In a striking intervention in an affair that Israel says is aimed at disrupting funding for Fayyad's Islamist opponents in Hamas, the Western-backed premier visited the modern complex which rises above the center of the West Bank city and urged businesses to reopen there despite an Israeli raid on Tuesday.
"Shopkeepers are invited to open their stores and ignore the Israeli decision," Fayyad said, after soldiers who searched the building ordered it closed on the grounds its owners had passed funds to Hamas. "The Israeli army orders and decisions are not valid ... We will deal with them as if they don't exist."
Fayyad, a former World Bank economist, was appointed by President Mahmoud Abbas a year ago after Hamas, which ran the previous, elected government seized control of the Gaza Strip in fighting with forces from Abbas's secular Fatah movement.
The United States and its allies see Fayyad's efforts to improve Palestinian forces' ability to curb anti-Israel militants and his declared focus on promoting economic growth as key contributions to a peace process relaunched in November.
Since his appointment, Fayyad has been increasingly critical of Israel's failure to ease restrictions on movement in the West Bank or to remove Jewish settlements scattered across the territory, both factors he says hobble its economy.
Nablus has been a focus of complaints that Israeli forces are undermining Palestinian security efforts by raiding into a major city that is, in principle, under Palestinian control and are stifling commerce by ringing the city with roadblocks.
Earlier, Fayyad visited the town of Naalin, which Israeli troops sealed off and placed under curfew for several days this week after protests, occasionally violent, against continuing work on walls and fences in the West Bank that Israel says are intended to prevent Palestinian attackers reaching its cities.
Israel has rejected a World Court ruling four years ago this week which found the barrier to be illegal.
Fayyad praised local people's protests: "Peaceful, popular action in defense of our land is a legitimate right to thwart plans to confiscate land for building walls and settlements."
Palestinians accuse Israel of failing to meet commitments to halt settlement in the West Bank. Washington has also criticized recent Israeli decisions to expand settlements near Jerusalem.
Israel says it does not regard settlements on West Bank land that it annexed and placed within expanded Jerusalem city limits as being part of the West Bank. It says, therefore, building in such settlements does not breach its commitments.
Abbas is so irritated by the settlement building that an aide said he is considering suspending the peace talks: "The Palestinian leadership views gravely the continuing settlement expansion ... and is considering suspending peace talks with Israel," Yasser Abed Rabbo told Reuters.
Abbas will visit Paris on Sunday, as will Israeli Prime Minister Ehud Olmert, for a meeting of European and Mediterranean leaders: "The president will inform the international community and Olmert in Paris of his decision," Abed Rabbo said.
US President George W. Bush hopes to broker a deal before he leaves office in January on establishing a Palestinian state. However, prospects for a major breakthrough seem slight.