As the Palestinian Authority and Hamas engage in a tit-for-tat factional conflict, which includes shutting down rival newspaper and arresting rival supporters, the PA is sinking into a deepining financial crisis.

Palestinian Authority officials said that the PA will not be able to pay July salaries to more than 150,000 public servants and may be forced to close down several government institutions as a result of the crisis.

The deficit in the PA budget has risen in the past six months from $1.6 billion to $2 billion. Another PA official warned that the financial crisis would undermine the PA and limit its ability to reach a peace agreement with Israel.

The Palestinian Economic Council for Development and Reconstruction [PECDAR] said Monday that the PA had received only $900m. of the $7.7b. promised during the December 2007 Paris Donors' Conference for supporting the Palestinians.

However, PA officials complained that that the donors had so far paid less than 35 percent of the promised sum. The officials said they were particularly disappointed with the majority of the Arab countries for failing to meet their financial commitments toward the Palestinians.

Meanwhile, both the Palestinian Authority and Hamas are engaged in a continuous struggle for supremacy in the West Bank and the Gaza Strip. 

On Monday Hamas's security forces banned the distribution of three Fatah-affiliated newspapers in the Gaza Strip as Palestinian journalists accused both parties of waging a campaign of intimidation against the local media.

Two Palestinian journalists have been arrested by Hamas in the past few days: Sawah Abu Seif, a freelance cameraman; and Omar al-Farra, director of the Palestinian Authority's official Wafa news agency in the southern Gaza Strip.

In addition, several Palestinian journalists in the Gaza Strip have received death threats from Hamas operatives over the past few days. The journalists said they had been warned against publishing material in support of Fatah.

In a related development, forces loyal to Abbas arrested 54 Hamas supporters in the West Bank on Monday, sources close to Hamas announced.

The arrests came in response to Hamas's massive crackdown on Fatah in the Gaza Strip following the Friday bombing. At least 160 Fatah members and officials have been rounded up.

A Hamas spokesman accused Abbas and PA Prime Minister Salaam Fayad of seeking to eliminate Hamas to pave the way for signing an unacceptable peace agreement with Israel.

He advised the two men to distance themselves from the alleged Israeli-American scheme and called on the PA security forces not to carry out their orders. 07/29/08