The Economist has suggested that one way to rehabilitate the tsunami hit region would be to turn the area into a special economic zone. Could this approach be used in the war zone? I think so.
The Government can declare several special investment zones in the North and the East. Private infrastructure developers can be invited to set up the basic infrastructure (power, water, roads drainage etc) in the zone in return for the right to lease out blocks of land to other investors (who build the factories or offices).
The market that should be targeted is South India, Indian bureaucracy is notorious and Indian investors would be quite happy to set up shop, provided duty free access were available to the Indian market. This is something the Government would need to negotiate with India but given that that India is keen to see progress on rehabilitation this should not be too difficult.
The harbour and airport would need to be brought up to standard to enable the goods to flow out and raw materials to flow in, this alone will create some jobs. This will also open up the possibility of catering to tourists, particularly pilgrims from India. It is only by catering to the Indian market, particularly pilgrims, can a reasonable tourist industry be built up in the North.
The North is too far from Colombo, the climate to dusty, hot and dry to attract anything other than intrepid backpackers and even for them the principal attraction - the Fort, is now partly destroyed. Even in the 1970's and 1980's the North was not on the package tourism trail and I don't think it will ever get on to that, even with the benefit of better roads and air-conditioned cars.
There would need to be other support infrastructure; particularly education and training institutes to ensure that people have the necessary skills in addition to things like transport, telecommunications and power.
All this must go in parallel with meeting the basic needs of the people especially housing. The Government lacks the funds but if properly managed the private sector can handle much of the investment and donors should be quite willing to pay for much of the social infrastructure.