Tawfiq Musmar takes up his place behind the lost luggage desk at Gaza international airport each morning, checking all is in order at the baggage carousel before wandering off to spend much of the day chatting with the "land hostesses" at the check-in counters.

Not a single flight has landed since Israeli army bulldozers tore up the runway in 2001 at the beginning of the Palestinian uprising, and Mr Musmar wonders how long he will be paid to do nothing. "There were lots of flights to all the Arab capitals, even Moscow," he said. "Now we get paid but these are not real jobs. Maybe now the jobs are going to disappear like the planes."

For five years the Gaza airport staff have collected their salaries from the Palestinian Authority, not because they earned them but because so many other people depend on the money to survive.

Mr Musmar, 43, earns about £250 a month from which he supports his parents and children. At the check-in desk, Reem Nisreen is paid about £140 a month which pays the rent and feeds her unemployed husband, two children and members of her extended family.

The wages of every one of the PA’s 152,000 workers are paid in part from about $1bn (£573m) a year in foreign aid. European and American donors long ago accepted that while they were subsidising many real jobs, such as medical staff and teachers, they were also paying for what amounted to work-for-welfare. Those wages came to be a crucial part of an economy that has contracted by one-third through the intifada.

As first Washington and then Brussels this week froze aid to the PA after Hamas took power, the dependence of the whole economy on western handouts has been thrown into sharp relief. The question for both the EU and the US is how to keep the salaries flowing without funding what they regard as a terrorist administration. The new Hamas government is already grappling to find $120m for salaries that should have been paid at the beginning of the month after inheriting a deep financial crisis from the previous administration.

Poorest areas

Foreign donors say they won’t let Palestinians starve, although Dov Weisglass, an adviser to the Israeli prime minister, said Israel has withheld tax revenues due to the PA "to put the Palestinians on a diet". But there will be no foreign funds to the administration until Hamas recognises Israel and formally renounces violence.

The UN calculates that one PA salary supports seven people – more than 1 million in total, or one in four residents of the occupied territories. "PA salaries are the most important component in the Palestinian economy because the rest of the economy has declined so much," said David Shearer, head of the UN’s humanitarian assistance office.

"In addition, PA salaries are the most important in the poorest areas of the West Bank and Gaza. In Gaza, 37% of working people are working for the PA."

Nearly half of the PA’s employees are in its various security forces. Mr Shearer says that raises the prospect of about 73,000 men with guns looking for alternative ways of making money. "If they don’t get paid, what we’re really worried about is that while there are a good number who are well-trained and professional, there is also a large proportion that are not, but they’re armed. What we fear is an increase in insecurity and criminality and the use of arms to demand jobs," he said.

Among those wondering how long the money will keep coming is Amjad Yusuf, 20, a police officer who has been on the force for three years. His 1,540 shekels (£192) a month salary supports 10 people. Nearly half goes to pay the rent and the family is two months behind. He has not been paid on time for three months. "We’re all afraid, not just me, everyone in the force. No one has told us anything but we are worried about where the money is coming from."

Diplomats do not expect the donors to allow the PA to collapse; too much money has been invested in its creation as a step towards a Palestinian state. The EU and US say they will continue to fund basic humanitarian needs, such as water, food and education, while not dealing with Palestinian government ministries. But they have yet to work out a way to pay about 39,000 people working in education and 11,000 in health as well as keeping open hospitals and schools heavily dependent on aid.

The Palestinian health ministry relies on foreign money for about half of its budget. Juma’a al-Saqa, a director of Gaza City’s Shifa hospital, said without it there would be no staff, drugs or operations. "Shifa depends on aid. We couldn’t continue to function without it. It pays for drugs, instruments, medical supplies. It pays the salaries," he said.

The hospital has about 1,400 workers, with nurses earning £200 to £350 a month, paid through the PA. Mr Shearer said clinics and hospitals would only stay open by charging.

Funnelling aid

The EU is searching for ways around the problem, including funnelling aid through some Arab governments or setting up a trust using the World Bank. The British government has sounded out some UK charities on their willingness to take over aid delivery in areas where the EU can no longer work.

The UN has warned that foreign aid organisations will not be able to pick up the slack and that if there is a shortfall, international law requires Israel, as the occupying power, to provide basic services for the Palestinians.

"Humanitarian assistance can put food in people’s mouths," Mr Shearer said. "But it cannot run a health or education system that people have come to rely on. Quite simply, by cutting off money to the PA, people will suffer."

*this article reprinterd from guardian.co.uk