The Islamic militant group Hamas, which took control of the Palestinian Authority last week, is facing a severe cash shortage. The international community hopes that economic sanctions will prompt Hamas to abandon terrorism.

Ismail Haniyeh

The new Hamas-led government is broke and has missed the April 1 deadline to pay the salaries of 140,000 employees of the Palestinian Authority. Prime Minister Ismail Haniyeh said he would do his best to make up for tens of millions of dollars being withheld by Israel and international donors.

Israel has cut off $50 million in monthly tax payments to the Palestinians, and the United States and Europe are re-assessing donations of nearly $1 billion a year because they consider Hamas a terrorist organization.

Arab states have promised Hamas $55 million a month, but they have rarely met their commitments in the past, and so far, they have not delivered.

"The Palestinians are dependent on the West and that is what the Hamas is slowly learnin," said Israeli analyst Gil Yaron. "Their program of leaning towards the Arab world, of depending only on the Arabs, is not going to work. They are going to need the West."

Palestinian analyst Wadia Abu Nasser says Hamas is undergoing a forced transformation from guerilla group to government.

"I believe that when people are sitting on ministerial portfolios, they see things differently than when sitting in a faction fighting, or acting in Gaza or a refugee camp," he said. "So I believe it is a matter of time to see some interesting changes inside Hamas."

Many observers believe that Hamas will have no choice but to moderate its views, but so far the group is resisting demands to renounce violence and recognize Israel.

In the meantime, the economic noose is growing tighter, and Hamas cannot find a bank to handle its finances. Hamas officials say the Jordan-based Arab Bank is no longer willing to handle Palestinian Authority accounts because of international pressure.