Palestinian fuel crisis deepens after Israeli cutoff

RAMALLAH, West Bank, May 11 (Reuters) Petrol stations stood empty across the occupied West Bank and traffic thinned today as a fuel crisis deepened two days after an Israeli supplier halted deliveries over unpaid bills.

The impoverished Gaza Strip was also feeling the crunch over the Palestinian Authority's failure to pay 120 million shekels owed to Israel's Dor Alon fuel company.

Petrol station owners in the Gaza Strip, where 1.4 million Palestinians live, said supplies were likely to be depleted by the end of the day.

A Palestinian official said talks were under way with Dor Alon, the sole supplier of gasoline and cooking gas to Palestinian areas, to resume service and settle the debt. But a deal had yet to be reached. Dor Alon declined immediate comment.

''Meanwhile, I walk,'' said Jawad Ibrahim, a painter in the West Bank city of Ramallah, now saving precious petrol for only long-distance travel.

The fuel shortage, caused by a Palestinian cash liquidity crisis, threatened to worsen economic woes that began when Western countries froze aid and cut most diplomatic contacts after the Islamic militant group Hamas came to power in March.

''Until now, there is nothing new. But we hope through our contacts with them (Dor Alon) to solve this issue as soon as possible,'' said Mujahed Salameh, head of the Palestinian Petroleum Agency.

Salameh said that factories, bakeries and public transport may be forced to stop work unless fuel supplies resumed. Emergency service workers said they feared they would be unable to reach patients in rural areas.

At one petrol station in Ramallah, the seat of Palestinian government, a sign read ''We ran out of fuel''.

Ghassan Rajab, a petrol station attendant in Gaza, said ''One hour or two, and it will all be gone. The other stations already ran out. There is no more petrol in town.'' NO OTHER SOURCE OF PETROL Palestinian motorists in the West Bank and Gaza, whose cars are generally barred from entering Israel, have no alternative source of petrol, and the government does not hold reserves.

One Palestinian taxi driver said he had tried to purchase fuel at a West Bank Jewish settlement, but settlers had blocked his way.

But in a sign the crisis may soon ease, the Quartet of West Asia peace mediators -- the United States, Russia, the European Union and the United Nations -- decided on Tuesday to resume some aid payments to Palestinians.

They agreed to create a new mechanism for funnelling funds to the Palestinians that would run for a three-month trial period and was expected to bypass the Hamas-led government. Hamas is sworn to Israel's destruction but has largely abided by a truce for more than a year.

Israel said it could also chip in by releasing, for humanitarian needs, some of the 55 million billion in tax revenue it collects monthly on behalf of the Palestinian Authority.

It was not immediately clear if that money, withheld as part of Israeli sanctions against the Hamas government, could be used to help pay fuel bills.

Salameh said the total debt to Dor Alon had grown in recent years to 400 million shekels. He said he expected the firm to resume fuel supplies if the Palestinian Authority paid 120 million shekels off the total bill.

REUTERS OM HS1731