The state of Gaza: Five years after Hamas took power in the city, how has life changed for its citizens?

The front office of Kamal Ashour's small family clothing factory in Gaza City opens on to Izzedine al-Qassam Street, named, like Hamas's military wing, in honour of the Islamist mujahid who led the anti-Zionist, anti-Mandate, Black Hand gang and was shot dead by British police in 1935.

Which makes it serendipitous to see the mannequins on one of its shelves triumphantly displaying four samples of the 2,000 acrylic cardigans and polo sweaters Ashour has just shipped off to the UK firm of JD Williams in the first clothing exports to leave Gaza for five years. And a lot more so to be talking on Ashour's landline to a Jewish-Israeli clothier in Tel Aviv about how fast, if he had half a chance, he would revert to buying his goods from here, as he once did.

Having made the call, Ashour, a short, spry septuagenarian who used to export at least 80 per cent of his clothing to Israel, has thrust the phone into my hand to demonstrate just how highly his most favoured customer values his business. Sure enough, the Israeli trader explains that, since the blockade imposed in Gaza by his own government in 2007, he has been forced to find a Chinese supplier instead of Ashour; that, yes, the sweaters may be slightly –though "not much"– cheaper, but that he would still prefer Ashour every time. "Look, I've been working with Gaza for 30 years and with this guy for 11 or 12. The overall quality is high, better than China. He's very, very good to work with. I trust him completely. If he says he will do something, he does it. He never changes his mind."

Such is his nervousness about discussing a politically sensitive topic that, unlike Mr Ashour, his Israeli client, whose name we know, begs us not to use it. For this is a conversation across enemy lines. Gaza is still officially classified by the Israeli Cabinet as a "hostile entity" and since the turbulent events that unfolded in June 2007 the exports to Israel and the West Bank on which its economy depended have been prohibited.

Five years ago this week, Gaza was in chaos. The BBC correspondent Alan Johnston was being held as a hostage by the criminal jihadists who had kidnapped him in March. The Israeli soldier Gilad Shalit, seized by militants on the Gaza border, had already been in captivity for a year. But in the streets outside, a brief but bloody civil war was raging between militants in the two biggest Palestinian factions, Hamas and Fatah.

Two years earlier, Ariel Sharon had pulled Israeli troops and the 8,000 settlers they had been protecting out of Gaza. Then, in January 2006, Hamas unexpectedly beat Fatah in notably clean parliamentary elections held throughout the occupied territories. The victory was not primarily because of ideology. (Fatah was committed to a two-state solution with Palestine, consisting of Gaza, the West Bank and East Jerusalem living side by side with Israel, while Hamas had always refused to recognise Israel.) Rather, it was because Palestinians were fed up with Fatah's corruption, the failure of negotiations to bring any results, and perhaps because some, at least in Gaza, initially bought into Hamas's extravagant boasts that its militants had "liberated" the territory from Israel.

Finding itself leading the new Palestinian Authority in uneasy co-habitation with a Fatah president in Mahmoud Abbas, Hamas was faced with a boycott by a US-led international community which effectively refused to recognise the results of the election it had sanctioned in the first place. The outcome was a coalition with Fatah; but it was a shotgun marriage that quickly degenerated into civil conflict.

Hamas, despite partially covert American help for the Fatah forces, was victorious. When the bloodshed ended on 14 June 2007 Hamas was left in charge of Gaza, Fatah of the West Bank. And Israel responded with its blockade of Gaza – central elements of which are still in force today – which the senior UN official Filippo Grandi said 12 days ago had "completely obliterated" the territory's economy, and which leaves a deeply puzzling question: why is Israel still maintaining an export ban which, in Grandi's words, has "penalised" the "common people" and the "business community" of Gaza but has left its Hamas rulers intact and unscathed?

Through the past five years, punctuated by Israel's bloody three-week military offensive in Gaza in the winter of 2008-2009, Ashour has stayed in contact with his old Israeli customer. He explains that he last used his coveted businessman's permit to visit the Israeli's premises and drink tea with him, after Benjamin Netanyahu finally agreed the prisoner exchange with Hamas that made headline news with the release of Gilad Shalit last October. Ashour recalls that one of the Israeli's sons told his father: "'Look, Shalit's out. The crossings must open now. Kamal could produce 10,000 pieces for us.'" At which point the clothier thrust a wad of 14,000 shekels (around £2,300) in banknotes into Ashour's hand as a down-payment for just such an order. The Israeli trader's optimism after the Shalit prisoner exchange was understandable, because one of the reasons cited by the government for maintaining the blockade in the first place had been the IDF soldier's continued incarceration.

