In the Palestinian city of Ramallah, protesters thronged the streets this month shouting “feed my children” after the government once again failed to pay 170,000 civil servants their monthly salaries on time.

In Hebron to the south, hundreds of demonstrators burned tires in September to protest the economic squeeze, while in Bethlehem residents tore down road signs to show their anger.

Palestinian Authority President Mahmoud Abbas is struggling to plug a $1.3 billion budget deficit as foreign aid dries up. That’s forcing government workers to subsist on partial salaries and sidelining the stalled peace negotiations, which are largely being ignored next door in Israel as campaigning gets under way for the Jan. 22 election.

“The PA doesn’t have any magic solutions or even a political vision and all doors seem to be closed,” Naser Abdul Kareem, an economist at Bir Zeit University near Ramallah, said in a telephone interview. “The situation is not just bad and complicated, but it’s leading to an explosion.”

Abbas, 77, returned frustrated from September’s United Nations General Assembly, where he called again for recognition of Palestinian statehood and asked foreign donors to honor outstanding aid pledges. He sent a letter to President Barack Obama today emphasizing his commitment to negotiating a peace agreement with Israel, according to the official Palestinian news agency, Wafa.

UN Moves

Abbas was responding to criticism yesterday from the U.S. ambassador to the UN, Susan Rice, of his latest effort to upgrade Palestinian status at the world body to “non-member state observer” from “entity observer,” a step that wouldn’t require Security Council approval.

Without foreign aid, Abbas’s government would face a budget deficit of more than 7 percent of gross domestic product at a time when government borrowing from local banks is according to the World Bank “at the limit that the banking sector can sustain.” Foreign aid accounts for about 14 percent of GDP, while the share of public sector jobs account for 22 percent of overall employment, according to the World Bank. (BOWEMBA)

Donors, including Gulf Arab states, cut or reduced aid after Abbas last year asked for UN recognition of Palestinian statehood, a step that the U.S. and Israel opposed.

Uprising Risk

Abdul Kareem said public anger in the West Bank may lead to a third “intifada” -- the Arabic name for two previous uprisings against Israel. This time, he said, the violence also may be directed against Abbas and his government.

In the event that does happen, Israel would hardly be left unscathed, said Mkhaimar Abusada, a political scientist at Al- Azhar University in Gaza.

The 4.2 million Palestinians who live in the West Bank and Gaza’s roughly 6,220 square kilometers, which is about the size of Delaware, are constantly reminded of Israeli restrictions on movement and land ownership, while Jewish settlements in the West Bank are allowed to keep expanding, Abusada said.

“At the end of the day, Israel will certainly be the primary target,” Abusada said.

Because Abbas’s administration plays a major role in keeping order and preventing attacks on Israelis, it’s unlikely that Israel, the U.S. and the European Union would let it collapse, said Jonathan Spyer, an Israeli political scientist at the Interdisciplinary Center Herzliya, which is north of Tel Aviv.

Israeli ‘Insurance’

“It may be ironic, but Abbas’s best insurance against meeting the fate of other secular rulers in the Arab Spring is the Israel Defense Forces,” Spyer said.

Israel is taking action to bolster the Palestinian Authority, though Abbas says it’s not enough. Israel offered to distribute 5,000 additional permits for Palestinians to work in the country, the Finance Ministry said in a Sept. 27 statement. It also advanced payment of 380 million shekels ($98 million) from taxes collected on the Authority’s behalf.

Though the Palestinian Monetary Authority has rough plans to issue its own currency, West Bank and Gaza residents use the shekel because of the small size of the economy and its reliance on Israel for trade and collection of shipping tariffs, officials say.

Among the biggest barriers to Palestinian economic growth has been Israeli roadblocks throughout the West Bank, which slow the movement of goods to market, according to the World Bank. Israel says the restrictions prevent militant attacks.

Military Checkpoints

Israel has removed several military checkpoints in the West Bank and has eased limitations on imports into Gaza during the past year.

Israel captured the West Bank, Gaza and east Jerusalem in the 1967 Middle East war from Jordan and Egypt. While ceding much of its power with the 1993 Oslo agreements, Israel maintains authority over major roads, airspace and borders. The Islamic militant Hamas group seized full control of Gaza in 2007.

To help soften Palestinian anger, Prime Minister Salam Fayyad vowed last month to cut the price of fuel and to pay government salaries on time. Other Cabinet members say that pledge isn’t realistic.

“The donors have not paid their share and there is no specific data when the salaries will be delivered,” Finance Minister Nabil Qassis told reporters on Oct. 3 in Ramallah, referring to September salaries. August salaries were partially paid. “This month is worse than last month and if financial aid is not provided the crisis will continue.”

The West Bank and Gaza’s $10 billion gross domestic product expanded about 5 percent in 2011, down from an average of about 9 percent from 2008 to 2010, the International Monetary Fund said. Unemployment rose to 19 percent in the first half of 2012 from 16 percent in the previous year, according to the IMF.

“We’re demanding change,” said Hazem Abu Helal, a 27- year-old lawyer who took part in the Ramallah protests. “You just can’t disconnect politics from the economy.”