Palestinians feel pinch

At Rainbow 86 dry cleaners in central Ramallah, manager Khaled Kuran held a fist full of unpaid bills from officers in the Palestinian security services, and vowed not to fill new orders for government employees.

"The people's salary is mortgaged to the bank," says Mr. Kuran, a supporter of the deposed Fatah party. "The government needs a political program. They need to think for themselves. Go to Hizbullah, go to Iran [for help], but don't sit there weak."

That difficulty has become clearer after Israeli gas company Dor Alon drastically reduced supply to the West Bank and Gaza because of the PA's unpaid debt, threatening a halt in vehicle traffic and factory activity.

And Israel's largest bank, Bank Hapoalim Ltd., is severing ties with Palestinian counterparts, removing a key monetary link with the outside world.

A Bank Hapoalim spokesperson says that the bank worries a relationship with Palestinian financial institutions that bankroll the new government could expose it to Israeli and US legal sanctions on doing business with Hamas.

But Palestinian businessmen describe the move as a politically motivated "financial disengagement" from the Palestinians, cutting an economic umbilical cord that has developed over nearly 40 years of Israeli military occupation of the West Bank and Gaza.

"Going cash-only is going to create an environment where less transactions can be done, and lower volumes of goods can be moved," says Sam Bahour, a technology consultant based in Ramallah. "It's one more notch in the collapsing of the economy."

Because Bank Hapoalim served as an intermediary to clear US checks for Palestinian financial institutions, Nofal's Ramallah money changer explained he couldn't be sure whether the bank note would be honored.

Palestinians didn't expect such a quick deterioration after Hamas's rise.

"Everything is in the hands of the government. A solution has to be found so stability can be achieved," says Nofal, who explained that, like the Palestinian economy, most of her family's income comes from abroad. "Every time things are expected to improve, they only get worse. People voted Hamas because they wanted change, but look at the crisis after the Hamas victory," she says.

Palestinian Prime Minister Ismail Haniyeh said last week the Islamic militants had inherited a penniless government and accused the US of "blackmail" for cutting aid. At a Ramallah sandwich shop, owner Wael Rabiyeh speculated that business might drop by next week because of the crisis, but added that he blamed Israel rather than the government.

"Even if I lose money, our self esteem is more important than economic gains," says Mr. Rabiyeh. "It's not because of Hamas ... it's because of people who claim [to support] democracy and then fight democracy."

On Tuesday, a Hamas spokesman described Israel's sanctions as a "declaration of war." Indeed, if the new government collapses, say observers, the Islamic militants will have little incentive to uphold the year-long calm in suicide attacks on Israel.

"If Hamas fails, it will realize that it's due to Israel, Europe, and the Americans," says the economist Mr. Barghouti. "So if it has to give up power, Hamas's message to the world will be: You did not give us an opportunity to be part of the political process, so we will return to military activities."

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