Since the signing of the Oslo Peace Accords and the establishment of the Palestinian Authority in 1994, reform activities have targeted various spheres, including the health sector. Several international aid and UN organizations have been involved, as well as local and international non-governmental organizations, with considerable financial and technical investments. Although important achievements have been made, it is not evident that the quality of care has improved or that the most pressing health needs have been addressed, even before the second Palestinian Uprising that began in September 2000. The crisis of the Israeli re-invasion of Palestinian-controlled towns and villages since April 2002 and the attendant collapse of state structures and services have raised the problems to critical levels. This paper attempts to analyze some of the obstacles that have faced reform efforts. In our assessment, those include: ongoing conflict, frail Palestinian quasi-state structures and institutions, multiple and at times inappropriate donor policies and practices in the health sector, and a policy vacuum characterized by the absence of internal Palestinian debate on the type and direction of reform the country needs to take. In the face of all these considerations, it is important that reform efforts be flexible and consider realistically the political and economic contexts of the health system, rather than focus on mere narrow technical, managerial and financial solutions imported from the outside.