Stacked in a storeroom are the sweaters the Israeli has paid for, neatly boxed up and waiting for the moment when they are allowed to leave Gaza for Tel Aviv. A moment which still shows no sign of coming, since the Netanyahu government has not lifted its decree that no goods will leave Gaza for destinations in Israel or the West Bank. Which is exactly where 85 per cent of the territory's exports went before June 2007.

In any case, it hardly compares with the 6,000 garments – two truckloads – Ashour used to send out to his Israeli customers every week. He did all he could to help out his impoverished employees after June 2007, first keeping them on half-pay and then with loans from his own pocket. But whereas he used to employ 35 to 40 workers for three shifts all the year round, in the past year he has employed only 25 for two shifts, and for just three months. Those that could, found jobs as bakers, taxi drivers, street cleaners or more frequently on NGO-sponsored short-term work programmes or as Hamas policemen. Those who he temporarily re-engaged came back – except the policemen. It is a neat illustration of how the slump in private-sector employment since 2007 served to boost the payroll of the Hamas authorities.

Now, the British order completed – and the second batch ready for dispatch – the factory is silent and empty. Ashour believes, not unreasonably, that a resumption of commerce between Israel and Gaza would foster better relations all round, and that, "I never saw a businessman throw a stone." Breaking into English for his final rhetorical flourish, he adds: "The Jews understand me very good. For business, Tel Aviv is better for me than London or New York."

The outrage that followed the fatal shooting by Israeli commandos of nine Turks aboard the Mavi Marmara, the flagship of the flotilla that set sail for Gaza in an attempt to break the blockade in May 2010, awakened Western governments to the need to be seen to press Netanyahu to lift the siege. The most immediate result of the subsequent negotiations between Tony Blair, as the international envoy of the "Quartet" (a mediating coalition of the UN, the US, the EU and Russia), and the Israeli Prime Minister was the rapid flow of Israeli goods into Gaza supermarkets as the military lifted it capricious "security" ban on a bizarrely comprehensive selection of commodities, which had ranged from musical instruments and razor blades to coriander, and as an infuriated US Senator John Kerry had discovered on a trip in 2009, pasta.

Blair also secured a resumption of raw-material imports for Gaza's industry – which allowed Ashour to bring in his acrylic cloth from Turkey through Israel for the first time since 2007 and other manufacturers to start serving local markets again. Netanyahu also – in theory – agreed to allow exports, though in practice this has been mainly confined to dispatches, heavily subsidised by foreign governments, of flowers and fruit to Europe. Even conservative estimates put the total levels of Gaza exports at less than two per cent of pre-June 2007 levels.

It was less painful for Israel to change the policy, of course, because it had so manifestly failed. Indeed, whatever its effects on Gaza's long-suffering public, it had done nothing to weaken, let alone dislodge, Hamas. Through the long period of international boycott, Israeli blockade and the 2008-2009 war, the Islamic faction has tightened its grip on government. At the end of last month, Gaza was once again alive with hopeful talk that Fatah and Hamas would heal the split that began so bloodily and form a "unity" government – an outcome strongly opposed by Israel.

Gaza, like the West Bank, is a land the Arab Spring forgot; but that does not mean its politics have been unaffected. Hamas has a dual leadership –de facto Prime Minister Ismail Haniyeh in Gaza and Khaled Meshal outside the territory. The uprising, fast becoming a civil war, in Syria and Bashar Assad's brutal treatment of it, now condemned by Hamas, forced Meshal to leave his Damascus base, leaving him in need of new allies. And the rise of the Muslim Brotherhood in Egypt – which will be even more marked if its presidential candidate Mohammed Morsi wins this week's run-off – provided him with the chance to do just that. Deposed Egyptian president Hosni Mubarak—and some of the intelligence chiefs still in post – always favoured Fatah over Hamas. But Hamas is an offshoot of the Brotherhood. And if the West is prepared to talk to the Brotherhood in Egypt, might they not in time, he may have reasoned, do so to Meshal himself, especially if he has a new accord with Abbas?

In the short term, moreover, no new Fatah-Hamas agreement was ever going to mean economic change for the better in Gaza. And the changes negotiated after the Mavi Marmara debacle were as significant for what they did not include as what they did. Not only were exports banned to the very markets in the West Bank and Israel they had overwhelmingly served, but Israel did not lift the ban – other than on imports for strictly identified projects supervised by the UN and other international organisations – on bringing in building materials, including for reconstruction needed after the 2008-2009 war. The latter decision, ostensibly on the grounds that Hamas could divert such materials for is own purposes, including military ones such as underground bunkers, went to the heart of the contradictions in Israeli policy in Gaza.

