To outward appearances, commerce with Gaza is booming. Convoys of lorries carrying a wide variety of food products make their way into the Strip from Israel, 150 truckloads a day, through the Karni crossing. On the roads of northern Sinai, vast loads of cement sacks and building materials are also proceeding, at a slightly slower pace, towards the crossing at Rafah. But a closer examination shows a rather different picture.

While Palestinian businessmen can import products, they have very few opportunities to trade in the other direction. And, while construction in the Strip is proceeding, aside from those needed for a list of approved international projects, the majority of building materials are being smuggled in through the tunnels beneath the Egypt-Gaza border.

Five years after Hamas took control of Gaza in a bloody coup, the 141 square-mile coastal strip, home to more than a million Palestinians, is no longer isolated from the outside world. Over the past two years, following international pressure in the wake of the Mavi Marmara incident, Israel has replaced its "closure", with an ill-defined "separation policy", and the Egyptian government is allowing civilians to leave the Strip and travel around the world from Egypt. But trips between Gaza and the other main Palestinian territory, the West Bank of Jordan, are only allowed for a tiny number. Furthermore, while over the past year 100 Gaza businessmen have been allowed into Israel, the prohibition on exports to Israel and the West Bank still stand.

On the security side, there has been a steep decrease in the number of missile attacks from Gaza on Israeli targets and, along with this, fewer Israeli attacks on terror targets within the Strip. Flare-ups have been almost always the result of missiles launched by Hamas's rival, Islamic Jihad, or pre-emptive Israeli strikes against Jihad cells.

Hamas is currently going through a period of political turmoil, with personal rivalry and ideological differences separating its Gaza and its regional branches. Its political bureau has left the headquarters in Damascus and its relations with Iran are unclear in the wake of the Syrian revolution. Neither is it clear how much the movement can rely on Egypt, which is on the eve of elections, though the rising power of the Muslim Brotherhood has given them hope.

This week, on the Israeli side, Minister for Home Front Defence Matan Vilnai inaugurated newly reinforced schools and kindergartens in the towns around Gaza but, aside from acquiring new batteries of the Iron Dome missile defence system, there is little talk in Israel about Gaza.

Meanwhile, Gaza is trying to get back to its feet. Ali Abu Shahala, a Gaza engineer and businessman, says: "We can't plan an economy without export markets." And despite the construction boom, thanks mainly to the tunnels, he insists that "it is not viable to depend 100 per cent on smuggled goods. Israel has allowed us to bring in more goods but we need machinery. We have had to close our factories and we need more raw materials.

"The only money coming into Gaza is international aid money and the salaries for 77,000 civil servants. We can't develop an economy based on that."

Sari Bashi, head of the Israeli NGO Gisha, which advocates removing the trade and movement restrictions from Gaza, agrees that while there has been no real hunger or humanitarian crisis, the Israeli policy does not allow significant economic development.

"We are seeing very slow progress," she says. "Right now, the level of exports from Gaza is two per cent of what it was in 2007. Gaza traditionally exported its workforce to Israel and then carried out low-cost manufacturing, but it can't do that any more."

While Palestinian businesspeople and NGOs like Gisha believe that there is a way of rebuilding economic ties, the Israeli government and security establishment still do not see that these can be disconnected from the political, diplomatic and security considerations. "From our point of view, until Hamas completely changes its political ideology, renounces terror and recognises Israel's right to exist, there will be no engagement with it," says a senior Israeli diplomat.

"The rationale behind the separation policy is to stop Hamas from infiltrating the West Bank," says an IDF officer who is involved in co-ordination with the PA. "The two ways of preventing Hamas personnel and ideology from entering are not allowing commercial ties or movement of civilians."

"The fact that there are less attacks from Gaza is not because Hamas has suddenly become Zionist," says another IDF officer. "They are still rebuilding themselves after Operation Cast Lead three years ago and that means, first of all, their military capabilities."

But there are those within the defence establishment who say that Israel's current policy is self-defeating.

Brigadier General (retd) Shmuel Zakai, commander of the IDF's Gaza Brigade in 2004-2005, is convinced Israel should negotiate with Hamas. "Hamas is our only option because Fatah is weak and cannot deliver a final status. Time is against us. We may have planes and tanks, but we can't use them. Before Hamas take advantage of that, we have to create a situation where they have a long-term interest in maintaining the quiet."