FIVE years after Israel and Egypt closed their gates, the Palestinian strip of land they encircle is rising from the ashes of war and siege. “We’re building cities,” says a delighted UN engineer, putting the finishing touches to “Saudi City”, a public housing estate replete with garages, tiled bathrooms and dishwashers that cost its Saudi sponsors $120m. Built on land where Israel first settled Jews after its 1967 conquest and then removed them in 2005, it is set to open its doors to 11,000 residents in the next few months. Under the baton of the Palestinian Islamist movement, Hamas, thousands more homes, hundreds of schools and half a dozen hospitals are sprouting. Circumventing Israeli and Egyptian restrictions above ground, Gaza’s tunnel complex under the border with Egypt is also facilitating a private construction boom, consisting of around 550 tower blocks.

In the face of Western and regional opposition, Hamas’s plans for making its desert bloom with parks, playgrounds and mosques involve some hiccups. Egypt temporarily closed its borders with Gaza after allegations that militants who killed 16 of its soldiers on August 5th had passed through the tunnels. Israel and Hamas’s Palestinian rivals in the West Bank egged it on. “800 millionaires and 1,600 near-millionaires control the tunnels at the expense of both Egyptian and Palestinian national interests,” fumed the Western-backed Palestinian president, Mahmoud Abbas.

Early hopes that Egypt’s new president, Muhammad Morsi, might put the Hamas genie back in its bottle have subsided. Under his predecessor, Hosni Mubarak, donors meeting in Sharm el-Sheikh in March 2009 committed $5 billion to repair damage from Israel’s Gaza war in 2006 and promised to end the siege, but tied the money to Mr Abbas resuming control. But Hamas’s parent organisation, the Muslim Brotherhood, has triumphed over Mr Mubarak’s henchmen in Egypt’s elections, and the new president, Mr Morsi, has eased travel restrictions on Palestinians, and met Hamas and its Gaza leaders for the first time.

Tired of waiting for the bickering Palestinians to agree and doubtful that Mr Abbas’s Palestinian Authority (PA) can resolve the Israeli-Palestinian conflict, Gulf states are diverting funding to Gaza. The largest single donor, the Saudi-led Islamic Development Bank, is spending $247m, and expects to double that sum by 2014. The UN’s reconstruction programme, much of it Gulf-funded, is bringing $200m into Gaza. Turkey is investing large sums too, including $40m for a teaching hospital for Hamas’s Islamic University which has obligingly added Turkish to its curriculum. Even Israel has lent a helping hand, letting 20,000 tonnes of gravel cross without the usual verification checks that it says are designed to stop Hamas from building military bunkers.

The impact on Gaza is tangible. For the first time in years, Gazans are taking Egyptian package holidays. Hani al-Asi, one of Gaza’s largest furniture manufacturers, says his workforce has grown by 50% over pre-siege levels. So many hospitals are under construction, says Jawdat al-Khudari, who has built two of them, that within five years Gaza will attract visitors for medical treatment. Qatari support could help to pay for three new motorways running the length of the strip—40km (25 miles). The Hamas dream of “Dubai on the Med” now looks a touch less fanciful. “We are not going to live in a prison,” says Mahmoud Zahar, a veteran Hamas power broker.

But while growth rates have been extraordinarily high and unemployment has dropped to its lowest in a decade, Hamas is not altogether free of the siege. Mr Morsi has yet to assent to Hamas’s offer to formalise trade ties and establish a commercial zone on its border in return for closing the tunnels. Power cuts from Gaza’s diesel-powered generator last half the day, slowing the pace of construction. The new wing of Gaza’s main hospital looks impressive, but it will open without air-conditioning because of electrical outages.