Palestinian Authority Prime Minister Salam Fayyad admitted Sunday Israel's decision to freeze tax revenue transfers to the PA were cutting deep.
Fayyad told reporters Sunday that the sanctions have a "devastating impact" on the economy in PA-run enclaves.
Israel froze the transfer of tax revenues - amounting to roughly $100 million per month - after the PA launched a series of unilateral moves at the United Nations aimed at attaining recognition of a state based on pre-1967 lines at the world body.
Officials in Jerusalem said the moves, which began with a now-moribund application for statehood at the UN Security Council and culminated in UNESCO voting to induct the PA as a 'member state,' were a direct violation of the bilateral Oslo Accords.
All contacts and cooperation with the PA - including the transfer of tax revenues - occur under the auspices of bilateral agreements that proscribe unilateral moves like those the PA is pursuing, Israeli officials note.
PA officials were forced to suspend their unilateral track after UN secretary general Ban Ki-moon withdrew his support for their statehood bid at the world body in the face of promised funding cuts to UN agencies by the United States. The United States underwrites 22 percent of the UN operating budget and 27 percent of its peace keeping operations
Senior economic officials in Ramallah have long said Israel's transfers of tax revenues along with foreign aid are crucial to keeping Fayyad's the cash-strapped administration afloat. Israel's funds freeze to Ramallah coincides with a downturn in foreign donations to the PA – especially from Arab countries coping with the Arab spring.
Last week Fayyad told reporters if Israel did not resume the transfer of tax funds the PA would have to close its doors.
Israeli officials, however, say they are unmoved and that funds will not begin flowing to Ramallah again until PA officials accept a proposal by the Quartet for Middle East Peace for resumed talks without preconditions.
Israeli officials have accepted the Quartet proposal, which calls for a final status agreement by the end of 2012.
Previously, officials in the office of Prime Minister Binyamin Netanyahu said, while the PA shutting down would be "unfortunate" it "would not be the end of the world."