The integration of the Israeli and Palestinian labor markets has for a long time attracted attention due the political-military conflict between the two regions and due to mobility restrictions. In the 1980s, access to Israeli labor markets accounted for a significant share of the total Palestinian employment. However, following the first and the second Palestinian uprisings, mobility restrictions and closures have been put in place and enforced. Depending on the intensity of the political tension, restrictions are either set at a high or at a low level. Taking advantage of this unique context, this study for the first time explores the implications for the West Bank economy consequent upon increases and decreases in access to the Israeli labour market. The study uses a SAM developed for the West Bank for the year 2011 with detailed representation of the labor market. Workers are categorized based on their demographic characteristics, their current workplace and eligibility to work permit in Israel. The behavioral relationships in a variant of STAGE suite of CGE models are extended to conform to the unique feature of the labor market between West Bank and Israel. The results demonstrate that while increases in the number of work permits increases welfare in the West Bank, it also distorts the operation of the West Bank labour market and economy. On the other hand, while decreases in the number of work permits reduces welfare, the limited opportunities in the West Bank restrict the ability of the West Bank economy to absorb the labour no longer employed in Israel. Keywords: labour markets, Conflict, Work permits, CGE, Palestine