In a report issued by the UN's Office for the Coordination of Humanitarian Affairs (OCHA) in Jerusalem, the agency said that the humanitarian situation has already seen a sharp deterioration since last months' legislative elections due to tightened Israeli control, adding that the situation will only get worse if aid is withheld.
"The humanitarian impact of cutting donor funds and VAT payments to the PA will result in a deficit that will immediately reduce the PA's capacity to provide services, pay salaries and ensure security, " said the report, in reference to the Israeli decision to withhold some $50 million in monthly tax revenues following the Hamas election victory.
The 1995 Israel-PA interim agreements obliges Israel to collect VAT and customs revenues on behalf of the PA and transfer between $50 and $55 million once a month to the Palestinian finance ministry.
In addition to these revenues, the PA's other major sources of funding include domestic income and foreign aid from the international community, which is estimated at $34 million a month.
PA employees currently make up some 37% of all employed Palestinians in Gaza, and 14% of those in the West Bank. OCHA's director, David Shearer, said that witholding these salaries could will result in further poverty-which is already at 64%, and an increase in criminality and general lawlessness which could destabilise the situation.
"We were concerned that the PA might not be able to pay salaries and that will have an enormous impact, the fact that approximately 1 million people will not have a breadwinner, and what the implications might be if around 70, 000 security forces are not receiving any money," Shearer told Aljazeera.net in his Jerusalem office.
"EU funding was only meant for the transitional government, and we are uncertain what might be coming in months ahead," he said.
"Approximately 1 million people will not have a breadwinner"
David Shearer, OCHA director
Yesterday, the European Union announced it would release an emergency financial aid package earmarked for the Palestinian Authority, before the official swearing in of the Hamas cabinet.
The EU said most of the $142 million would bypass the Palestinian government. Instead, about one-third of the money would go directly to pay off energy bills, and roughly half is set to be channelled through the UN agency for Palestinian refugees. The remaining $21 million would help pay government wages, but represents only a fraction of the $70 million needed.
The UN report says that international aid organisations do not have the capacity to run government services, adding that Israel remains responsible, as an occupying power for ensuring public order and the health and welfare of the Palestinian population.
"International humanitarian agencies do not have the capacity to take over the running of PA services , even if the security situation allowed. Humanitarian assistance from the international community does not relieve Israel of this responsibility," said the report.
In Gaza, the ongoing closure of the al-Mintar, or Karni, crossing, the main route for both commercial and humanitarian supplies, has resulted in an estimated loss of some $10.5 million, according to the report.
The crossing, considered to be Gaza's commercial lifeline, was shut down unilaterally by Israel for 21 days in January, before Hamas came to power, and again on 21 February, despite promises in a border and access agreement, that was brokered by US Secretary of State Condoleezza Rice, not do so.
Wheat grain stocks have been depleted as a result, and flour mills in Gaza have shut down.
Wolfensohn (L) has said the PA
could collapse in two weeks
In addition, the UN warned that sugar, which has increased in price at least 25% since the closure, would run out in four days.
The Israeli army initially said the Gaza closure was due to "security threats" to the border, citing concerns that tunnels were being dug under the crossing and of the transfer of avian flu.
No such tunnels were ever found, according to Palestinian security sources.
Since Hamas swept to power last month, international pressure has been mounting with the Israeli government imposing a closure on Gaza and the United States demanding the return of some $50 million in aid from Palestinian Authority.
International Envoy James Wolfensohn warned that as a result of the sanctions, the Palestinian Authority could collapse in as little as two weeks, leading to more violence and chaos unless a long-term funding plan was developed by the Middle East quartet of international mediators.