RAMALLAH, West Bank — Furious that Israel was about to annex large swaths of the West Bank, the Palestinian Authority president, Mahmoud Abbas, took the painful step in June of refusing to accept taxes collected by Israel that account for more than 60 percent of the authority’s budget.
Then last month, Israel suspended the annexation plan as part of its agreement to normalize relations with the United Arab Emirates. Because annexation remains a possibility, though, Mr. Abbas is still refusing to accept the money, in what some Palestinian officials privately say is more an attempt to save face than to force further changes in Israeli policy.
So while Mr. Abbas looks for some kind of gesture from Israel that he can hold up as a victory, and Israel refuses to commit to dropping annexation permanently, salaries in the territory are not being paid, families are enduring hardships, and the Palestinian Authority is careering toward bankruptcy.
Late Friday, the Palestinian leader suffered another setback when a second Gulf state, Bahrain, announced it, too, would normalize relations with Israel. With this, Bahrain defied Mr. Abbas’s longstanding demand that Arab countries normalize ties with Israel only after the establishment of a Palestinian state.
Diplomats have implored Mr. Abbas to relent on the tax issue and even some senior Palestinian officials are grumbling about the futility of his position.
But in the meantime, Abu Qusay, a schoolteacher in Hebron paid by the Palestinian Authority, has stopped buying meat for dinner. He has canceled his internet service, skipped neighborhood events where he would be expected to bring gifts, avoided using his car, and pleaded with his wife and four sons to turn off lights and take shorter showers.
“I could barely make ends meet on my usual salary,” said Abu Qusay, 37, who asked to be identified only by his nickname. Along with tens of thousands of other authority employees, he said he received none of his monthly salary — $1,030 — in June, and only half of it since. “Now, I feel like I can’t breathe,” he said. “I’m struggling to put food on the table for my kids.”
Rejecting the financial transfers from Israel meant forgoing more than $100 million a month in import taxes that Israel collects on the Palestinians’ behalf. It was one of the more drastic elements of a desperate strategy by Mr. Abbas to try to block annexation by cutting off all forms of coordination with Israel.
When annexation appeared likely, many Palestinians accepted the salary cuts as a necessary national sacrifice. But then, Israel backed away.
Frustrating the Palestinians, Prime Minister Benjamin Netanyahu of Israel insisted to his right-wing supporters that he had not actually abandoned his plan to impose Israeli sovereignty over much of the West Bank, he had merely suspended it. So Mr. Abbas could not simply declare victory.
The normalization deal with the U.A.E. was not made in coordination with the Palestinians, who adamantly opposed it. And from the Palestinian perspective, suspending annexation wasn’t enough: They wanted it to be canceled.
As a result, Mr. Abbas has refused to go back to the way things were.
Diplomats who have met with him say that Mr. Abbas is intent on extracting some new concessions from Israel with which to assure the Palestinian public that his rejection of the money, and their summer-long hardship, were not all in vain.
Mr. Abbas’s office and several of his most senior aides all declined to comment.
When the British foreign secretary, Dominic Raab, encouraged Mr. Abbas to take the money in a meeting in Ramallah last week, Mr. Abbas responded, “In return for what?” according to a person familiar with details of the exchange.
In the meantime, however, Palestinian experts are warning that Mr. Abbas’s administration could soon go broke.
“I don’t think they have much tucked away,” said Raja Khalidi, an economist who runs a research institute in Ramallah. Local banks will soon reach a point at which they will be unable to lend money to the authority, he said. “It’s not as if there’s some slush fund they’re able to pull from.”
The Palestinian Authority has survived without the tax transfers for stretches of several months in the past, but doing so while a pandemic was battering its economy has made the situation even more precarious, Mr. Khalidi said.
The European Union, the United Nations, Britain and several Arab countries have all urged the Palestinian Authority to resume accepting the transfers from Israel, according to officials briefed on the talks.
“The fiscal situation of the Palestinian Authority is overstretched and clearly unsustainable without the acceptance of transfers of the tax revenues collected by Israel,” Sven Kühn von Burgsdorff, the European Union’s representative to the Palestinians, said last week.
“Those revenues are Palestinian and should be transferred and accepted irrespective of political tensions,” he said. “If no solution can be found, the entire system may collapse.”
Mr. Abbas told a group of Palestinian officials last week that he remained opposed to accepting the tax money under the decades-old economic agreements with Israel that governed those transfers. That opened the door to accepting the money on new terms. But he did not propose any.
Mohammed Shtayyeh, the prime minister of the Palestinian Authority, has suggested that Mr. Abbas is refusing to accept the transfers because Israel is demanding that the Palestinians first deal directly with Israeli officials.
But Israeli security officials deny that Israel has placed any conditions on transferring the taxes to Ramallah, and say that the Palestinians need only decide to accept them.
The longer the standoff grinds on, the more it is straining the patience and fortitude of the Palestinian Authority’s work force.
While some employees said that they continued to value “national considerations” above financial ones, others contended that it highlighted a disconnect between Mr. Abbas and the Palestinian rank-and-file.
“He made the decision, but he’s not paying the price for it,” said Abu Qusay, the teacher in Hebron. “I’m the one paying the price. The president’s life hasn’t changed at all. He still has cars, bodyguards and everything he would ever need.”
Some criticism has stirred within Mr. Abbas’s own faction. As early as June, Nasser al-Kidwa, a Fatah central committee member, questioned the rejection of the transfers in a briefing with journalists. And in recent weeks, senior Fatah leaders have privately described Mr. Abbas’s position as counterproductive, officials say.
Nabil Amr, a former Palestinian Authority information minister, said he thought the authority should accept the tax transfers as long as Israel does not try to extract anything in return, repeatedly calling it “our money.”
The dissent has not yet boiled over, in part because Palestinians who work for the authority are generally leery of openly criticizing the leadership for fear of reprisal.
An officer in the Palestinian security forces, who insisted on anonymity, said his financial predicament had deteriorated so much that he had sold his only car, made his family go without air-conditioning despite the sweltering heat and made his daughter walk to school to save bus fare. His monthly salary has been cut to $515 from $735.
“I feel totally incapacitated,” said the 31-year-old officer, based in Hebron. “My heart was broken the other day when I told my son I couldn’t afford a $7 toy he asked me to buy him.”
And in Ramallah, a civil servant named Maher, who withheld his last name and the ministry where he works for fear of retaliation, said his life had been turned upside down.
Not only was his salary of $2,060 slashed in half, but he has also lost a side job translating at international conferences because those have all been canceled over the coronavirus. He said he was overwhelmed with debt and struggling to afford the bare necessities.
“I used to be a well-to-do person,” said Maher, 52, a father of three. “Now, I feel helpless. Totally helpless.”