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Perhaps nowhere else in the world are people as starkly divided by issues of nationality and religion as they are in Israel and the Occupied Palestinian Territories. The two main groups living in this area are Arabs, the great majority of whom are Muslim and Jews. There is also a significant population of Christian Arabs. Some important Christian areas like Bethlehem are located in the Occupied Palestinian Territories.

One of the important elements in the history of the Arab-Israeli dispute is the effect that demographics have had on the situation. Dating from the late 19th century, migration rates and birth rates have played a key role in shaping political strategies and causing anxiety on both sides. At present, Israel faces something of a crisis in its nationalist aspirations due to the effect of demographic swings among the population. Central to the crisis is the fact that Israel is a Jewish religious state.

For some Jews, the Israel they envision is a democracy that encompasses most, if not all, of what was once Palestine. However, at present, Palestinian Arabs comprise almost half of the population in this area. Furthermore, the Arab birth rate is significantly higher than that of the Jewish population, raising the possibility of Jews soon becoming a minority in such a state. This prospect is not comforting for the Jewish people, who, when existing as a minority in other countries, have been repeatedly subject to persecution.

Throughout the 1960s and the 1970s, the Palestinian Liberation Organization (PLO) also called for a secular democratic state.

There has been an ongoing discussion about whether there should be a Jewish religious state, a secular democratic state, or a Jewish and Palestinian state existing along side of each other.

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