The humanitarian situation in the Palestinian territories will likely worsen in the coming months if Israel and the international community continue the policy of withholding funding from the Hamas-led Palestinian Authority, according to a new report by the United Nations said. The report, released on Sunday, came a day after it emerged that financial institutions worldwide were instructed by the United States not to transfer funds to the PA, meaning alternative funding promised to the PA from Arab states such as Qatar and Iran may not be able to reach its destination. The widening poverty and economic distress could destabilize the situation in the territories enough that violence between the Palestinian factions would materialize and spill over into Israel, the report, released by the UN Office for Coordination of Humanitarian Affairs, said. Israel has said on numerous occasions that it does not wish to bring about a humanitarian crisis for the Palestinians through its no-contact, no-funding policy regarding Hamas. However, that may yet be the result of the largely successful international coalition it is leading to isolate the terrorist entity which won the Palestinian Legislative Elections in January. As a result of the cut-off in foreign funding, the cessation of tax transfers from Israel, and its own mismanagement of resources, the PA is bankrupt. "The lines between funding humanitarian causes and the PA are heavily blurred, especially when [152,000] people need to get their salaries through the government budget," said Gidi Grinstein, the president and founder of the Re'ut think tank in Tel Aviv. According to the UN, the 152,000 Palestinians on the PA payroll directly support around one million people living in the territories. Even if donor countries and organizations make good on their pledges to continue funding humanitarian aid projects within the West Bank and Gaza, the lack of those salaries will send the Palestinian poverty rate soaring to 74 percent from its current rate of 56%, the report said. In 2000, before the start of the second intifada, poverty in the territories was at 22%. The loss of funding for infrastructure and other projects commissioned by the PA will cause the unemployment rate to rise to 40% by the end of the year from its rate of around 30% in 2005, the report predicted. The quality and quantity of health care, education and social work are also expected to severely diminish, the report said, as the vast majority of those services are provided to Palestinians through the PA. Israel is coordinating with donor countries and organizations - mostly the United States and European Union - methods to provide those services without funneling funds through the PA. "Israel does not want to see the Palestinian people pay the price for the stubbornness, shortsightedness and extremism of the Hamas leadership," Foreign Ministry spokesman Mark Regev said. "We will do everything we can within the limitations of the situation to make sure that the Palestinian people do not have to suffer because of the sins of their government." Hamas officials have said that no amount of Palestinian suffering will persuade them to change their political positions. "We will make do with eating olives and salt, but our resolve will not falter because we are loyal to the principles of our people," PA Prime Minister Ismail Haniyeh said on April 16 in Gaza. "We will not relinquish our borders" and "we will not go back on our principles." On April 11, United States Ambassador to Israel Richard Jones announced that whereas the United States was cutting off all funding to the PA, it was boosting the amount of humanitarian aid provided through UNRWA and partner non-governmental organizations directed at the Palestinian people, amounting to at least $249 million with as much as another $165m. under review. But despite Israeli, American and European intentions, the humanitarian situation in the West Bank and Gaza is likely to worsen if the political stand-off continues between Israel and the Quartet on one side, and the Hamas-led PA on the other. If such is the case, differing points of view are emerging from within Israel on how to proceed politically. Once the new government is sworn in, it should move quickly to formulate a policy regarding Hamas that clearly defines the goals Israel is trying to achieve vis- -vis the PA, Grinstein said. "Israel must decide what it wants beyond the knee-jerk, gut reaction that we have to this entity that denies our right to exist," he said. A Hamas in power is one that so far has not engaged in terror and is also one that allows Israel the leverage it needs to sell Interim Prime Minister Ehud Olmert's convergence plan to the international community, Grinstein said. "If the government is serious about convergence, then the most important thing for us is to have on the other side an address that we can transfer power, responsibility and territory to because a total breakdown of the PA and civil war may undermine the convergence plan," he said. "Probably avoiding the humanitarian crisis and the downfall of the PA should be a higher priority than Hamas accepting the three demands" of recognizing Israel, laying down its arms, and abiding by previous PA agreements. However Shalem Center Senior Fellow Dan Schueftan said the suffering of the Palestinian people, even if it is worsened, is not a problem that Israel can alleviate. "The Palestinians have demonstrated that every penny they have will go to corruption or terrorism. So whether the [PA is funded] or not is not important to economic problems because the money never goes to addressing the economic problems of Palestinians anyway and it is funneled to something destructive," said Schueftan, who is also the deputy director of the Internal Security Department at the University of Haifa. "Everything we know about human beings trying to improve their life doesn't apply to Palestinians who put terrorism before improving their quality of life," he said. "There is nothing short of national suicide that the Israelis can do to satisfy them."