Aside from concerns about Islamic terrorism and the safety of Israeli citizens, the potential weakness and fragmentation of a Palestinian government has been a prime reason for the Israeli military’s reluctance to withdraw from the West Bank. Numerous Israeli prime ministers dating back to the late 1990s voiced worry over Palestinian governance, concluding that an Israeli draw down from the occupied territories would leave a lasting void that the Palestinian Authority could not possibly plug.

Benjamin Netanyahu, too, argues that the Palestinians are not yet ready for statehood; that without adequate institutions that are able serve the needs of the Palestinian people, militant groups like Hamas will pop up and exploit the West Bank to their advantage.

Palestinian Prime Minister Salam Fayyad, of course, disagrees. He has made it his life’s mission to build Palestinian society from the ground up.

In August of 2009, Fayyad boldly stated that the Palestinians would be ready for statehood by 2011, complete with a strong economic base providing Palestinian youth with full-time jobs and an administration that both responds to the people’s complaints and follows the requirements of international humanitarian law.

While it would be easy to dismiss Fayyad’s remarks as overly optimistic, his administration has impressed virtually every major stakeholder in the international community, including the United States and the Israelis.

The West Bank economy grew at an astounding 8 percent in 2010, despite the difficult fiscal environment that still lingers as a result of the 2008 global recession. The Palestinian Security Forces, once a collection of ill trained and anti-Israeli militias, is now under a competent command and control system courtesy of American training. Technocrats fill the economic, infrastructural, health care and foreign policy portfolios of the Palestinian Authority. And while corruption is still visible in Mahmoud Abbas’ government, its level and severity is a far cry from the embarrassing days of Yasser Arafat.

With all of these changes in mind, have the Palestinians finally built an administrative apparatus conductive to good governance? Are they able to rule themselves without Israeli soldiers patrolling their neighborhoods?

The answer, according to the United Nations, is yes — the Palestinians, under the leadership of Abbas and Fayyad, have moved in a positive direction that even the Israelis would find difficult to deny.

The report (PDF) from the UN’s Middle East Peace Process office is yet another testimonial demonstrating the weaknesses and downright faults embedded within the Israeli government’s outdated argument about Palestinian self governance. The fact of the matter is that the Palestinian Authority has proven to the world that the West Bank should no longer be viewed through the narrow prism of international terrorism. The issue now delves into the much more sensitive subjects of sovereignty, freedom and independence from an occupying force.

For hardliners in the Israeli government who have long supported an extensive Israeli presence in the Palestinian territories, this report will come across as nothing more than a showpiece from the United Nations, which has frequently been branded anti-Israeli. In fairness, some of their concerns have merit.

While the Palestinians have made extensive strides in the areas of policing and social services, corruption, abuse of power and oppressive security operations by Palestinian forces are still problems that need to be solved. The West Bank economy may have grown by 8 percent last year but a vast portion of this growth has been sustained by state, regional and global donations. Civil society groups have been created but are still curtailed by the government. Being a Hamas supporter or political dissident carries the risk of a long-term prison sentence.

Some of these problems are not solely the fault of the Palestinians. The Israeli occupation, which still administers approximately 60 percent of the West Bank, continues to exacerbate the challenges of future Palestinian growth and political progress. Checkpoints in Israeli controlled towns inhibit freedom of maneuver for Palestinians traveling to see their families. They also tend to make it more difficult for Palestinian farmers to get their goods to market.

Israeli restrictions on exports are still in place, which certainly doesn’t help the employment prospects of a rising Palestinian youth population.

Perhaps most importantly, the occupation is relegating all of the achievements that the Palestinians have made over the past two years to theatrics, without a state to show for it. Without an award of sovereignty or at least a significant easing of economic and security restrictions, it’s difficult to believe that the Palestinians would find it worthwhile to keep up progress. That is, unless the United Nations General Assembly votes in favor of Palestinian statehood this September.

Hopefully, it won’t have to come to that. The United Nations will debate whether to extend statehood to the West Bank this fall. Its latest report will undoubtedly push some previous skeptics of the measure into the Palestinian camp.

Israel, however, can beat everyone to the punch by offering the Palestinians a good faith measure, such as another moratorium on settlement construction or extended jurisdiction for the Palestinian security services. Doing so would not only show the world that Israel is serious about the two-state solution but could potentially restart direct talks between the two parties.