This paper studies the impact of Palestine-Israel conflict on child labour in Palestine. The conflict has resulted in massive job loss of Palestinian workers in Israel. We estimate the probability that a Palestinian child starts working when the household suffer economic shock due to the intensity of conflict. The paper uses longitudinal employment survey from the Palestinian Labour Force Survey (LFS) for the period 1999 to 2006 to analyse the impact of household economic shocks on the employment transition of children (10-16 years) in Palestine. The particular economic shock we consider in this paper is the job loss of Palestinian workers in Israel. Taking advantage of the rotating panel structure of the LFS, we compare households in which the head looses his job in Israel during 2 consecutive quarters with households in which the head is continuously employed in Israel. Probit regressions indicate that household head’s job loss in Israel significantly increases the probability of child labour. The effect can be as large as 64% on the probability of working for 16 years old boys. In contrast, household head’s job loss after a year does not have a significant effect, suggesting that the result is not due to unobservable characteristics of households that suffer the economic shock. The results suggest that economic shock for even relatively well-off households can have adverse consequence for children and highlight the importance of the Palestine-Israel conflict as an explanation of child labour dynamics in Palestine.