Israel has been withholding tax revenues earmarked for the PA amid Tel Aviv’s brutal war on Gaza since October 7.

Norway says it will help facilitate the transfer of tax revenues, collected by Israel and bound for the Palestinian Authority (PA), in order to prevent the financial collapse of the authority that partially governs the occupied West Bank.

“The Palestinian Authority will be able to pay salaries, thus making it possible to continue to provide essential services to the Palestinian population, keep schools open, and ensure that health workers are paid,” the Norwegian Ministry of Foreign Affairs said in a statement on Sunday.

“This is critical to promoting stability in the region and for the Palestinian Authority to have legitimacy among its people,” it added.

Israel collects tax on behalf of the Palestinians and makes monthly transfers to the PA under the Oslo accords in 1994, but in November it froze funds meant for Palestinians in Gaza.

The PA was expelled from the Gaza Strip in 2007, but it still pays the salaries of many of its public sector employees. Israel says the fund might fall into the hands of Hamas, which governs Gaza.

Tel Aviv, however, later agreed to transfer the tax revenues to the PA deducting the amount meant for Gaza. In response, the PA refused to accept a partial transfer saying it would not accept conditions that prevented it from paying its staff. It is estimated that some 30 percent of its budget is spent in Gaza.

Israel launched a devastating military offensive in Gaza in the wake of the Hamas-led, October 7 attack that left at least 1,139 people dead inside Israel. About 240 people were taken captives out of which more than 100 people were released as part of a brief truce in November.

As a dire economic crisis exacerbated across the occupied West Bank, the Israeli cabinet approved in January a plan for frozen tax funds earmarked for the Strip to be held by Norway instead of transferred to the PA.

Norway is facilitating an arrangement that will enable the Palestinian Authority to receive clearance revenues that Israel collects on its behalf.

Absent these resources, Palestinian institutions could fall apart, even in the West Bank.

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According to Sunday’s statement, Palestinian and Israeli officials agreed that Norway would serve as an intermediary for holding revenues that Israel has so far withheld.

“The Palestinian Authority is then willing to accept the other funds,” Norway said. The portion of the revenue Norway would keep equals the portion that Israel estimates for Gaza, said a Norwegian Foreign Ministry spokesperson.

Accessing the revenue is key to the survival of the PA, which exercises limited self-rule in the Israeli-occupied West Bank and East Jerusalem. It is also central to the United States’ post-war vision which includes a role for the PA in the administration of Gaza.

While the decision will allow some economic relief for Palestinians, the agreement reflects the US and Norway’s collusion with Israel’s far-right government, Mouin Rabbani, the co-editor of the Jadaliyya website, told Al Jazeera.

“The US and Norway, while applauding themselves for having saved the PA from bankruptcy, are now active partners not only with Israel but with its far-right finance ministry and allowing Israel to get away with not fulfilling its treaty obligations,” Rabbani said.

“It’s particularly unfortunate that Norway rather than mobilising the international community to compel Israel to fulfil its treaty obligations and simply transfer the entire amount on a monthly basis to the PA is prepared to play this role and withhold money for the PA which will be dispersed only with [Bezalel] Smotrich’s personal approval,” Rabbani said, referring the Israeli far-right finance minister.

The issue of money transfer has been a source of friction within the Israeli government with some ministers calling for the funds to be distributed to avoid further destabilising the occupied West Bank.

Since the start of the war, violence has spiked to unprecedented levels as Israeli forces have been conducting nearly daily raids and mass arrest campaigns in cities and towns across the Palestinian territory.

Israeli soldiers have killed at least 358 Palestinians since October 7, UN figures show. More than 6,000 have been arrested according to the Palestinian Prisoner’s Society and the Commission of Detainees and Ex-Detainees Affairs.