JENIN, West Bank (Reuters) - Roads torn up months ago by Israeli army bulldozers in Jenin refugee camp remain unpassable because the Palestinian Authority can't afford to fix them. Government employees are being paid a fraction of their salaries, and health services are collapsing.
These are all signs of a deep financial crisis that has crippled the administration led by President Mahmoud Abbas in the Israeli-occupied West Bank, prompting questions over its future even as the United States and other countries are pressing for a "revitalised" PA to run the Gaza Strip when fighting there ends.
The PA's finances have been in disarray for years as donor states have cut back funding that once covered nearly a third of its $6 billion annual budget, demanding reforms to tackle corruption and waste.
But Palestinian officials say they worsened sharply after the militant group Hamas attacked Israel from Gaza on Oct. 7, leading Israel to withhold a chunk of tax revenues it collects on the PA's behalf that are now its main source of financing.
The strains are particularly evident in Jenin, a volatile city in the northern West Bank where Israel has long targeted Palestinian militants and has stepped up operations since October.
Nidal Obeidi, the city mayor, said Israeli raids since October have inflicted more damage than in the past on essential infrastructure.
"The water and sewage pipes are hit. Power transformers are shot at, and even water storage tanks on roofs," Obeidi told Reuters.
He estimated the repairs would cost $15 million in the refugee camp alone. But with the PA "under siege", he said, resources are scarce.
Palestinian officials say the PA is facing one of its gravest crises since it was created under interim peace deals with Israel 30 years ago.
At the time, Palestinians saw the PA as a stepping stone towards their goal of an independent state in the West Bank and Gaza with East Jerusalem as its capital.
But as that goal has remained elusive, the salaries and services provided by the PA have helped keep Abbas and his Fatah faction politically relevant in the face of expanding Israeli settlements in the West Bank and challenges posed by militant rivals such as Hamas, which seized Gaza in 2007.
Ghassan Khatib, a lecturer at Birzeit University in the West Bank who once served as a Palestinian minister, said Israeli policies risked further marginalising the PA "and at a certain point in time might cause its collapse".
"They have the effect of reducing the political weight of factions that support a peaceful settlement with Israel - namely Fatah - in favour of the opposition groups, mainly Hamas," he said.
The office of Israeli Prime Minister Benjamin Netanyahu and the PA did not comment on Khatib's remarks.
However, Hussein al-Sheikh, a senior Palestinian official, told Al Arabiya TV in June that the shortfall in funding meant the PA could not "do its duties towards the Palestinian people", which could lead to the "collapse of the Palestinian Authority".
WARNING OF ANOTHER INTIFADA
The West Bank and East Jerusalem are home to more than 3 million Palestinians and, according to the U.N., some 700,000 Israeli settlers. The Israeli military controls the West Bank, although the PA exercises limited governance of areas where most of the Palestinian population lives.
Under a longstanding arrangement between the sides, Israel collects taxes on goods that pass through Israel into the West Bank and makes monthly transfers to authorities in Ramallah.
Following the Oct. 7 attack, Israel's far-right finance minister, Bezalel Smotrich, began withholding a portion of those revenues equal to the amount transferred by the PA to Gaza, where the Abbas-led administration has continued financing services, salaries and pensions since Hamas took over. Smotrich argues the funds would end up in Hamas' hands.
The amount withheld - approximately 300 million shekels ($80 million) a month - added to previous deductions imposed by Israel equivalent to amounts paid by the PA to the families of militants and civilians jailed or killed by Israeli authorities.
In May, Smotrich suspended transfers altogether, accusing the PA of working against Israel after the International Criminal Court prosecutor sought arrest warrants against its prime minister and defence minister, and three European countries recognised a Palestinian state.
Smotrich also accused the PA of supporting the Oct. 7 attack, during which Hamas-led gunmen killed 1,200 people in Israel and took more than 250 hostages, according to Israeli tallies. Gaza health authorities say the offensive Israel launched in response has killed more than 38,700 people.
"The Palestinian Authority joined Hamas in trying to harm Israel, in Israel and in the world, and we will fight it," Smotrich said at a June 27 cabinet meeting.
Abbas has condemned violence against civilians and criticised Hamas' raid, saying it gave Israel an excuse to attack Gaza.
Israel transferred 435 million shekels ($116 million) to the PA in early July, but Palestinian officials say Israel is still holding 6 billion shekels of its funds.
