By Ali Sawafta
RAMALLAH (Reuters) - The Palestinian Authority said on Tuesday it will pay public sector workers 60% of their December salaries this week as it grapples with the longrunning fallout of Israel's refusal to transfer tax funds earmarked for Gaza.
Funding to the Palestinian Authority, the body which exercises limited governance in the occupied West Bank, has been severely restricted by the months-long dispute over transferring tax revenues Israel collects on behalf of the Palestinians.
Funding from international donors has also been squeezed, falling from 30% of the $6 billion annual budget to around 1%, Palestinian Prime Minister Mohammad Shtayyeh said.
"The funding situation of the Authority is very difficult," he said, following a meeting of the cabinet.
The funding dispute has been a source of friction between Israel and the Palestinians since the start of the war in Gaza in October, when Israeli Finance Minister Bezalel Smotrich refused to release all the funds, accusing the PA of supporting the Oct. 7 attack in Israel led by the Islamist movement Hamas.
Under interim peace accords signed in the early 1990s, Israel collects taxes on the Palestinians' behalf and typically transfers them to the PA monthly on the approval of the finance minister.
However transfers have been stalled since October, when Smotrich withheld around 600 million shekels ($164.51 million) of the total 1 billion shekels due for transfer, prompting the Palestinian Authority, which says Gaza is an integral part of Palestinian territory, to refuse to accept any funds.
"We cannot accept conditions on our money. We will remain committed to the prisoners and martyrs and to our people in the Gaza Strip, not out of favor, but by virtue of our national, religious and moral responsibility," Shtayyeh said.
Although Gaza is controlled by Hamas, the Palestinian Authority continues to fund essential areas of the blockaded enclave's budget including paying the salaries of health workers.
The dispute comes ahead of a visit by U.S. Secretary of State Antony Blinken, who has pressed Israel to resolve the budget dispute, which has left thousands of Palestinian public sector workers without pay for months.
The dispute over the Palestinian Authority budget coincides with a separate dispute over funding to UNWRA, the United Nations agency which pays for emergency relief for Palestinians.
Much of the UNWRA budget has been cut off since Israel accused 12 of the agency's 13,000 Gaza workers of involvement in the Oct. 7 attack. The claims came as Israel faced a genocide case at the International Court of Justice over its war on Gaza, and after years of it calling for the agency to be disbanded.
($1 = 3.6473 shekels)
(Writing by James Mackenzie; editing by Christina Fincher)