On the afternoon of July 24, Hillary Clinton arrived back in Washington on a flight from Asia, got off the plane, and headed straight to the State Department, where reporters were assembled to join her in a teleconference with Palestinian Prime Minister Salam Fayyad, who was in Ramallah. It was late Friday evening Ramallah time.

The teleconference was called to commemorate the transfer of $200 million to the Palestinian Authority — the largest single transfer in the P.A.’s history, a part of the $900 million pledge the Obama administration has made for 2009 (more than 62 percent higher than the $555 million the Bush administration pledged for 2008).

Clinton thanked Fayyad for agreeing to hold the teleconference late so she could announce the transfer personally. She urged other “donors” to meet their commitments (made in the latest of the “donor conferences” the U.S. now arranges with roughly the same frequency as public-TV pledge drives) because “the PA needs financial help, and they need it now.” A State Department press release issued after the teleconference noted that no country donates more than the United States.

A teleconference, a press release, and a personal announcement by the secretary of state — the administration was obviously proud of its record effort. But a somewhat different perspective on this landmark in U.S. funding can be found in George Gilder’s important new book, The Israel Test.

Gilder’s book recounts his experience with the Israeli economy over the past two decades and provides an illuminating summary of the economic development in the disputed territories over the 20 years after 1967, and the 20 years after that:

During these twenty years [after 1967] under Israeli management until the First Intifada of 1987, the West Bank and Gaza comprised one of the most dynamic economies on earth, with a decade of growth at a rate of roughly 30 percent per year from 1969 to 1979. Annual investment in constant dollars soared from under $10 million in 1969 to some $600 million in 1991 . . . . The Arab population rose from roughly 1 million in 1967 to almost 3 million in some 261 new towns. Despite the nearly triple growth in population, per-capita income tripled . . .

The economic boom in that first 20-year period and the dramatic rise in the Palestinian standard of living were accompanied by little foreign aid. But the Oslo process featured a massive influx of foreign aid, and the declines in real private investment averaged 10 percent per year in 1993-97. Yasser Arafat slowly transformed the Palestinian economy from one in which entrepreneurial effort flourished to one involving commitments to reduce terror in exchange for ever increasing foreign aid:

Under PLO control, the Palestinian Arabs received more foreign aid per capital than any other people on the face of the earth and became arguably the world’s most twisted welfare culture of violence and demoralization. . . . The increase in foreign aid after 1993 was associated with a 40 percent decline in per-capita income in the first half of this decade together with mounting terrorism and anti-Semitic animus. . . . [T]he Palestinian economy shrank, and dependence on foreign aid increased along with constant complaints about its inadequacy.

At the teleconference, Clinton said she hoped the U.S. money would “further conditions in which a Palestinian state can be realized.” But if Gilder’s analysis is correct, the money will not likely advance the cause but merely continue the dominance of the Palestinian political class over the private economy. The teleconference was a dramatic demonstration of a propped-up entity’s dependence on the increasing amounts of foreign aid needed to support it, as the economic model pioneered by Yasser Arafat reached another new height.