"What was transferred was not enough to pay 60% of the salaries, and therefore the financial crisis is ongoing," Mohammad Abu al-Rub, a PA spokesperson, told Reuters. "Israel deducts around two-thirds of the revenue, and this puts all the government plans on hold and increases public debt."
Israel's finance ministry said it is prohibited by law and a cabinet decision from transferring funds that would be sent to Gaza and "flow into terrorism." It said the amount withheld was "not even close" to 6 billion shekels, adding in a statement to Reuters, "If the Palestinian Authority does not transfer funds to finance terrorism, there will be no harm" to the economy.
The U.S. says the funds belong to the PA and has urged Israel to release them, while also pressing the PA to implement reforms to prepare it to administer Gaza after the war - an idea Netanyahu has repeatedly rejected.
"The viability of the Palestinian Authority is essential to stability in the West Bank, which in turn is essential to Israel's own security interests," Vedant Patel, a U.S. State Department spokesperson, said at a July 2 news conference.
The Israeli military has warned its government that cutting off funds to the PA could push the West Bank into another "intifada" - the name used for two Palestinian uprisings between 1987 and 2005 - according to a June report by public broadcaster Kan radio that was confirmed to Reuters by an Israeli official.
The military referred Reuters at the time to the Shin Bet security service, which declined to comment.
Netanyahu's office did not answer questions for this article.
'NOBODY IS HELPING'
The financial pressure on the PA comes as economic and security conditions in the West Bank have deteriorated sharply, further eroding support for Abbas' administration, which last held parliamentary elections 18 years ago and many Palestinians view as corrupt.
More than 60% of Palestinians now support the PA's dissolution, according to an opinion poll published by the Palestinian Center for Policy and Survey Research in June, which also found support for armed struggle had risen.
The PA pays salaries or pensions to 150,000 people in Palestinian territories. The last time it paid them in full was in 2022. In March and April, it says, PA employees received 50% of their salaries. In May, they got 60%.
Adding to the economic hardship in the West Bank, Israel has locked out some 200,000 Palestinians who used to commute daily to work in Israel, citing security concerns.
Kathem Harb, a 53-year-old father of four who works in the PA's national economy ministry, said he could only afford basics like rice, flour and cooking gas.
"We live on the bare minimum," he said, adding there was no money sometimes for water and electricity bills.
Cuts to PA salaries mean staff at government clinics only show up to work a couple of days each week, according to health worker unions. Around 45% of essential medications are out of stock, the World Health Organization said last month.
Hayat Hamdan, a woman in her fifties, had travelled 10 km (six miles) from the town of Arraba to a government clinic in Jenin in hopes of finding subsidised medication for her wheelchair-bound husband.
But inside, many of the pharmacy shelves were empty.
"We have health insurance, but it is of no use," Hamdan said. "Since the start of the Gaza war until today, we are buying most medicines at our own expense."
Meanwhile, violence has surged across the West Bank. Hundreds of Palestinians - including armed fighters, stone-throwing youths and civilian bystanders - have been killed in clashes with Israeli security forces since October.
Raids by groups of Israeli settlers on Palestinian villages have become commonplace, while attacks by Palestinians in the West Bank and East Jerusalem have killed more than a dozen Israelis.
In Jenin refugee camp - where some 14,000 people live packed into an area of less than half a square kilometre - young men carrying assault rifles patrol streets in open defiance of the PA, underlining the sway militant groups such as Hamas and Islamic Jihad still have despite Israeli raids.
Bullet marks on the facade of the nearby PA headquarters offer a reminder of past clashes between PA security forces and militants.
A man in his 20s, who asked to be identified only as Mohammed for safety reasons, said conditions in the camp were bad before Oct. 7 due to the Israeli raids and had gotten a lot worse since.
"There are no roads; the infrastructure is destroyed; homes are destroyed; shops are destroyed," he said, expressing frustration with the PA for cracking down on militants while doing little for Palestinian civilians.
"There is no work; the authority isn't paying salaries; the prices are going up. Nobody is helping the people of the camp."
(Additional reporting by Tom Perry in Beirut, Steven Scheer in Jerusalem and Humeyra Pamuk and Simon Lewis in Washington; Writing by Tom Perry; Editing by Alexandra Zavis)
By Ali Sawafta
