Read this excellent piece on Israel and Arab water. Note that a significant part of Olmert's speech at the Med Summit was about water.
"Since the 1990s, water and other environmental issues were among the most important in Israeli bilateral relations. Its October 1994 peace treaty with Jordan included five annexes. Two addressed water and environmental concerns.
The water rich Golan has been a stumbling block toward a similar deal with Syria. It's much the same in bilateral Palestinian talks. The Territories' water resources have been over-exploited for years, but precious little of it for Palestinian use. It's a major destabilizing factor and obstacle to real peace and security. So many issues are at stake. One rarely discussed is the inequitable distribution of scarce and valued water resources.
Summer 2008 Drought Compounds the Problem
Israelis nearly always have enough water for their needs - agricultural, drinking, bathing, watering lawns, washing cars, and filling swimming pools for those who have them. In contrast, Palestinians have precious little. In summer it's always worse, but this year the most severe draught in a decade made it grave. In the northern West Bank, consumption is at about one-third the minimum required. It's because rainfall this year has been less than two-thirds normal. In southern areas, it's barely over half. Cities like Tubas, Jenin, Nablus and the Southern Hebron hills have been especially impacted.
According to Palestinian Water Authority estimates, the West Bank's water shortfall is from 42 to 69 mcm. Its consumption is 79 mcm making emergency supplies needed. Throughout the West Bank, per capita consumption is about 66 liters (for domestic, urban, rural and industrial use), far below the World Health Organization's 100 liter minimum for personal needs.
Making matters worse is the price of privately purchased water that constitutes 50% of West Bank supply - from 15 to 30 shekels or three to six times higher that Israelis pay. Because of this year's shortfall, it's heading higher and putting an impossible burden on impoverished Palestinians to buy enough of it. The alternative is drinking from questionable sources after amounts collected in cisterns run dry - stagnant water or from dirty springs that may expose users to frequent and serious illnesses."
Read also the part about desalination for the Palestinians and how the Israelis are trying to get the International Community to pay for a desalination plant that allow it to sell water to the Palestinians at $1 per m3 (while its cost of production in Israel is closer to 50 cents).