Hebron, Occupied West Bank - Palestinian leaders have reacted angrily to what they see as a veiled threat by the European Union over the dispersal of financial aid to the Palestinian Authority (PA) if peace talks with Israel fail to reach a breakthrough.

European officials recently warned the Palestinians that European countries were suffering from "donor fatigue" after spending billions of dollars in aid with limited results in achieving a lasting peace with the Israelis.

"It has been made very clear to the Palestinians that just sitting around and waiting is not an option," said Lars Faaborg-Andersen, EU ambassador to Israel. "We have made it clear to the parties that there will be a price to pay if these negotiations falter."

The EU’s sharpest warning, however, was reserved for Israel over its continued settlement construction in the occupied Palestinian territories. "They [the settlements] are illegal under international law. They make a two state-solution more difficult, and they undermine trust in a peace process," Faaborg-Andersen said.

Each year the 28-nation EU provides about 1 billion euros ($1.4bn) of assistance to the Palestinian Authority - by far its largest donor.

Any Palestinian leader budging under financial pressure from the US or EU would lose public support, and if and when this happens, that leader is finished. - Wasel Abu Yousef, a member of the PLO executive committee

But Palestinian leaders representing various political orientations said financial “blackmail” by the European Union or the United States wouldn't force the PA to surrender far-reaching concessions to Israel.

‘Financial bullying’

Wasel Abu Yousef is a member of the PLO executive committee, the highest Palestinian decision-making body to which the PA and its leader Mahmoud Abbas are answerable. He said no leader would respond to "financial bullying" by international donors.

"Any Palestinian leader budging under financial pressure from the US or EU would lose public support, and if and when this happens, that leader is finished," Abu Yousef told Al Jazeera. "If there were the slightest chance that we would cave in to financial pressure our national cause would have been liquidated a long time ago. I think the EU and the US know this fact very well."

He said, for many Palestinians, the peace talks with Israel are viewed with disdain anyhow. "The so-called peace talks have been futile from the very inception,” Abu Yousef said.

Israeli Prime Minister Benjamin Netanyahu has demanded that the PA recognise Israel as a "Jewish state". However, Israel has refused to spell out exactly what that would mean in real terms. Palestinians say they have no legal or moral obligation under international law to agree to such recognition.

Some analysts say the move would prevent Palestinian refugees expelled during the founding of Israel in 1948 to return to their former lands, and weaken the fight by Israel’s Palestinian minority for equality in the country. Abu Yousef agreed with that assessment.

“Now Israel wants us to recognise it as a Jewish state. In other words, Israel wants us to totally negate the right of the refugees to return to their homes and villages in pre-1967 Palestine [Israel], and grant Israel the right to expel its Palestinian citizens on the ground because they are not Jewish," he said.

Israeli Foreign Ministry spokesman Yigal Palmor told Al Jazeera: "Recognising Israel as a Jewish state means a solemn recognition by the Palestinians that Israel is the nation-state of the Jewish people, and that Jews and only Jews will be sovereign in this state."

Israeli journalist Gideon Levy questioned the Israeli government's motivation in demanding that Palestinians recognise it as a Jewish state.

"I think this issue is being used by Israel as a sort of red herring to impede peace. Israel concluded peace treaties with Jordan and Egypt, but never demanded that the two Arab states recognise Israel as a Jewish state.

"But it is clear Israel is constantly raising this issue in order to eviscerate the right of return for the refugees," Levy told Al Jazeera.

Mistrusting the PA

Most, if not all Palestinians, seem to agree with Abu Yousef that the PA must under no circumstances cave in to European or US pressure to make a deal that is not in their best interests.

Palestinian children look at bungalows in the distance built by Israeli settlers on seized land [AFP]

However, some pundits question the Palestinian Authority’s ability to ignore the demands from donor countries.

Abdul Sattar Qassem, a retired political science professor from the northern West Bank town of Nablus, said he isn’t sure the current Palestinian leadership "is strong enough and patriotic enough to withstand Western pressure".

"You see this leadership lacks the guts to say 'no' to the US and Israel. The US and EU feed the PA and keep it alive, and one can't say 'no' to one's sustainer," he said.

Qassam said the Palestinian Authority was too corrupt and too obsequious to the US and Israel to be entrusted with safeguarding Palestinian national interests.

"That is why I think it is highly unlikely that either the US or the EU would really want to push the PA to the brink,” he said. “They might exert some pressure, but they won't really endanger the very survival of the PA.

"The disappearance or collapse of the PA would be a gigantic disaster for Israel. In the field of security, the PA has done a better job serving Israeli interests than did Israel herself. Hence, I can say that the PA is a great strategic asset for Israel, and that the US and EU won't abandon it under any circumstances."

Faaborg-Andersen said if the EU does withdrawal funds, Israel would be forced to step in and fill the void.

"I think it is realised in Israel that this money is key to the stability of the West Bank and in Gaza. If we don't provide the money… I think there is a great likelihood that Israel would have to provide far more," he said.

EU hypocrisy

Other Palestinian leaders have called out European countries for hypocrisy, and criticised their "moral duplicity" when it comes to the Mideast peace process.

If talks fail, Palestinians will be no closer to being masters of their own fate, and no closer to resolving their refugee crisis. - John Kerry, US Secretary of State

"Europe created Israel. Europe has so much to atone for its crimes against the Palestinian people," said Mustafa Barrghouth, a member of the Palestinian parliament. "Hence, the European threat to blackmail the Palestinians is unfair and unethical."

Barghouthi said the Palestinians would rather go hungry than cede their inalienable rights. "What a calamity would befall us if we won the world but lost our souls?"

The EU was wrong in trying to equally blame Israel and the Palestinians for the failure of the peace process, said Barghouthi.

"Israel is stealing our land, building settlements thereon, practising apartheid against us and effectively killing whatever chance there still is for peace in the region. Europe must not try to create any kind of moral symmetry between the occupied and the occupier, the aggressor and the victim."

He cited a 2013 report by the World Bank stating the Palestinian economy could be self-sufficient if it was freed from Israeli restrictions. "We wouldn't need a single penny if we were free from the fetters and shackles of the Israeli occupation."

Sombre forecast

Another high-ranking PLO official painted a dreary picture of the ongoing peace talks mediated by US Secretary of State John Kerry. Yasser Abed Rabbo said the Palestinians have few expectations.

The US proposals would seriously compromise Palestinian sovereignty and territorial integrity, Rabbo said, adding the geographic unity of the 1967 borders would be shredded. He said what’s on the table now is completely unacceptable to the Palestinian leadership.

For his part, Kerry said the Palestinians must understand the current round of peace negotiations could be their last chance at finding a two-state solution for the foreseeable future.

"If [the Palestinians] fail to achieve statehood now, there is no guarantee they will any time soon," said Kerry. "If talks fail, Palestinians will be no closer to being masters of their own fate, and no closer to resolving their refugee crisis."

Palestinian officials say they will appeal to the United Nations if peace talks fail.