The crunch has been caused largely by the failure of international donors to make good on aid pledges. Nour Odeh, a spokeswoman for the Palestinian Authority government, told The Independent that international donors had provided only 40 per cent of aid pledged for 2012. About half of the Palestinians' $2.54bn (£1.58bn) annual budget comes from donors.

"The President and the Prime Minister have repeatedly urged all donors and friendly countries, including the Arab countries, to expedite their disbursement of assistance to the Palestinian Authority because the situation is serious and intervention is needed," Ms Odeh said.

She said the "structural problem" of Israeli control over customs and other tax revenues had contributed to cash-flow problems, while Israel's hold over large areas of the West Bank and their natural resources were hindering economic planning efforts.

The crisis threatens to derail reforms by Prime Minister Salam Fayyad's government, which has implemented major budget savings and increased tax revenues, heralding a dramatic improvement in the Palestinian economy in recent years.

Palestinian civil servants – including police, doctors and teachers – only received the final portion of their August salaries last week. Violent protests in the West Bank last month led the government to cut VAT and suspend some salary payments to top officials. Palestinian trade unions said they will strike over a new monthly minimum wage of $375 – a third of the rate in neighbouring Israel – approved by the Palestinian cabinet yesterday.

Jihad Al Wazir, head of the Palestinian Monetary Authority, forecast the annual budget deficit at $1.3bn – far higher than the original projection of $950m. Aside from hundreds of millions in promised aid from Arab countries, some $200m pledged by the US has been delayed by Congress to protest against the payment of generous stipends to the families of militants imprisoned by Israel.

"We haven't heard promises to pay the PA money," a Palestinian official told the Maan News Agency. "Even the Europeans said it clearly that they have paid their dues and can't pay more."