US Secretary of State John Kerry on Saturday expressed concern about the viability of the Palestinian Authority if it does not soon receive tax revenue which has been withheld by Israel.
Kerry discussed the issue Saturday with British Foreign Secretary Philip Hammond in London. Kerry said the possibility of the Palestinian government halting security cooperation with Israel or disbanding because of its economic predicament was real.
"If the Palestinian Authority ceases, or were to cease security cooperation, or even decide to disband as a result of their economic predicament, and that could happen in the future if they don't receive additional revenues, then we would be faced by yet another crisis," Kerry told a news conference.
"We are working hard to prevent that from happening and that is why we have been reaching out to key stakeholders to express these concerns and also to try to work together to find a solution to this challenge," he said, without elaborating.
The funds have been held back from the Authority since last month in retaliation for Palestinian moves to join the International Criminal Court (ICC).
The move would pave the way for the ICC to take jurisdiction over alleged crimes committed in Palestinian lands and to investigate the conduct of Israeli and Palestinian leaders.
While the United States opposed steps by the Palestinians to join the ICC, it has raised concerns with the Israelis about its decision to freeze the transfer of more than $100 million in tax revenue, warning it could further raise tensions.
The tax revenue is critical to running the Authority, which exercises limited self-rule, and for paying public sector salaries. Israel took a similar step in December 2012, freezing revenue transfers for three months in response to the Palestinians' launch of a campaign for recognition of statehood at the United Nations.
The World Bank warned last year that war in Gaza would contribute to a reversal of seven years of growth in the Palestinian economy.
US options are limited. Its relationship with Israel is strained amid their leaders' dispute over Iran. And it has little leverage with Arab and European governments at a time it can offer little additional financial support itself because of opposition in Congress.
Palestinian President Mahmoud Abbas has been threatening to dismantle the Palestinian Authority, or to stop security cooperation with Israel, for years.
Senior sources in the IDF's Central Command, who recently met with the heads of the Palestinian security services confirmed in April that their West Bank counterparts were sincerely debating dismantling and disarming the PA's forces.
"A new generation arrives and asks us: 'What have you done?' I am now 79 years old, I cannot escape from passing off the flag," Abbas told Egyptian newspaper Al-Masry Al-Youm in April.
"The settlements endanger the peace process, and the new generation sees the two-state solution is becoming less and less likely, and that there is no escape from the one-state solution."
Behind the scenes, the PA has concocted a plan to gravely complicate matters for Israel – a declaration that the Palestinians are an "occupied government."
Such a move would annul the Oslo Accords and revoke the status of the PA as a sovereign authority, leaving Israel with full responsibility of the Palestinian population in the West Bank.
If the plan proceeds, the Palestinian leaders will lose their official authority, but settlements will be significantly more vulnerable to litigation in international courts.
Elior Levy contributed to this report.