For both Hamas and the private sector have been importing everything they need from Egypt through the tunnels Gazan entrepreneurs constructed under the Egyptian border to beat the siege after 2007. It is almost impossible to overestimate the impact of the tunnels; "smuggling", though technically correct, hardly seems an appropriate term to cover the cars, motorcycles and livestock coming under the border. Nor for the bulk building materials such as the truckloads of Egyptian cement from El Arish you can see trundling north along the Gaza Strip's main Saladin Road.

Indeed something of a construction boom, however temporary, is the main factor behind a fall in unemployment to around one in three of the workforce, according to UN figures; there is even a shortage of skilled workers, such as carpenters and steel-fixers. Building sites abound in Gaza City, many funded with cash from the new breed of Gaza millionaires, many themselves tunnel operators and close to Hamas.

Meanwhile, a 2km stretch of the sandy, potholed Al Rasheed coast road is being proudly transformed into a "corniche", one of several projects financed by PalTel, the main Palestinian telecommunications company, apparently to avoid the embarrassment of paying taxes directly to Hamas. Huge mounds of earth and roadside pyramid-shaped stacks of steel piping brought in at the beginning of the year testified to the scale of the project – with 5m-wide pavements, a central reservation and a pedestrian tunnel for families to get safely to the beach (a safety that can hardly be guaranteed in the sea itself, still dangerously polluted by the 15,000cm a day of raw sewage long pumped into the Mediterranean). Not only does this traffic fatally undermine the stated "security" goals of the Israeli policy, but it is of huge financial benefit to Hamas, which is levying 10 shekels (£1.65) on every ton of aggregate, 20 on cement, and 50 on steel.

The building boom cannot disguise the huge hole – which only a restoration of exports to the West Bank and Israel would truly start to repair – still left in Gaza's economy. But the construction industry's resilience is a reminder that even in the darkest days it has passed through since 2007, up to and including the aftermath of the war, there has always been more to Gaza than its stereotype outside the territory.

At one extreme, of course, the narrow alleys separating the famously overcrowded, zinc-roofed, breeze-block slums of the Jabalya refugee camp testify to a level of poverty in which the UN says more than 70 per cent of Gazans depended on food or cash aid. At the other, the glamorous young women, some daringly without headscarves, smoking narghila on a sociable Thursday evening under a late May new moon on the terrace of the Arabesque Al Deira hotel are a reminder that, for all its problems, Gaza City is the most metropolitan and in many ways sophisticated of all the Palestinian urban centres. It has two universities of its own as well as the offshoots of others in the West Bank, it has its crop of lively bloggers, often fearlessly critical of the Hamas authorities. It has some of the best of all Palestinian painters –and, for that matter, rappers. Its music school has just become part of the prestigious Edward Said Conservatory network...

It is a paradox which bothers Iqbal Qishta, who, like Gaza's many hundreds of would-be exporters, has fallen victim to what increasingly looks like Israel's systematic determination to separate Gaza from the West Bank. For the third change Netanyahu refused to make in the negotiations with Blair was to free the movement of people through the Erez Crossing out of Gaza.

The elegant Ms Qishta, who runs a successful Gaza City hair and beauty salon and has decided to take a university degree at a proudly unmarried 37, has been refused permission to attend a hairdressers' convention in the West Bank city of Tulkarem. In previous times a veteran of such events – evidence that there are no security grounds against her – she argues that her presence and those of her peers in the past was as much the conventions' gain as those of the Gaza invitees. "They can learn from us; for example some of the ways we dye hair in crazy colours which we get from Egypt and take to the West Bank."

She is half-irritated and half-amused as she describes how far Palestinians in the West Bank, who now rarely if ever meet Gazans, have internalised an image of them as ingénues at best and barbarians at worst. At a previous convention, she says, "One woman from Jericho asked me: 'Do you still all live in asbestos shacks?' They wouldn't believe we were from Gaza; they thought we were 1948 Palestinians [Arabs living in Israel]. It's because of the media. They just show bombardments or they go to the Beach [refugee] camp and show kids playing in some sewage puddle, people wearing bad clothes and graffiti. They don't go to the Mövenpick hotel [actually now the ArcMed, but still called after the Swiss company which originally built it in the more-hopeful 1990s] or the Lighthouse restaurant or the Al Deira."

Qishta insists she will try again each year to attend the convention – resenting that it is easier for to go to Cairo through the Rafah crossing than to join her fellow Palestinians for a short meeting in the West Bank.

Even more sweeping is the military's ban on students attending – as they routinely did before the second intifada broke out in 2000 – universities in the West Bank. Last month an unprecedented judgement in Israel's Supreme Court gave the state 45 days to reconsider the routine application of the ban to four women in their thirties and forties, all of whom have been active in promoting women from attending courses in the West Bank.

