The success of Palestinian cellphone operator Jawwal heralds a new optimism.

(FORTUNE Magazine) – Like any busy cellphone exec, Hakam Kanafani has the usual headaches: dropped calls and balky base stations, fierce competition and customer churn. But as the CEO of Jawwal, the only Palestinian mobile-phone operator, Kanafani has also had to overcome some unique challenges to make his company profitable. When the Israeli army reoccupied the West Bank in 2002, Jawwal's radio towers in Jenin were destroyed in the fighting. Curfews and checkpoints still make it hard for engineers to repair faulty equipment.

But Kanafani, a 40-year-old graduate of the University of Maryland, has made Jawwal a model of flexibility as well as a rare Palestinian economic success story. Customer inquiries can be automatically rerouted into the homes of Jawwal employees in the event of a curfew. Nodding toward an employee in the call center, Kanafani says, "She can be at home with her husband, answer the phone, and say, 'Jawwal, can I help you?' "

Jawwal is owned by Paltel, the Palestinian telecom monopoly, and has 550,000 subscribers, giving it a 50% share of the Palestinian market. Four Israeli mobile operators control the rest, and they can afford to undercut Jawwal's prices in the Palestinian territories by up to 50%. Even so, Jawwal's revenues rose 47% last year, to just under $100 million, and contributed more than half of parent Paltel's $54 million in net income.

The Palestinian economy was devastated by the intifada--unemployment currently tops 30% in the West Bank, with joblessness even higher in the Gaza Strip. Still, the easing of Israeli checkpoints is beginning to make a difference, as are new investments from the oil-rich Gulf states and Palestinians working abroad. At the Palestine Stock Exchange in Nablus, the benchmark Al-Quds index rose 155% in the first four months of 2005, fueled by optimism about new Palestinian leader Mahmoud Abbas and a surge in shares of companies like Jawwal's parent, Paltel (up 91%), and Birzeit Pharmaceuticals (up 89%). Younger entrepreneurs like Kanafani are counting on Abbas to rein in militants when Israel withdraws from Gaza in August, while also reducing the corruption that marred Arafat's tenure. "Jawwal is proof that Palestinians can run a high-tech company," says Kanafani. "When we see we are no longer living in a big jail, the sky is the limit."