The EU said on Friday it would not lift a boycott of the Hamas-dominated Palestinian government, despite warnings from aid organizations that the structure of a future Palestinian state is being severely eroded.
Since the formation of a new Palestinian unity government two months ago some countries have recognized it or promised to restart direct funding. But the EU, which makes the largest donation to the Palestinians, has yet to lift its boycott despite growing differences between member states.
"There is no change as long as you have in the government a party that refuses to leave its armed wing and armed action," Louis Michel, the EU aid commissioner, said on Friday. "We cannot deal with people who have an armed wing. It would be a very dangerous precedent."
But Michel was criticized after giving the speech to the aid community in Jerusalem on Friday. Nago Humbert, head of the Swiss Medecins du Monde agency, told him: "Your discussion is surreal to the people on the ground. It doesn't reflect the reality."
After Hamas won elections and formed a government in March last year the international community halted direct funding. It said Hamas must first meet three principles: halt violence, recognize Israel and accept previous peace agreements.
Despite the boycott, the amount of aid and budgetary support coming into the Palestinian territories rose to an estimated US$1.2 billion last year, from US$1 billion the year before. But the type of aid has changed, with more spent on emergency humanitarian work and less on long-term development.
Nearly 60 per cent of the population live on less than US$2 a day and a third do not have enough food. The economy shrank by 5 per cent to 10 per cent last year, according to the IMF.
Along with the international boycott, Palestinian tax revenues worth around US$60 million a month have been withheld by Israel, apart from a one-off US$100 million payment in December. As a result, 150,000 state employees, including teachers, doctors and security forces, received only around half their salaries last year.
"We are witnessing the slow, steady collapse of the public sector infrastructure and a steady loss of human and social capital. The damage done by the sanctions will take years to repair," said Elizabeth Sime, country director of Care International.
She said there was an increasing "politicization" of aid and a fragmentation of the Palestinian structures of government.
Aid workers say the Palestinian Authority is being effectively replaced by the international community.