(Fortune Magazine) -- Israel ended its occupation of the Gaza Strip last year, but it still controls what goes in and what comes out of the Palestinian territory. So when Hamas militants attacked an Israeli military post June 25, taking a soldier hostage, Israel tightened the screws.

Gaza's Karni crossing, the primary route for goods and trade, was sealed for a week. Israeli airstrikes hobbled the territory's main power station, and a gas pipeline was shut for six days, leaving hospitals, sewage plants, and water pumps short of power and forcing residents like those at this Gaza gas station to wait hours to fill plastic jugs with fuel.

Even food was in short supply, as most dairy products and fruit spoiled from lack of refrigeration. Not surprisingly, many businesses are also in shambles. "They are shutting down in Gaza and fleeing to Egypt and the Gulf," says Khaled Abdel-Shafi, director of the United Nations Development Program in Gaza. At least 30 factories have been shuttered in the past few months, he says, including a large furniture maker and a garment factory.

"The whole environment is very discouraging for any kind of foreign or private investment." That means worsening unemployment, already about 45%, and even more Gazans living on less than $2 a day--a number now estimated at 84%. If the conflict keeps up, the World Bank's March forecast of a 25% drop in Palestinian GDP this year may prove overly optimistic.