On Saturday, a new cabinet was sworn into office in Ramallah, with the newly appointed prime minister Mohammad Shtayyeh at its head. Shtayyeh and his colleagues face a widespread perception among Palestinians that the Palestinian Authority (PA) is corrupt, alongside a worsening financial crisis. Ultimately, that crisis can be resolved only by the PA’s president, Mahmoud Abbas, who has brought it about in the first place through his insistence on rewarding terror with cash. Katherine Bauer and Ghaith al-Omari write:

[I]n February, Israel moved to withhold $138 million annually, or $11.5 million a month (roughly 6 percent of the tax revenues it collects on the PA’s behalf), in [response to] the PA’s payments to the families of prisoners [in Israeli jails] and “martyrs”—a practice about which Abbas has refused to negotiate. In response, the PA has refused to accept the remaining portion of the transfer so long as Israel continues to withhold any of it. This has reportedly led the PA to adopt strict austerity measures, including payment of only partial salaries to government employees in both March and April. . . .

[T]he PA seems to be calculating that concerns over instability in the PA and the West Bank will prompt Israel to reverse its decision. Such a reversal, in addition to stabilizing PA finances, would give Abbas a political victory. Yet while effective in the past, the same approach is less certain to work this time around. For Israel, the basis for partial withholding of the funds is enshrined in the law and enjoys Israeli consensus across the political spectrum. Moreover, . . . the PA’s decision to reject any partial transfer from Israel struck some [countries that might make up for the shortfalls] as grandstanding, eliciting neither sympathy nor support. . . .

The fact that the PA has suspended formal contacts with the U.S., argue Bauer and Omari, does not mean Washington has no cards to play:

[T]he Trump administration can engage the donor community—already alarmed by the state of PA governance—to introduce measures to bring stability to the West Bank and the PA. [It] can focus on sharpening donor pressure to dissuade the PA from grandstanding on the tax-clearance matter and to address specific issues to steady the ship. The latter includes restoring budget transparency to bolster donor confidence, stabilize budget flows, improve revenue generation, . . . and minimize additional arrears. This will require the United States to commit funds to international efforts to stabilize the PA, but would not [involve] resumption of direct U.S. funding to the Palestinians.

The Trump administration has defined Israeli-Palestinian peace as a goal to be achieved through the possibly imminent release of an American peace plan. Failure to address the immediate fiscal and governance challenges facing the PA may render the larger U.S. objective moot.

In accordance with legislation passed last year, the Israeli government has begun to deduct from the tax revenues it collects on behalf of the Palestinian Authority (PA) an amount proportional to what the PA pays to terrorists and their families. Last year, a similar law went into effect in the U.S., suspending all payments to the PA so long as it continues its “pay-for-slay” policy. The PA president, Mahmoud Abbas, has retaliated by refusing to accept any tax revenue collected by Israel—raising concerns that the PA will become insolvent and collapse—while insisting that payments to terrorists and their families are sacrosanct. To Yossi Kuperwasser, Abbas’s behavior amounts to mere extortion—which has already worked on the Europeans to the tune of 35 million euros. He urges Israel and the U.S. not to submit:

Abbas [believes] that influential Israeli and European circles, including the security establishment, view strengthening the Palestinian Authority, and certainly preventing its collapse, as being in Israel and Europe’s best interests. They will therefore give in to the pressure he exerts through the creation of an artificial economic crisis. . . .

[T]he PA leadership’s insistence on continuing wage payments to terrorists and their families, even at the price of an artificial economic crisis, shows once again that . . . the Oslo Accords did not reflect a substantive change in Palestinian national aspirations or in the methods employed to achieve them. . . . If paying wages to terrorists (including the many terrorists whose attacks took place after the Oslo Accords were in force) is the raison d’être for the PA’s establishment, as Abbas seems to be saying, . . . one cannot help asking whether Israel has to insist on maintaining the PA’s existence at any price.

True, Israel cooperates on security issues with the PA, but that serves the interests of both sides. . . . The short-term benefits Israel gains from this security cooperation, [however], are of less value than the benefits enjoyed by the Palestinians, and worth even less when measured against the long-term strategic damage resulting from Israel’s resigning itself to the constant incitement, the promotion of terror, and the political struggle against Israel carried out by the PA. Israel should not do anything to hasten the PA’s breakdown, because it has no desire to rule over the Palestinians and run their day to day lives, but it also should not feel more obligated to the PA’s continued existence than do the Palestinians themselves, thereby leaving itself open to continuous extortion.