The EU has proposed a $42-million-a-month aid mechanism for the Palestinians that would provide up to $30 million in cash allowances directly to some workers, sidestepping the Hamas-led government.
The proposal, a copy of which was obtained by Reuters news agency today, must still win the backing of the European Union's partners in the Quartet of Middle East mediators - the United States, Russia and the United Nations.
The EU hopes to begin paying allowances through the mechanism next month, but the United States could still scale the programme back or delay it, Western diplomats said.
"Sewage treatment plants are struggling to remain operational, fuel for water pumps is running out... We urgently need to get the funding mechanism, promised by the Quartet a month ago, operational now," said John Ging, head of Gaza operations for the main UN agency aiding Palestinian refugees.
Diplomats said the EU proposal was limited in scope because of US opposition to letting the aid mechanism pay government salaries. Washington argues that doing so would take pressure off of Hamas, whose charter calls for Israel's destruction.
The $25 million to $30 million in proposed monthly "social allowances" would cover approximately 25 percent of the Palestinian Authority's $120 million monthly wage bill.
But diplomats said the EU hoped the mechanism could be expanded later to include funds from Arab donors and Israel.
Major Western donors led by the United States froze direct aid to the Palestinian government after Hamas Islamists won January elections and refused to recognise Israel, renounce violence or embrace interim Israeli-Palestinian peace deals.
Hamas's inability to pay salaries since taking control of the Palestinian Authority in March, and tensions with President Mahmoud Abbas over control of the security forces, have sparked internal violence and increased fears of civil war.