Palestinian employment in Israel has benefited for a long time both Palestinian and Israeli economies. However, this win-win situation is hampered by the tight security-related restrictions introduced by Israel in the 1990s. Assuming that in a final settlement of the conflict those restrictions will be reduced, this paper uses a CGE framework including a new and comprehensive database to assess the effects of restoring the Palestinian employment in Israel to its pre-intifada level. The results show a strong reduction in Palestinian unemployment, strong welfare improvements for households and substantial changes in the composition of the labor force in the domestic labor market. Acknowledgement :