An agreement on Tuesday between Israel and the Palestinian Authority gave Palestinians control over border crossings in the Gaza Strip. Paul Wolfensohn, the U.N. special envoy, explains the deal.

MARGARET WARNER: It's been three months since Israel's withdrawal from the Gaza Strip, leaving the Palestinians in charge of that desperately poor territory for the first time in nearly 40 years.

But withdrawal brought little improvement for Gaza's 1.3 million people because there was no provision to let them travel to or trade with the rest of the world through borders still controlled by Israel.

That changed on Tuesday with an agreement hammered out at an all-night session in Jerusalem, mediated by Secretary of State Condoleezza Rice and Special Envoy James Wolfensohn.

CONDOLEEZZA RICE: This is agreement is intended to give the Palestinian people freedom to move, to trade, to live ordinary lives. For the first time since 1967, Palestinians will gain control over entry and exit from their territory.

MARGARET WARNER: The deal followed months of painstaking negotiations between top Israeli and Palestinian leaders brokered by former World Bank President Wolfensohn. He's the U.N. Special Envoy to help Gaza revive economically.

At one point he and some wealthy friends put up $14 million of their own money to buy money-making Gaza greenhouses from Israelis and give them to Palestinians.

But Wolfensohn quickly hit a logjam between the Palestinians' demands for free movement of their workers and export crops and the Israelis' demand for security from Gaza-based terrorists.

The result was that post disengagement, Gaza's three main border crossings into Egypt at Rafah, and into Israel through Karni and Erez, were closed more often than they were open.

Last month Wolfensohn sent a bleak assessment of his progress to Kofi Annan, conceding the Palestinians hadn't done enough on security, but criticizing the Israelis for stalling talks, and quote, "almost acting as though there has been no withdrawal." Now with two states' agreement, the first of the border openings is due to take place next week.

MARGARET WARNER: For more on the Gaza deal and Gaza's future, we're joined now by Special Envoy James Wolfensohn. Mr. Wolfensohn, welcome.

JAMES WOLFENSOHN: Thank you.

MARGARET WARNER: Congratulations.

JAMES WOLFENSOHN: Thank you so much.

MARGARET WARNER: Why was it so important to get this deal for Gazans to be able to travel and trade?

JAMES WOLFENSOHN: Well, as you know, Prime Minister Sharon withdrew Israeli presence from Gaza. But if it were left without access or egress, it would be like a prison. And so what was important was to create an environment and the physical possibilities of people and goods moving in and out of Gaza. And that is what we achieved -- plus a linkage between Gaza and the West Bank.

So crucial to the future of the Gazan people is a sense of hope, a sense that they are able to earn money, that they can trade. And that is the sequence that was followed. And that's why we were very happy to have the agreement just two or three days ago.

MARGARET WARNER: So how much -- what will the agreement -- or how much will it do to ease Gazans' isolation?

JAMES WOLFENSOHN: Well, when it is carried forward, it will have a number of parts. First it will have a border with Egypt which is the so-called Rafah Crossing.

Then there will be a tripartheid border with Israel, Egypt and the Palestinian territory of Gaza, which is Karin Shalom.

And then there will be a series of others that are opened to access and egress from Israel to Gaza. There will then be a linkage between Gaza and the West Bank that will be carried out with trucks and with buses. There will also be access in the West Bank.

We're also discussing a port which will be approved in the next 14 days -- work to go on the airport. And so these things together bring about possibility for the Palestinians to lead a more normal life.

MARGARET WARNER: Now what did the Israelis get out of this on their security concerns?

JAMES WOLFENSOHN: Well, the balance is always between Israeli security and freedom and hope for the Palestinians. And so the reason that it took so long was to try and bring about a secure situation for the Israelis because they were unused to seeing the Palestinians have open doors -- and at the same time, to not inhibit the Palestinians from having a sense of freedom.

