Israel's economic Cabinet decided that Palestinian workers would not return to Israel following an attack by Hamas and other militant groups on October 7, 2023. Approximately twelve hundred people died in the attack. Israel's economy minister, Nir Barkat, stated, "The economic Cabinet decided that Palestinian workers should not return to Israel."

Before October 7, over one hundred thousand Palestinian laborers crossed into Israel daily, but this number decreased to under ten thousand after the decision. Prior to the October 7 events, one-fifth of the West Bank's labor force was employed in Israel. Palestinian workers in Israel earned more than double the prevailing wage in the West Bank.

A December 2023 proposal to allow some Palestinian workers back into Israel received support from representatives of the Israeli military, the Shin Bet security agency, and COGAT. However, Israel's finance minister, Bezalel Smotrich, advocated for alternatives to employing Palestinian workers. Smotrich stated, "Israel can and must advance alternatives that will provide a different solution to the economy."

Barkat added that a previous approach to employing Palestinian workers was being abandoned. "We are leaving the old conception behind: stop employing Palestinian workers," Barkat said. The unemployment rate in the West Bank subsequently rose to twenty-nine percent. A World Bank report described the state of the Palestinian economy as an economic collapse.

Walid Habbas, a researcher at the Palestinian Forum for Israeli Studies, argued that work permits functioned as a mechanism of control. Earnings from Israel constituted nearly twenty-five percent of the West Bank's gross domestic product. Thirty-four thousand Palestinian workers maintained permits to work around Israeli settlements in the West Bank. In 2007, Israel's High Court ruled that Palestinian workers were entitled to the same labor rights as Israelis.

Palestinian workers who lost their jobs in Israel organized protests on TikTok concerning the closure of border crossings. A former worker returned to Ramallah in late November 2023. The Paris Protocol of the Oslo Accords, established in 1994, designated the Israeli shekel as the currency for the Palestinian economy and granted Israel control over borders, trade, tax transfers, and work permits.