The British Mandate years were a time of major economic transformation in Palestine. Small subsistence farmers could no longer compete in an economy of cash crops. The population boom 1925-1935 increased pressures on the land. Much of the population eventually moved into urban centers. The 1930s, a time of world depression, saw the growth of a poor and landless class in Palestine. By 1940, subsistence farming was largely a thing of the past. The economy in Palestine was now dominated by cash crops and non-agricultural society. The depression of the 1930s also saw the increase of tariffs as countries tried to protect their domestic economies. The British prevented Palestine from initiating tariffs, further impairing the economy.

The 1930s also saw the rise of Nazism, increasing persecution against Jews in Europe and causing a huge influx of European Jewish settlement in Palestine. This created even more land pressure during a time of economic hardship. Some fellahin who held land titles sold their land to Zionists to pay off their debts. By 1940, Zionists owned about 10% of the cultivatable land.

During this period, a generation of younger, more militant leaders emerged within the Palestinian movement, undermining the existent leadership. These new leaders generated momentum for the independence movement, but made it more and more difficult to speak with one Palestinian voice. The new activists were militant and anti-imperialist, and directed their protest at the British government and the Zionist movement as one imperialist force. (The previous generation of leaders had been decidedly pro-British as they sought Arab autonomous rule). Though the leadership conflicted in their means and their goals (some were for Palestinian nationalism, others for Arab nationalism, others for Muslim solidarity), they were able to mobilize a widespread popular movement. The increase in education and literacy during this time also helped spread the nationalist message wider.

In 1936, Palestinians called a general strike against the British Mandate government, which was followed by 3 years of armed resistance. They demanded Palestinian national independence and an end to Jewish immigration and land sales to Jews. Thousands of Palestinians from all parts of society were mobilized, heralding the emergence of a nationalist movement.

By 1939 however, the revolt had deteriorated into internal violence along lines of clan, family, religion, and location. Nearly all systems of authority were broken down. The Arab economy was devastated by the violence, and the ensuing military repression by the British forces. The leadership was left shattered. "The Palestinians were exhausted and fractured, shorn of basic trust between leaders and followers. Paradoxically, the revolt was a distinct watershed, crystallizing the Palestinian national identity as nothing before it had . . . [I]t constituted an unequivocal declaration that, whatever their social status, Palestinians unalterably opposed the Zionist program . . . [T]he revolt helped to create a nation – even while crippling its social and political basis" (Khalidi, Rashid. Palestinian Identity: The Construction of Modern National Consciousness).

The general strike and revolt did lead to some political gain for Palestinians. The British became more responsive to the Palestinian demands – and effectively reversed the Balfour Declaration through the White Paper of 1939. After WWII, however, these diplomatic gains were lost.