This paper presents the framework for the development of the transportation sector in the Palestinian territories. These territories, which are evolving towards being an independent state, after the Israeli withdrawal from Gaza Strip and parts of the northern West Bank in August 2005, are considered to represent an economy in transition. The paper considers a medium-term developmental framework, which covers the various components of the multimodal physical transportation system, as well as the institutional infrastructure. The needs have been identified based on a diagnostic study of the conditions of the transportation system in the West Bank and Gaza Strip. The transportation infrastructure suffered for about 28 years of occupation since 1967, as well as for the past five years during the current crisis. The recent and expected considerable changes on the ground require reformulation of the transportation sector development strategies. The paper presents a suggested outline for a five-year development program for the maintenance, rehabilitation, and development of the road, air, and sea transportation infrastructure. The program also identifies actions to support the development of public and freight transportation systems. It includes as well recommended policy changes to the current institutional, regulatory, and financial frameworks. Finally, the program estimates funding requirements for development of the physical infrastructure and technical assistance. The required capital investment and recurrent expenditure sum to slightly above one billion US dollars. The output can be used to facilitate approaching the international community for anticipated intervention responding to the sectoral needs.