The Palestinian Petroleum Agency head said he expected petrol and cooking gas would run out within hours. The PA has faced financial crisis since foreign aid was frozen after Hamas - regarded as a terrorist movement by the US and EU - won elections in January. A plan to channel donor aid directly to the Palestinians was agreed on Tuesday.

Outside pressure

The Palestinian Authority is reported to owe the Israeli company Dor Energy about $26m. The company has been the sole provider of gasoline to Palestinian areas since the mid-1990s. "There will be an economic catastrophe," Palestinian Petroleum Agency chief Mujahed Salameh was quoted by Reuters news agency as saying of the threat to halt fuel deliveries. "Many factories, bakeries and transport will stop working."

Mr Salameh said that Palestinian President Mahmoud Abbas was speaking to US and European officials in the hopes of pressuring Israel into ensuring that the flow of fuel continues. In the West Bank petrol stations have already begun rationing fuel, with Reuters saying that motorists can buy a maximum of 100 shekels ($23) of fuel. "I only have 96 (octane) petrol. It will be gone in two hours," Suheil Jaber, a petrol station owner in Ramallah, told Reuters.

Hamas bypassed

This is the latest crisis to hit Palestinian areas where the effects of the foreign aid freeze are being sorely felt, according to David Shearer, head of the UN Office for the Co-ordination of Humanitarian Affairs in the Palestinian territories.

It has been unable to pay some 165,000 government employees for several weeks and the World Bank has warned of an imminent humanitarian crisis in the West Bank and Gaza. "People are selling jewellery, they're cutting back on vegetables, on fruit, the food that in a sense is most important particularly for children, and it also has a real knock-on effect on the services, the hospitals," Mr Shearer told the BBC.

On Tuesday the so-called Middle East Quartet announced plan to channel aid directly to the Palestinians, bypassing the Hamas-led PA. The EU, UN, Russia and the US said they would set up a "temporary international mechanism" to channel the money for an initial three-month period. People's relief

The US also said it would separately give $10m (£5.4m) in aid to the Palestinians through medical and children's charities. The BBC's Alan Johnson in Gaza says the news was greeted with relief by Palestinians on the streets.

BBC