U.N. Warns of Palestinian Financial Crisis 
The Associated Press
February 28, 2006
The New York Times
Original Source: http://www.nytimes.com/aponline/international/AP-Israel-Palestinians.html

JERUSALEM (AP) -- The United Nations warned Tuesday that Israel and the West could unleash a crisis in Palestinian territories by withholding hundreds of millions of dollars in aid and transfers.
The U.N. Office for the Coordination of Humanitarian Affairs cautioned that an Israeli decision to cut off taxes and customs duties collected on behalf of the Palestinians could bring the Palestinian government to the brink of collapse by limiting its ability to provide basic services such as health, education, utilities, sanitation and policing.
The flow of money has been jeopardized by the Islamic militant group Hamas' landslide victory in Jan. 25 Palestinian elections. With the Palestinian Authority already strapped for cash, experts warn a cutoff could trigger a quick collapse.
Israel's Cabinet decided this month to stop sending the Palestinian Authority roughly $55 million in taxes and customs duties it collects on its behalf each month on imports and from Palestinian merchants and laborers working in Israel. The Jewish state considers Hamas, which is committed to Israel's destruction, a terrorist organization.
The United States and European Union, which also consider Hamas a terrorist organization, have threatened to cut off hundreds of millions of dollars in aid once a Hamas-led government is installed next month.
However, Washington has promised to keep humanitarian aid flowing.
Hamas has killed hundreds of Israelis in suicide bombings and has refused since its victory to abandon calls for Israel's destruction.
The transfers collected by Israel cover a large portion of the salaries the Palestinian Authority pays to the 150,000 people on its payroll, the U.N. agency said Tuesday, citing figures that are slightly higher than official numbers.
Failure to pay salaries would strip an estimated 25 percent of the total Palestinian population of their livelihood because the salaries support extended families, the report said.
The agency -- again citing figures higher than the official numbers -- notes that nearly half of the people on the bloated Palestinian payroll are security personnel. If they are not paid, the U.N. report warned, that ''could risk a rise in criminality, kidnapping and protection rackets.''
In a letter to Mideast mediators this week, international envoy James Wolfensohn also sounded the alarm about the precarious state of the Palestinian Authority's finances.
Wolfensohn, the special envoy of the international peacemaking group known as the Quartet, warned that the authority was in danger of imminent financial collapse because of Israel's withholdings. He urged Arab nations and the World Bank to send a quick infusion of aid to the Palestinian government.
While Israel already has taken action, the West has been less forceful, wary of causing an economic collapse and chaos in Palestinian territories.
The European Union agreed Monday to provide $143 million in urgent aid for Palestinians before a Hamas government takes office. It kept silent on what it would do once Hamas assumes control.
Hamas spokesman Sami Abu Zuhri welcomed the EU's decision and said it proved that American and Israeli efforts to stop international aid had failed.