in a rational world, israeli leaders would be happy with a palestinian effort to build the bureaucratic institutions of a state in the areas they control. those institutions (assuming they take hold) would mean less of the lawlessness where militant groups thrive, defined institutions that the israelis can deal with, and less palestinian dependence on israel.
on the other hand, that last thing is probably what is behind their consternation. on the surface fayyad's two year plan seems to be a perfect compliment to netanyahu's talk about "economic peace before political peace." bibi's pitch is that there is no sense in negotiating a final settlement with the palestinians when the palestinians are not ready for statehood. bibi advocates fostering economic development on the west bank rather than making political concessions. that's the philosophy behind netanyahu's "economic peace plan." but bibi's plan is a bit different from fayyad's. while the fayyad's plan is to decrease palestinian dependence on israel, netanyahu's "economic peace plan" does just the opposite. it's mostly about israeli investments that will make the territories more dependent on israel.
in other words, the concerns that the israelis are voicing about this plan are a crock. they aren't worried because it is a "unilateral action" (rather ironic from the country that is currently unilaterally expanding east jerusalem neighborhoods, unilaterally building a separation barrier, unilaterally imposing a blockade on gaza (after unilaterally pulling out) and unilaterally deciding whether checkpoints appear or disappear across the west bank). they're worried because they don't want to lose their economic domination over the west bank.
