The government is reeling from a financial embargo imposed by the US, Canada, Israel and the EU, rendering it unable to pay the salaries of 165,000 civil servants and public employees, although the government says it will soon pay those wages.
Internally, it has faced security challenges from the Fatah-dominated Palestinian Authority, led by Mahmoud Abbas, the president.
Despite mediation, clashes between the two factions, which have killed 10 Palestinians and left many more wounded, have continued.
The following are excerpts of an interview Aljazeera.net had with the Palestinian prime minister recently.
Aljazeera.net: Is a Palestinian civil war inevitable?
Ismail Haniya: Inter-Palestinian fighting is a red line we must not breach, and civil war among the brothers has no place in our dictionary. We are not experts in civil war and are unlikely to allow ourselves to be dragged into such an ugly prospect. Besides, for a civil war to take place, there have to be two competing camps with fundamentally different interests. And we don't have this in our society.
Yes, but Palestinian blood has been shed by Palestinian hands here in Gaza. Doesn't this alarm you and your government?
Indeed, it does and we are pained by every drop of Palestinian blood shed in these regrettable clashes, and I assure you that we are taking extraordinary efforts to see that things like this don't happen again.
But Fatah's and Hamas's armed men are in the streets and any misunderstanding here or there could trigger an open confrontation.
There are certain differences and factional competition between Fatah and Hamas. However, these differences don't warrant shedding our blood by our hands. We will see to it that the voice of reason prevails. And I assure you that those who are betting on civil war among our people will be disappointed.
Do you think the latest acts of killing and lawlessness in Gaza were spontaneous or organised?
There are indications that certain organised entities are behind recent efforts to destabilise the security situation in Gaza, apparently in order to portray the government as powerless and unable to establish the rule of law.
Some of these people are symbols of the erstwhile reign of corruption who are worried that stability will be detrimental to their interests. These elements exist in various government departments and are constantly trying to create confusion and conflict. But we will get them sooner or later.
Who are those people?
They are America's agents, since they are carrying out the American-Israeli plan of corroding and weakening the government until it collapses. However, the vigilance of our people has repulsed these elements.
What is your government's position regarding the public referendum President Abbas said he would hold if the factions failed to reach a common strategy with regard to Israel?
Well, first of all, we must give priority to the national dialogue in order to ensure its success. However, if we find ourselves facing a dead-end, we can then examine other possible alternatives.
Having said that, we are disquieted by the timing of the referendum proposal which we feel is used as a pressure card that could eviscerate the national dialogue of substance.
There is a widespread feeling that the PA has two heads, you and Abbas?
Yes, there are manifestations that would give such an impression. However, it is also true that the powers of both the president and the prime minister are governed by the Basic Law.
The problem we face is that we inherited a polity in which Fatah held all the reins, causing a lot of overlap. Today, there are two forces navigating the Palestinian boat, each relying on its democratic and patriotic legitimacy.
I know for sure that there are those who are trying to portray the PA with two heads. But I am convinced that this issue will disappear gradually as we achieve more understanding and harmony between the PA leadership and the government.
The US administration estimated that your government would collapse in three months.
The Americans are saying a lot of things. Just look how they are behaving in Iraq. I want to remind the Americans that my government came through the ballot boxes and enjoys overwhelming public backing, irrespective of the morbid whims we keep hearing from this or that capital.
They are punishing our people for exercising their democratic rights. By behaving with such vindictiveness against helpless people languishing under foreign military occupation, the US is creating more and more enemies in this part of the world.
Muslims and non-Muslims alike no longer believe that the US is serious about democracy.
Is Hamas losing public support?
Go to the streets and ask the people yourself. Haven't you seen the huge rallies throughout the Gaza Strip?
Yes, but people are starving and they want to feed their children, and they can't feed them with slogans and rhetoric.
We are not selling people words and empty rhetoric. However, we just can't allow ourselves to give up our legitimate and inalienable rights for the sake of American money. Will you give up the al-Aqsa mosque for foreign aid?
What will you say to those Palestinians who say that Hamas spells poverty?
Poverty and unemployment were rampant long before Hamas's election victory. Besides, if Hamas spells poverty as you say, then why did a majority of the people elect Hamas and why are most Palestinians backing Hamas?
How much aid have you succeeded in procuring from Arab, Islamic and friendly countries?
Despite the severity of the American blockade, we have succeeded in raising more than $400 million which would have solved the bulk of our problems had it not been for US bullying of local and regional banks to refrain from transferring the money to the occupied territories.
We realise that there is a huge conspiracy to besiege the elected Palestinian government and push it to the brink of collapse. But our people's steadfastness and vigilance will not allow this to happen.
What is the US policy regarding Hamas?
Well, the Bush administration is under strong influence of three main camps that are inherently hostile to everything Islamic: The American right, Christian Zionism and the so-called neocons.
These forces combined are more or less controlled or highly influenced by Israel. In fact, everybody knows that the Jewish lobby has effectively come to control America's foreign policy.
This explains the fact that the Bush administration is more hostile to us than even some Israeli leaders. Isn't this strange?
As to the American people, we are convinced that ordinary Americans don't hate us. And we don't hate them. But they are not getting the truth about what is going here.
Would there be peace between Israel and a prospective Palestinian state on the entirety of the West Bank, Gaza Strip and East Jerusalem?
Yes, there can be peace, but let me ask you a question: Is Israel ready to give up all the territories occupied in 1967 even in return for full peace with the Palestinians?