Israeli and Palestinian businessmen, who sometimes have to exchange suitcases of cash for goods at military checkpoints, will soon be able to settle any commercial disputes on neutral ground.

An Israeli former peace negotiator, Oren Shachor, and Palestinian tycoon Munib Al-Masri have founded the Jerusalem Arbitration Center, in a rare example of cooperation aimed at bypassing the political pitfalls of decades of conflict.

The centre, inaugurated on Monday, aims to enhance bilateral trade between Israel and the occupied West Bank now at an annual $4 billion.

The private initiative has received a grant from the Israeli government and is supported by the Palestinian Authority, organisers said.

Israeli and Palestinian companies have been relying on a mechanism provided by the Oslo interim peace deals, which launched limited Palestinian self-rule in the 1990s, to resolve commercial disputes.

But officials of the new centre, which will be under the auspices of the International Chamber of Commerce, said thousands of cases are stalled in Israeli courts or by political and security-related obstacles.

Many of the transactions between Israeli and Palestinian businesses are in cash because of Israeli concerns that funds transferred to banks in the West Bank could wind up in the hands of militant groups.

The arbitration centre could provide a safety net for business owners who meet at Israeli military roadblocks at the entrance to the West Bank, with bags of money and goods in hand.

"Our objective is for Israeli and Palestinian business people to come to us, the JAC, because they know they will get an efficient, effective and impartial, fair process," said the centre's secretary general, Nadia Darwazeh.

Centre officials said they hope the availability of arbitration will lead to an increase in Israeli-Palestinian business ties and attract foreign investment. Two-thirds of the annual trade between Israel and the West Bank consists of Israeli exports to the territory.

Last month, the World Bank reported the Palestinian economy in the West Bank shrank for the first time in a decade in the first half of 2013. It blamed the 0.1 per cent contraction on a decline in foreign budget support to the aid-reliant Palestinian government and a myriad of restrictions imposed by Israel.

Israel, which captured the West Bank in the 1967 Middle East war, has said restrictions on Palestinians have eased in recent years. Palestinians, who are engaged in peace talks with Israel, seek to establish a state in the West Bank and the Gaza Strip.

The centre's arbitration panel will have nine members, including its president, a Turkish national who heads his country's international chamber of commerce. The Israeli and Palestinian international chambers of commerce will each fill two seats, and the other four members will be nominated by the panel's president.

Centre officials said it hopes to handle 10 to 15 cases in its first year. Its purview does not include the Gaza Strip, which is run by Hamas Islamists hostile to Israel and under Israeli blockade. - Reuters