The Palestinians' drive to forge a new Middle East strategy, opposed by Israel and the United States, is starting to exact a financial price that will test their resolve.
Palestinian Authority employees, who received only half wages in July, are getting a taste of what could be in store if their leaders defy Washington and follow through on plans to take their statehood quest to the United Nations in September.
Dependent on aid from Europe, the United States and its Arab allies, some of which has not been forthcoming this year, the Palestinians are facing a financial crisis which a senior official linked directly to their decision to go on the diplomatic offensive at the United Nations General Assembly.
"It's part of the pressure on us to take the wrong decisions," Nabil Abu Rdainah, a senior aide to President Mahmoud Abbas, told Reuters.
"We saw this film with Yasser Arafat several times. You either say 'yes' or you face hunger," he said, referring to the late Palestinian leader. "They will not pay you and will not let the others pay you."
The impact of the wage cuts affecting the Palestinian Authority's 150,000 employees is already being felt on the Palestinian economy.
"Cutting the aid is a dangerous game," said George Giacaman, a political scientist at Birzeit University near the West Bank city of Ramallah.
"I think the idea is not to close the tap completely, because this might be counterproductive: it could lead to widespread discontent and agitation. The idea is to keep it trickling," he said.
PALESTINIANS' DIPLOMATIC OFFENSIVE
The Palestinians have yet to decide exactly which diplomatic course they will chart at the U.N. meeting if, as expected, there is no resumption of the moribund peace process which has been overseen by the United States for the past two decades.
In general terms, they want to build as much international support as they can at the U.N. for a state of Palestine on land occupied by Israel in the 1967 Middle East war.
The Security Council has scheduled a July 26 open debate on the possibility of Palestine becoming a U.N. member state.
The United States opposes the idea, describing it as a unilateral step contrary to its approach of seeking a deal through bilateral agreement between Israel and the Palestinians.
Israeli officials worry it is part of a new Palestinian strategy aimed at isolating and "delegitimising" Israel.
Palestinian officials acknowledge the diplomatic manoeuvre would have little or no immediate impact on the ground, but portray it as part of an inevitable departure from a failed strategy.
They hope it will mark a shift away from a dependence on U.S. mediation to a more international approach that could level the playing field in future negotiations with their much stronger adversary.
"We are left with no option," said Mohammad Shtayyeh, a leading figure in the Fatah movement headed by Abbas.
The Palestinians' boldest U.N. option would be to ask the Security Council to admit Palestine as a full member state -- a move which the United States has already said it would oppose.
In Ramallah, officials are studying alternatives that would not depend on Security Council approval, including the idea of seeking an upgrade of the Palestinians' U.N. status to a level below that of full member state.
It would be the second time in a few months that Abbas has taken steps at odds with U.S. wishes, challenging the view of domestic critics who have long dismissed him as an instrument of Washington's policy.
ABBAS SAYS "LOSING SLEEP" ON SALARIES
Abbas signed an agreement with Hamas in May aimed at reuniting the Palestinian Authority in the West Bank and the Gaza Strip, controlled for four years by his rivals in the Islamist movement listed as a terrorist group by the United States.
That too carried a financial cost that underlined the fragility of the Palestinian Authority, which exercises limited self-rule over areas of the Israeli-occupied West Bank.
Citing concerns the funds would reach Hamas, Israel temporarily withheld tax revenues it collects on behalf of the Palestinian Authority, whose employees did not have their salaries paid on time for the first time since 2007.
The reconciliation agreement, brokered by Egypt, has since stumbled. But it is still very much on the minds of policymakers in Washington, where an overwhelming majority of the U.S. Congress last week passed a resolution urging a suspension of aid to the Palestinians if they seek U.N. recognition.
"We will be steadfast to confront these pressures," Abbas said in remarks reported by Palestinian media.
Palestinian officials have said Arab governments are to blame for the shortfall in the funding they need to fill a $970 million hole in their 2011 budget.
They are reluctant to name states but a review of sums paid by donors this year shows Saudi Arabia, a big contributor in recent years, has yet to offer any budgetary support.
Riyadh, a close U.S. ally, has donated some $620 million in budget support to the Palestinian Authority since 2008.
"We may not be able to pay salaries next month, or perhaps we will pay half salaries ... we are working day and night to secure salaries," Abbas said.
"This is something I am losing sleep over."
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