Every month, Fatma Nofal cashed a $500 check from a brother who works abroad to support their family here. But on Monday the debit note from the US's Chevy Chase Bank was rejected.

"This is the first time that I've gotten that answer," says Ms. Nofal, as she walked out of a central Ramallah money changer with no place to redeem the check. "I don't know what to do."

Nofal is one of many Palestinians feeling the pinch of an economic boycott of the Hamas-run Palestinian Authority (PA), as a cutoff in ties by the US, Europe, and Israel touches off a financial crisis that could snowball. Already retailers won't accept credit from public servants out of concern they will never be repaid, lines are growing at some gas pumps amid a shortage of fuel, and a top Israeli bank said it will no longer work with Palestinian counterparts.

"The situation is deteriorating in a dramatic and tragic way," Palestinian President Mahmoud Abbas told reporters Tuesday.

The growing hardship comes amid an unprecedented Israeli shelling of Gaza that has killed 13 militants and four civilians - including a 7-year old girl - in retaliation for cross-border salvos of primitive rockets by Palestinian militants.

The economic pressure is aimed at forcing Hamas's fledgling government to relent on its refusal to meet international demands to recognize Israel, give up its weapons, and honor previously signed peace agreements. But it is still unclear whether the economic sanctions will prompt a Palestinian about-face or backfire by rallying sympathy for the embattled Islamic cabinet and undermine a year-old calm in violence.

"I don't think that Hamas is for sale. If they gave in to the international demands, they wouldn't be Hamas anymore," says Gershon Baskin, the cochairman of the Israel-Palestine Center for Research and Information in Jerusalem. "They'll be viewed by the public as being victimized, and in the short run, they'll be able to pull through."

Last weekend, both the US and the European Union made long-awaited announcements that they would sever tens of millions of dollars in budgetary aid to the PA. Also, Israel has frozen transfer of customs taxes collected for the PA. Newly appointed Palestinian Finance Minister Omar Abdel Rzeq said he is awaiting some $50 million in financial aid from Arab countries.

The international aid is potent leverage because PA spending accounts for half of gross domestic product in an economy beleaguered by more than five years of violence with Israel, economists say. The government has already failed to pay March salaries. Meanwhile, the anticipation of a cash crunch is trickling down to consumers and businesses alike.

"If the PA acts like a pariah, then they can't be surprised if they're being treated like a pariah," said Israeli Foreign Ministry spokesman Mark Regev, who argued that the policy to isolate Hamas is working.

While Hamas is likely to remain popular, the crisis could undermine public confidence in its ability to govern, analysts say. That would give Mr. Abbas political capital to dissolve the recently elected parliament.

"[Palestinians] may say, 'We like you in our heart, but it seems to us that it is not the best time for you to be in power,' " says Samir Barghouti, a Ramallah economic consultant to the EU. "Nobody can predict the scenario, but there will be instability, and the president will be involved. It could be a reason to organize a new election."

Page: 1 | 2