MISHOR ADUMIM: Israeli settler and industrialist Avi Elkayam, 35, has no patience with the Palestinian boycott of settlement products. "It`s economic terrorism," he shouts shaking his fist.

The months-old campaign has had a limited financial impact so far but it has a catastrophic potential, he says.

"It`s economic terrorism that will lead to real terror when thousands of people lose their jobs," says Elkayam, who heads the bosses union in Mishor Adumim, the largest Israeli industrial park in the occupied West Bank.

A new Palestinian law imposes prison sentences of up to five years and fines of up to 22,000 dollars (18,000 euros) for trading in settlement goods, but the Palestinian Authority (PA) has yet to pass a proposed legislation that would severely punish Palestinians working for settlers.

The 3,000 Palestinians, out of a total of 4,000 employees, in Mishor Adumim, outside Jerusalem, could be forced to quit their jobs if the PA makes good on its threat to ban settlement work.

With 22,000 Palestinians working in Israeli settlements, the ban would have serious repercussions both for the Palestinian economy, where unemployment is high, and for settler businesses, many of which would be forced to shut down.

The presence of nearly a half million Israelis in more than 120 settlements scattered across the West Bank, including annexed east Jerusalem, has long been one of the thorniest issues in the Middle East peace process.

The international community considers all West Bank settlements illegal because they are built on Palestinian territory which Israel captured from Jordan in the 1967 Six-Day War.

But while 72 percent of Palestinians support the boycott on products, according to a recent opinion poll, 60 percent oppose the ban on settlement work.

Business leaders in the settlements insist they contribute to the Palestinian economy, by offering pay well above West Bank levels -- though lower than Israeli wages.

And Elkayam is convinced he has a deep bond with his employees, saying they are "like brothers."

"For 20 years we have managed to create peaceful coexistence. This decision to boycott will end it," he says, his angry tone raising eyebrows among patrons in Avi`s Restaurant, one of his businesses in the industrial park on the dusty edge of the Judaean desert.

Even so, he is not worried about the immediate financial impact of the boycott.

"Officially no one here is selling to the Palestinian territories," he says, adding that about five percent of the 300,000 dollars a month his sweets factory rakes in comes from Palestinians.

"We use our Jewish ingenuity, for example by labelling the goods as coming from Tel Aviv."

The practice of fake labels of origin is widespread, according to a senior executive at a Mishor Adumim factory, who asked not to be identified.

In some cases it is also used for exports to countries like Saudi Arabia, which not only object to settlements but profess little love for Israel itself, she says.

She too is unfazed by the boycott of products, but admits she is seriously worried about the possibility the PA could enact a law banning Palestinians from working in settlements as of January 1.

"That could force us to close down," she says. Other plants would find themselves in the same situation and thousands of Palestinians would find themselves jobless.

At the Gush Etzion junction, in the heart of Israel`s emblematic settlement bloc whose name it bears, Musa Johar shrugs off the anti-settlement campaign.

"If I don`t work, who`ll feed my children?" the 55-year-old Palestinian construction worker asks, adding that it is by necessity and not choice that he helps build homes for settlers.

Sitting at a gas station cafe, he points to the supermarket behind him, the latest Rami Levy -- a chain named after its millionaire Israeli owner -- to open in a West Bank settlement.

"Even Palestinian police shop here," he says.

Many of the employees are Palestinian. Among the shoppers, many wear traditional Arab robes and headscarves.

An Israeli cashier looks stunned when asked about the anti-settlement campaign.

"There`s a boycott?" she asks.

And store manager Ovadia Levy says he can`t understand what the whole fuss is about.

"Shoppers come from Hebron, Bethlehem, Beit Jala, they come here happily and with no fear," he says.

"It`s clean, it`s beautiful, prices are good, there`s a large selection -- they have nothing like this where they come from."

BDST: 8:49 HRS, July 4, 2010