But it did not intervene at all on the case of Loujain Alzaeem, 18, a law student with outstanding grades who has long been ambitious to follow in her mother's footsteps to go to Birzeit University in Ramallah. "My dream since I was a kid was to go to Birzeit. It is one of the best universities in Palestine and the law faculty is very good. The fact my mother went there is a big factor and she has told me a lot about her time there. I can go to London but I can't go to Birzeit or Jerusalem or anywhere like that. [The Israelis] just don't want any students from here to go to the West Bank and that's it."

Not only has the military made no claim against Loujain – or the four older women – on security grounds, but her father Shaharbeel, one of the most prominent and best-connected lawyers in the country, a well-known advocate of non-violence, with clients in Israel and the West Bank as well as Gaza, is one of the select few with a permit to travel through the Erez Crossing into Israel.

The passage of people, like goods, between Gaza and the West Bank looks very much like a one-way street. Israel has deported Gazan-registered Palestinians living in the West Bank – even when married to West Bankers – for no other reason than that they hold Gaza IDs. And while it has promised under severe pressure from human-rights organisations to legitimise 5,000 Gazans by giving them new West Bank IDs, another 13,000 live under daily threat of deportation. The prisoners released in the exchange for Gilad Shalit whom Israel judged most dangerous were deported to Gaza – Sharharbeel Alzaeem calls it Israel's "New Australia" policy. But the large majority of the 3,000 Gazans per month allowed to leave Gaza, and then only temporarily, are either medical patients sick enough to meet Israel's strict criteria for treatment outside the Strip, or traders allowed through Erez to negotiate imports.

In Alzaeem's view, this is part of a "systematic policy. They are trying to separate Gaza and the West Bank, and to throw Gaza south, towards Egypt." He argues that an embargo which stimulated the extraordinary growth of the tunnels economy is a "very clear sign that that they want Gaza to be dependent on Egypt and not Israel". He adds scornfully that if there was to be a state, Israel would prefer it to be Gaza, leaving in the West Bank "a few [Palestinian] islands surrounded by settlers, islands which would need little more than a municipal council to run".

The student ban may also be more congenial to Hamas than Israel admits. Last year the de facto government refused exit permits to eight outstanding high-school students who had been awarded scholarships to study in the United States, citing "social and cultural reasons". As Amira Hass, who knows Gaza better than any other Israeli journalist, wrote last month in Haaretz, Israel's oldest daily newspaper: "Like the State of Israel, the Hamas education ministry doesn't like it when Gazan youth go to the West Bank or overseas. And for good reason: political and religious indoctrination ebbs when horizons open up. If Israel genuinely wanted to weaken Hamas rule, it would respect freedom of movement, which has been restricted since 1991."

It's hard to escape the conclusion – heavily denied by Israel – that there have been convenient aspects to a separated and Hamas-controlled Gaza, especially when military officers admit privately that the faction, for now, is often active in preventing smaller groups from firing rockets at Israel. The split between Gaza and the West Bank is, after all, an obstacle to the full two-state solution that many doubt the Netanyahu government really wants.

Sari Bashi, director of Gisha, the Israeli NGO which has done more than any other to highlight the impact of the Gaza closure, says that for decades Israel pursued a policy of economic integration which made Gaza wholly dependent on the West Bank and Israel for its exports, and that no economic recovery is possible without exports to its existing markets there rather than to "non-existent markets" abroad. "The idea of a two-state solution is premised on the integrity of Gaza and the West Bank, where four million Palestinians share economic, education, familial and social ties," she says. " Sealing Gaza off from the West Bank means sealing off access to schools, jobs, family unity – and the possibility of a two-state solution."

Along with Kamal Ashour, Abed Al Rauf Abu Safar is another of the very few Gaza businessman who has managed, albeit with considerable difficulty, to get exports out through Israel – in his case, tomatoes to Saudi Arabia through Jordan. The amounts are nothing like the six or seven trucks he used to send each week through the now-closed Karni crossing, packed with vegetables for Israel and the West Bank; Abu Safar used to pay to equip dozens of farmers in the central and southern Gaza Strip for plantation, and then recoup the cost from his export revenues. He is acutely aware that since his loads passing through Israel on their way to the Allenby Bridge across the Jordan river meet all the stringent checks imposed by the military, it is not security but a policy of separation that stops him exporting similar loads to Israel and the West Bank. Instead, Abu Safar is now keeping his West Bank customers supplied from farms in Jordan – one of dozens of the more successful Gaza businessmen to shift operations abroad in a flight of capital directly triggered by Israeli policy. "It's a tragic situation," he says, "for Gaza."