The West Bank and Gaza have been occupied by Israel since 1967. As a result, it experienced a deep integration of its factor and goods markets with the richer economy of Israel. However, such an integration did not bring significant "dynamic" gains. Time series analysis indeed suggest that productivity growth hardly contributed to Palestinian GDP. Besides, the decomposition of income convergence patterns with Israel implies a rather unusual phenomenon of divergence in productivity. Economies of adaptation and scale that could have been encouraged by greater integration with Israel remained scarce, or were offset by opposite forces.