1. INTRODUCTION
The Bethlehem area is specialized and well known for handicraft industries. Production includes a wide range of hand fashioned articles made of olive wood, mother of pearl and Embroidering. Most of these products are manufactured locally in small workshops using labor intensive techniques. It is estimated that the number of enterprises involved in this production is around 200, concentrated in Bethlehem, Beit Sahour and Beit Jala, while intricate and colorful hand embroidered Palestinian traditional costumes are produced in a number of Bethlehem district villages, like: Al-Khader, Battir, Husan, Nahhalin and Artas. Despite potential demand for Palestinian handicraft products in regional and foreign markets, exports remains minimal. This is due to the lack of adequate supportive incentives, especially with regard to credit promotion, and technical know-how. There is another major problem concerning, the quality of industrial products today: very few producers have trademarks on their product; many are not licensed and work at home, selling to certain souvenir shops at very cheap prices.

1.1 General brief history of Handicrafts in Palestine
Most traditional handicrafts such as Olive Wood and Mother of Pearl are still found in the Holy Land and have roots that go back hundreds, if not thousands of years as studies and historical documents proved. A brief history of different Handicraft industries can be outlined as follows:

• Three percent of handicrafts production units that are still active and were established prior to 1925. These are Glass, Fur, Rugs, and Embroidery producers.
  
• Roughly 9% of those units were established between 1925 and 1950, in addition to the previously mentioned crafts, these also included Pottery and Bamboo furniture workshops.
  
• Twenty three percent of the production units were established between 1951 and 1967 during the period of the Jordanian rule over the West Bank.
  
• The period between 1968 and 1977 saw the establishment of 31 % of the Handicrafts units. This was mainly due to an increase in demand from Tourists for their products especially Olive Wood and Mother of Pearl.
  
• Between 1977 and 1986 34% of all Handicrafts units began production; most of the workshops established in this period were Olive wood Workshops.
  
• Between 1993 and 2000 there was a boom in the Palestinian Handicraft industry, with tourism flourishing and the Bethlehem 2000 perpetration contributed to this boom.

1.2 Facts about Handicrafts industry in Palestine:
1. There are 18 independent Handicrafts in Palestinian territories, such as:

1. Olive Wood carving
   
2. Mother of Pearl industry
   
3. Embroidery
   
4. Blown glass
   

2. The dominant products are Olive wood, which constitutes 36% of all Handicraft products, and Mother of Pearl with a 10 % share of the sector's production.

3. It is worth mentioning that the first Intifada caused a recession in the Handicrafts industry, with production shrinking by 40%. Although, there are no studies regarding the exact effect of the second Intifada, it has obviously hit the sectors hard and its effects are worse than of the first Intifada.

2. THE PRESENT CRISIS OF THE HANDICRAFTS:
The deterioration of the local handicrafts does not start with the popular uprising and the repressive measures launched against it by the Israeli authorities. It actually goes back to the late 70s and early 80s, and to an earlier stage of Israeli occupation. These findings do not support the thesis of a slow and retarded but continuous and general - economic growth under Israeli occupation. Our data suggest that development under these conditions varies strongly among different sectors; i.e. while there might have been growth of some manufacturing industries, others experienced stagnation and crisis.

Economic hardships in the period of the first and second Intifada and new difficulties due to the closure policy, have led the already problem stricken handicrafts into a crisis which actually threatens its existence in the future.

2.1 The main problems
The problems faced by local handicraft were not unique; they were rather consistent with the problems faced by all manufacturing and can be summarized as follows:

• The prevailing political situation badly affected the tourism sector and the handicraft production.
  
• Financing problems: Production in most of the factories depends on simple equipment producing at high cost. The main reason for the low level of technology was the lack of financing sources (e.g. development credits) for the purchase of modem machines.
  
• International competition, recently appearing from Taiwan and Hong Kong, in the Arab market during the pilgrim season in Saudi Arabia and Europe, became a major problem for mother-of-pearl manufactures. Producers in those countries could sell for lower prices due to industrialized production, low salaries and cheap raw materials.
  
• Competition by Israeli articles, especially cheap copper articles.
  
• Emigration of employed professionals from the industry, due to part time jobs and closure of factories. These professionals are not easily replaceable, since it requires high level of skills and expertise.
  
• Ineffective marketing strategies: in spite of the establishment of a local marketing cooperative, coordination among the producers remained low and did not include the big factories. The rights of artists were not protected, e.g. the articles were neither signed by the factory nor by the artist.
  
• Lack of a coordinating body acting to promote the branch.
  
• The over pricing of the produced items in order to cover commissions for brokers, tour guides, tourism offices, and souvenir shops markups.
  
• Low educational level, fear and resistance to change by the utmost majority of the craftsmen and workshops' owners.

2.2 Other problems encountering each handicraft:
1. Olive Wood productions:

a. Low prices and competition.

b. High prices of olive wood, especially the high quality wood from un-irrigated groves: manufactures started to use the cheaper raw material (open-grained and lighter) coming from irrigated groves, thereby reducing the quality of their product.

c. Lack of classifications and sorting of products based on their quality.

d. Lack of professionalism in relationships between craftsmen and their employers.

e. Lack of creativity and innovation.

f. Needs for introducing better machinery and more advanced production methods.

2. Mother of Pearl (MOP) productions:

a. The immigration of skilled workers from the industry, and the bankruptcy of many workshops. In addition, the lack of interest in learning this profession by the new generation.

b. Import of raw material (M.O.P) became one of the major loads on the mother-of-pearl industry. In 1987, payments for raw materials amounted to 23% of the value of production. Import permits were difficult to obtain and expensive. In addition, producers had to pay fees, taxes and duties connected to the import amounting to 50% of the value of the imported raw material itself. The producers of mother-of-pearl articles found themselves squeezed between the importer who always try to raise the price of the raw material, and the merchants or traders who often look for the best bid by lowering the articles' prices.

c. Inefficient use of raw materials and high waste.

d. Shortage of improved machinery and know how.