At a court hearing in Manhattan, US District Judge George Daniels in Manhattan said the defendants must also deposit $1 million each month pending the appeal of a February jury verdict worth $655 million in favor of 10 American families.
The order came after the Obama administration took the unusual step of urging Daniels to "carefully consider" the Palestinian Authority's financial condition, saying too high a bond could compromise its ability to function.
A collapse of the Palestinian Authority "would undermine several decades of US foreign policy and add a new destabilizing factor to the region," US Deputy Secretary of State Antony Blinken said in a court filing earlier this month.
Daniels said that in fashioning his order he had given "serious consideration" to the State Department's position, despite objections from the plaintiffs that the amount was far too low.
A federal jury in February found the PLO and the Palestinian Authority liable for six shootings and bombings in Israel between 2002 and 2004, which have been attributed to Hamas and the al-Aqsa Martyrs Brigades.
The attacks killed 33 people, including several Americans, and injured more than 450.
The lawsuit, filed in 2004 by US victims and their family members, was brought under a federal statute that automatically tripled the jury's verdict of $218.5 million to $655.5 million in damages.
One of the families’ lawyers and head of the Shurat HaDin Law Center, Nitsana Darshan-Leitner, said in response to the bond, “This is a very serious blow to the terror victims who spent 11 years litigating, while the court is making light of the juror's decision.”
A lawyer for the defendants, Mitchell Berger, said the Palestinian Authority was willing to make a $10 million upfront cash deposit and subsequent monthly payments of $1 million but warned that even those funds would severely hamper its efforts to rebuild schools and provide for needy families.
Kent Yalowitz, a lawyer for the plaintiffs, said the money was a "token amount" and criticized the Palestinian Authority, saying it made payments to terrorists in jail.
"Instead of focusing on rebuilding schools, maybe it ought to focus on taking terrorists off its payroll," he said.
Berger countered that the prisoners in question are administrative detainees, not convicted terrorists, and the payments constitute "cigarette money."
Daniels said the full judgment would remain on hold while the appeal is ongoing, unless the defendants fail to make the monthly deposits.
He also denied a request from the plaintiffs to add $165 million in pre-judgment interest.