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JERUSALEM — At first, it was only spoken in whispers.

But gradually, as frustrations mounted, increasing numbers of Palestinians started complaining that the Palestinian Authority is riddled with wide-ranging internal corruption that might affect the future of Yasser Arafat's regime.

Questions of financial mismanagement are of keen interest not only to the Palestinians, but also to foreign donor nations that have long demanded that the Palestinian Authority maintain visible accounting methods to prove that donated funds are not mishandled.

Foreign donors called on Palestinian leadership to establish a supervisory body to ensure that donated funds are channeled properly. But now that body has confirmed the presence of widespread corruption in the Palestinian Authority.

A 600-page report by Jarar Kidwa, head of the authority's financial monitoring institution, disclosed last week that the self-rule government had lost $326 million — 40 percent of this year's annual budget — to corruption and mismanagement.

Although Arafat and his aides have total control over budgetary affairs, Arafat said he was surprised by the findings and has appointed a special committee to look into them.

Arafat faces a difficult dilemma: Let his critics talk freely and endanger his government, or suppress freedom of speech and risk being labeled a totalitarian.

For the most part, Arafat has carefully maneuvered between autocracy and democracy, sometimes giving free rein to his critics. But when he feels they go too far, he stops them — sometimes by putting them behind bars.

Such was the fate of Daoud Kuttab, a veteran Palestinian journalist.

Last week, after attempting to broadcast a session of the 88-member Palestinian legislative council devoted to the corruption issue, Kuttab, who lives in eastern Jerusalem and holds U.S. citizenship, was placed in a detention cell in the West Bank town of Ramallah.

He declared a hunger strike when no charges were pressed against him. He was released on Tuesday after U.S. officials worked to secure his freedom.

He was not the first critic of the Palestinian Authority to be arrested. Among those who preceded him was Bassem Eid, a noted Palestinian human rights activist who once directed his wrath at the Israeli authorities but now is criticizing human rights abuses — including torture — by the Palestinian Authority.

Meanwhile, a recent poll by the Jerusalem Media Communication Center found that almost 83 percent of Palestinians surveyed in the West Bank and Gaza Strip believe the Palestinian Authority is corrupt.

Critics charge that the Palestinian bureaucracy is disproportionate to the needs of the population it is meant to serve. The Palestinian Health Ministry alone employs 65 directors general.

Observers say the bureaucracy's growth resulted from a need to employ those who had served the Palestine Liberation Organization during its years of exile in Tunis.

"The PLO, after 30 years abroad, has now brought all these people from abroad," said Ahmad Abdul Rahman, secretary of the Palestinian Cabinet.

"What should we do with them? Each and every one of them needs a job. These are human beings, many of them almost 60 years old."

Critics charge that the very existence of the 40-member Palestinian Cabinet is a function of internal corruption.

Rafat a-Najar, an independent member of the legislative council, or Palestinian Parliament, charged that some parliamentarians had each been offered $15,000 in exchange for their support of the Cabinet.

This explains why parliamentarians who had initially said they would not support the Cabinet last year had changed their minds overnight, he said.

Cabinet secretary Rahman said the charge was not even worth a reaction. But there have been other charges.

British journalist David Hurst visited Gaza last month and wrote in the Manchester Guardian that Arafat and his supporters from Tunis had turned the "Palestinian homeland" into a corrupt nepotistic regime.

An Arabic translation of the article was later distributed unofficially throughout Gaza. It is considered the hottest literature on the Palestinian street.

Hurst's article cited allegations of malfeasance among Palestinian leaders. These included a $2 million villa built by Mahmoud Abbas, better known as Abu-Mazen, who serves as Arafat's second-in-command; and four extravagant wedding ceremonies organized for his children by Nabil Sha'ath, planning minister and close Arafat adviser.

The Guardian also described large profits made by another minister, Jamil Tarifi, from construction projects; and the spending habits of Treasury Minister Mohammda Zahdi Nashashibi, whose lavish lifestyle stands in stark contrast to the poor living conditions of the nearby refugee camps.

Arafat's wife, Suha, was described in the article as spending large sums dining at a luxurious restaurant.

Though the allegations have not been proven, they have kept the Palestinian Parliament busy.

Many recent sessions of the legislative council have been devoted to charges of corruption and mismanagement.

"Where are the donations?" asked parliamentarian Hikmat Zeid at one session. "Can the ministers of finance and supply furnish us with a list of all the donations given to the Authority?"

Arafat so far has taken no steps against opposition members who have criticized his government.

But there are allegations that Arafat gave free cars to 63 of the 88 council members in an effort to reduce their motivation to criticize the Palestinian Authority.

As attempts are made to sort out these charges, the Palestinians, the majority of whom still face difficult living conditions, are learning the hard way that the road to political and economic independence is not paved with gold.