On Thursday the Palestinian Authority (PA) announced it was delaying payment of January salaries to 137,000 government staff by at least two weeks because of post-election budget problems.

 

The PA needs $116 million to cover the monthly payroll.

 

But after Hamas' election victory last week, Israel said it was suspending its monthly tax transfers to the PA, worth about $45 million, pending further review.

 

The cash-strapped authority accused Israel of practising collective punishment after it snubbed US calls to unblock funds owed to the Palestinians.

 

Ahmad Qureia, the Palestinian caretaker prime minister, said on Thursday: "For Israel to freeze this money is a form of collective punishment. We hope that Israel will release this money because it's our right.

 

Qureia says Palestine is seeking
financial aid from other sources

"We are now trying to get money from other sources - we are in contact with Saudi Arabia, Qatar and the Gulf states. We hope we will soon get the necessary funds to pay the public workers as this money is not for factions but for the Palestinian Authority."

 

The Israeli government has insisted it will take its time to screen the customs duties in order that the cash does not end up in the hands of "terrorists", a reference to Hamas.

 

An official in the prime minister's office, told AFP: "We will not unblock these funds until we can be sure that they will not be used to finance a government made up of terrorist elements."

 

Untenable

 

The need to ensure continued cash flow was highlighted in a World Bank report on Wedneday which said the PA's financial situation was becoming increasingly untenable as a result of ballooning public spending.

 

The Washington-based institution said the budget deficit reached $800 million in 2005, threatening to destabilise government operations. Nearly half the deficit was financed by donors, according to the report.

 

"The issue here is: How do you support President Abbas in his efforts in this interim period?"

Sean McCormack,
US State Department spokesman

A US State Department spokesman made clear that Washington wants Israel to unblock the funds owed to the Palestinian Authority.

 

"The issue here is: How do you support President Abbas in his efforts in this interim period, which ... could last anywhere from two to three months?," said spokesman Sean McCormack.

 

The United States and the European Union earlier warned they would curtail funding unless Hamas renounces violence and recognises Israel's right to exist.