Improved wastewater treatment in the Israel and in the West Bank is an important step towards resolving the existing problems of water shortage and pollution in the region. This will enable to increase water availability and quality in the West Bank villages, thereby increasing the social, economic, and environmental sustain ability as well as decreasing the environmental threat of pollution of the groundwater resources. This paper examines different scenarios of water supply, demand, and allocation arrangements in order to reach the optimal decisions on wastewater treatment, based on principles of sustainable development.