We've come to that balance with the introduction also of the Europeans who have agreed to come in and act as a monitor in the Rafah Crossing. And that's the first time that the Europeans have been in an official capacity for a very long time. And so that was another extremely important aspect of these negotiations.

MARGARET WARNER: This does put a lot of responsibility on the Palestinians. What happens the first time, and there probably will be a first time, that a terrorist gets himself or his bomb material through one of these crossings?

JAMES WOLFENSOHN: Well, I think you know that on each side there is a majority of people -- the Palestinians and Israelis -- who want to bring about peace -- who want to have a centrist view, if you like.

But at the extremities of the Palestinians and Israelis, there are people that don't want to see this happen. Now what we don't want to do is to be hostage to the extremes. And what I was delighted to see in the ten days I was in Israel, that the Israeli chief of staff said for the first time that --.

MARGARET WARNER: The military.

JAMES WOLFENSOHN: Yes, the military chief of staff, would -- made a statement that in the event of a terrorist problem, that there should not be immediately the reaction to close the borders because that in a way empowers the terrorist.

So I anticipate that unless there is an immediate threat, you will have a strong military reaction, but you will have a continuity of trade. And that's going to be the first time that that sort of setup exists.

MARGARET WARNER: That letter you wrote to Kofi Annan a month ago expressed a lot of frustration. And then Monday night you were quoted as having said in Israel, you know, you have to decide what you want to do. If you want to blow each other up, I have a very nice house -- you named where your houses were -- and I will watch with sadness as you do it. Were you ready to quit if this didn't happen?

JAMES WOLFENSOHN: Well, I was frustrated because I had been working on the same points for seven months. And there is a limit to anyone on the outside of the negotiation being able to make a decision for people on the inside of the negotiation.

So I was concerned particularly because there are two elections coming up. The Palestinian election on the one hand, Jan. 25, and rumors and subsequently the reality that there is likely to be an election for the Israelis sometime in the next three, four, five months; and I was concerned that unless we finalize these negotiations, we would go into a period of drift.

MARGARET WARNER: How important was it to get Secretary of State Rice's personal involvement? She even delayed her trip to South Korea to stay on this.

JAMES WOLFENSOHN: I think it was very important. I think the role of an envoy can set things up. But at the last minute when you are really trying to get people to decide, there is no doubt that the secretary of state of the United States has more clout than any envoy.

And so I was extremely happy that she came in. And she did her job very, very well. We worked very closely together. We stayed up all night, which is traditional in these sorts of things. And she was able to announce an agreement just before she took off for Korea.

MARGARET WARNER: And do you think her personal involvement is a model for what it is going to take to get any larger agreements?

JAMES WOLFENSOHN: Probably. I think when you have two people -- two peoples, the Palestinians and the Israelis, that lack a sense of trust for each other, it's really important to have a person in the person of the secretary of state who comes in and essentially blesses the deal and gives assurances to each side.

Now I think we can make a lot of progress if there is an implementation of the agreements that we have now undertaken taken by each side. But the crucial element is to build mutual confidence and then back it up, frankly, with the United States and now the Europeans to have the participants know that this thing is going to work.

MARGARET WARNER: Finally, you are really to be the economic tsar of this Gaza operation. And you did get the G-8 countries to pledge $3 billion this past summer for economic development. But this is such a poor region, maybe the poorest in the Arab world. What needs to happen next to really kick-start, get the Gazans a chance at some kind of real economic life?

JAMES WOLFENSOHN: Well, that is because the G-8 promised to be part of the $3 billion. We have to get money from the Middle East and the United States as part of that.

What needs to be done, I think, is to first of all open up the possibility of trading. There is no sense with one million, three hundred thousand people in Gaza to have them trade with each other. The largest trade is already with Israel.

But the possibility of trade with the outside world, with Egypt now that you have the Rafah Crossing, to go through the West Bank to Jordan, these are all the things that are necessary. And I think possible. You need to create an environment for trading.

MARGARET WARNER: Special envoy James Wolfensohn, thank you.

JAMES WOLFENSOHN: Thank you so much.