The pressure to hold parliamentary and presidential elections in 2010, and to find a way of easing the blockade on Gaza, is building momentum towards an Egyptian-mediated reconciliation between Hamas and Fatah. Although our core scenario is that an agreement will be forged, the current stalemate in which Hamas controls Gaza and Fatah the West Bank could well continue throughout the forecast period. Even if a framework for holding elections is agreed, a new modus vivendi between the two factions will be needed in their aftermath to avoid a return to factional fighting. Barack Obama's efforts to restart peace talks have stalled because of Israel's refusal to freeze settlement expansion. Although negotiations are likely to take place in 2010 at the behest of Mr Obama, substantial progress towards a final-status agreement is unlikely until he has the domestic support to put real pressure on Israel or until there is a change in the current Israeli coalition. The Palestinian Territories will continue to diverge economically: Gaza's economy will continue to shrink if the Israeli blockade remains in place, and the West Bank's economy will grow modestly if closure restrictions continue to be relaxed and donor development funding and private investment flows are forthcoming, although its real GDP per capita in 2011 will still be well below its 1999 level. The economic policy of the Palestinian Authority (PA) will focus on fiscal consolidation and private-sector growth.