This is a big topic, but here's a first sketch.
Israel controls much of the good land on the West Bank. Not all, but much of it. Very broadly speaking, if you see a piece of the West Bank that's particularly fertile soil, with good access to water, there's a pretty good chance that an Israeli farm is sitting on it. (And if you see a piece of the West Bank that has spectacular views, good chance there's an Israeli settlement sitting on it. But that's a topic for another post.)
That said, there's still plenty of good land left for farming by the Palestinians. For such a tiny area -- it's just about the size of Delaware -- the West Bank is astonishingly diverse. It's all pretty dry but "dry" covers a wide range from true desert (down south towards the Negev) to half a dozen different Mediterranean microclimates. You can grow a lot of different stuff here, from "desert" crops like dates and olives to "Mediterranean" herbs and vegetables like tomatoes, peppers and basil.
But if you're talking about commercial agriculture, as opposed to subsistence farming? Well, that gets complicated. Commercial agriculture, growing large amounts of crops for processing and/or export, requires a lot of stuff that's hard to get in Palestine. For instance, commercial farms want fertilizer. But Israel won't allow the importation of nitrate- or ammonium-based fertilizers into the West Bank, because those could be used to make explosives. (Timothy McVeigh blew up a chunk of Oklahoma City using a truckload of fertilizer.) There are substitutes -- stuff like potassium chloride -- but they're generally either more expensive or not as good.
Then there's water. Oh my, water. This is a huge and complicated topic, but here's the short version: the Israelis have taken a very disproportionate share of the available water in the West Bank. For instance, in Area C, the large region under direct Israeli control? There hasn't been a single permit issued for a new Palestinian well to be drilled. Like, ever. Every Palestinian well in Area C predates 1967.
Now, commercial farmers need irrigation. A little subsistence farm may be able to survive on rainfall plus a catchment system, but that's just not going to cut it for a serious commercial farm -- you need high productivity, and you need to be able to deliver a crop at a fairly fixed time with a fairly predictable quality. Otherwise, nobody's going to want to buy your stuff, and you go out of business. So, you absolutely must have water. But because Palestinians have a lot less water per capita than Israelis, water is more expensive.
Palestinian water also tends to be worse in quality than Israeli water. Because you have a lot of people drinking from a tiny water table, there's more mineralization and higher salinity. More saline water causes dramatic drops in agricultural productivity, to the point where you might as well not bother trying to grow stuff. You can treat the water to improve its quality, but this is a significant capital expense, and there are environmental issues too. Short version: if you treat 100 cubic meters of saline water, you end up with 80 cubic meters of sweet water -- and 20 cubic meters of really salty water. Which you can't just dump somewhere, because it's going to poison the soil, and you can't just pump back into the water table, because then you're salting everyone else's drinking water. Anyway, it's probably moot, because you need money for water treatment, and you don't have a lot of money. And even if you do find it somehow, it's just bringing you up to the point that your Israeli counterparts are starting from.
You can also try dealing with it by grafting, which is what a lot of Palestinian farmers do: you plant seedlings that are grafted onto salt-tolerant roots. This is a workaround that can be fairly effective, as long as the water is not too terribly salty. But, again, added expense.
Oh, and if you farm with salty water for too long? Over a period of years, the salt is going to build up in your soil, and kill it. If you're doing open-field agriculture, then you can alleviate this problem with crop rotation to non-irrigated plants; over time, natural rainfall will wash the salt out, allowing you to start over. But if you're doing greenhouse agriculture -- which is where the money is -- then saline water means that every few years, you have to throw away your ruined soil and start over from scratch. In addition to being a rather dubious practice environmentally speaking, this is yet another added expense.
Here's an additional fact in the mix: Palestine and Israel are in a customs union. Israel can control the flow of goods across the border, and prohibit certain things from crossing, but there are no actual tariffs. Palestinian goods can flow into Israel (subject to health and security checks), and vice versa, without paying anything at the border. So if you're a Palestinian commercial grower, you're competing directly with Israeli commercial growers. And the Israelis are sitting on the best land, have better fertilizer, and much cheaper and more reliable access to better quality water. That's before we start getting into other Israeli advantages like better technology, much more access to credit, much better developed market linkages, government assistance and subsidies, etc. etc. Just right off the bat, with those three basic things -- land,fertilizer, water -- the Israelis are already well ahead of the game. You could set everything else equal and Israeli agricultural products would still be noticeably cheaper.
So, consequences. One is that every grocery store in Palestine is full of Israeli agricultural products. Oh, there are some Palestinian crops -- watermelons, apricots, cherries, all sorts of stuff -- but it's mostly small scale and local, and it's mostly fresh fruit and produce. If you're talking stuff that's processed and/or mass produced -- fruit juice, tomato sauce, canned beans, frozen peas, corn oil, marmalade -- it's mostly Israeli, with hardly a Palestinian product to be seen. (The Israeli advantages mentioned above are amplified by the fact that it's a lot easier to move an Israeli product into Palestine than vice versa. Israel subjects Palestinian imports to fairly rigorous health and security checks -- every container gets examined, every pallet gets scanned -- while Israeli imports to the West Bank go through with relative ease.)
Second consequence: it's really hard for Palestinian commercial farmers to compete in international markets. Not impossible, but hard. Which is why commercial farming in Palestine is still pretty dinky.
That said, there are some interesting wrinkles to this story. More in a bit.