with Ed Balls, MP, takes a long sidestep around sensitive issues of Israeli policy: the settlements, the constraints on the West Bank, and the economic isolation of Gaza since June as a punishment for Hamas’s takeover.

It acknowledges them, but with understatement, regretting that foreign aid is now the heart of economic life. Its best point is to spell out the consequences: that the Palestinian population may match that of Israel by 2050; that half of it is now under 14, and education is patchy. The prospect is one of rising unemployment among young men, a recipe for violence. But the report then calls on “the private sector” to cure that ill. It is faultless logic that new jobs would have to come from there, but fanciful in the current conditions to think that they will.

In its recommendations for “immediate action”, it includes the operation of “continuous border crossings into and out of Gaza” – again, wishful thinking. Another in the same list is “immediately cease all Israeli settlement expansion”. But this is at the heart of the political progress that has been so elusive. The title of the report reveals why it is out of date; there isn’t peace in the Middle East, and the “economic aspects” are a fantasy, dressed up in the language of venture capital.

The fate of most reports on the Middle East is to be quickly forgotten. This one deserves it.

Economic aspects of peace in the Middle East www.fco.gov.uk. Movement and Access Restrictions in the West Bank, May 9 2007; West Bank and Gaza Investment, March 20 2007 www.worldbank.org.

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