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.