The Palestinian Authority said on Monday it had not been able to pay salaries for the first time since 2007 because of Israel's decision to halt the transfer of funds it collects on its behalf.
Prime Minister Salam Fayyad said Israel's decision, a move driven by Israeli concern over a Palestinian unity deal including Hamas, had put the Ramallah-based government in a "very difficult" financial position.
Fayyad said the PA had paid salaries to its 150,000 employees promptly on the fifth day of every month since mid-2007. "We are now on the ninth and we have not been able to meet this obligation," he said.
The Palestinian prime minister said that the salaries would be paid as soon as Israel transferred the tax funds. He added that the PA had turned to donor countries and Arab states for help.
Prime Minister Benjamin Netanyahu's government decided on May 1 to halt the transfers which make up 70% of PA revenues, citing fear that the money would go to Hamas, a militant group hostile to Israel.
Finance Minister Yuval Steinitz addressed the decision again on Sunday. "I decided, immediately after the announcement on the Hamas-PA merger, to temporary halt the transfer of funds until we receive clarifications.
"This is also a warning that if a Hamas state is established, we won't be able to fund it as a government," he added.
Following Israel's decision, France said it would transfer the Palestinian government €10 million ($14 million) in aid funds.
Steinitz cancelled the latest routine handover of some NIS 300 million (approx. $88 million) in customs funds and other levies collected on behalf of the Palestinians, as stipulated in the Oslo Accords.
Fatah Central Committee member Saeb Ereket denounced the Israeli decision last week, calling it "financial piracy."
"This reflects Israel's dangerous intentions," he said, adding that Jerusalem had no right to interfere with internal Palestinian affairs.