Beset by snipers, bombers and drive-by killers, Israeli officials are divided over whether to prop up the debilitated, cash-starved Palestinian Authority or hasten its demise.

The harsh reality is that the Palestinian Authority is, quite literally, bankrupt.

Welfare checks have bounced and government departments — which cannot even pay their own phone bills — have been compelled to borrow from banks and seek emergency aid from Europe to meet their payrolls.

Secretary of State Colin Powell plans to travel to the Middle East this weekend to plead with Israel to provide the Palestinians with economic relief by turning over $54 million in taxes and duties, according to the Associated Press.

It is an appeal the United States has made in the past, one underscored by Nabil Sha'ath, a senior Palestinian negotiator, in talks at the State Department on Tuesday with Powell and Edward Walker, the assistant secretary of state for the Near East.

Five months of violence have cost the Palestinian Authority some $1.15 billion, largely through tens of thousands of lost workdays for Palestinians who were prevented for security reasons from traveling to work in Israel.

That, according to a report published this week by the Office of the U.N. Special Coordinator, has pushed up the previous Palestinian jobless rate — 11 percent in the nine months preceding the onset of the violence — to a devastating 38 percent today.

The Palestinians also claim Israel is withholding some $250 million in taxes collected from Palestinian workers and traders over the past five months that would otherwise have been to the Palestinian Authority.

Israel insists, however, it has transferred $75 million, and that the tax bill has shriveled because of the closure.

Speaking about Tuesday's meeting, Sha'ath accused Israel of imposing a "total siege" on the West Bank. He told the AP he had asked Powell to pressure Israel to turn over to the Palestinians taxes and customs duties on goods purchased by Palestinians in Israel.

Israel, meanwhile, has tightened the economic screws to try to curb Palestinian attacks on soldiers and civilians. Sha'ath charged the policy was one of "collective punishment," and that the Palestinian economy had been reduced by about 50 percent.

At the same time, Terje Roed-Larsen, the U.N. special coordinator for the Middle East peace process, was wrapping up a second day of talks in Washington. He met with Richard Armitage, Powell's designated deputy.

According to the AP, Roed-Larsen said he and Bush administration officials agreed on the dire economic and fiscal situation of the Palestinian Authority, but they told him they could not contribute directly to Arafat's organization.

Such funds, they said, would have to come through international organizations such as the World Bank and the International Monetary Fund.

Sha'ath said of $1 billion promised by Arab governments to the authority only $400,000 had been delivered, plus contributions of $30 million from Saudi Arabia and $15 million from the United Arab Emirates.

That the Palestinian Authority is in shambles is beyond doubt, but as with so many of the decisions that have confronted Israel since the 1993 Oslo accords, the range of possible responses presents a series of bad options.

One school of thought within the military establishment holds that the Palestinian Authority should be officially classified as the enemy so atrocities can be met with tougher retaliatory action in the hope that the Palestinian leadership might finally be induced to rein in the violence.

The contrary view, and one that currently prevails within the military and intelligence establishments, is that Israel should not catalyze the collapse, but neither should it strive officiously to keep the Palestinian Authority alive.

Nature, they argue, should be allowed to take its course.

Their major source of anxiety centers on uncertainty over what will replace the corrupt, discredited Palestinian Authority.

Would its disappearance plunge the region into even more murderous violence, or will it serve to further concentrate power in the hands of Yasser Arafat and his small circle of political cronies and security henchmen?

Those advocating the benign-neglect approach argue that the death of the authority will remove the contact, albeit minimal, that still exists over security issues — and that it will remove any semblance of rational administration in the Palestinian areas.

They are also concerned the collapse of the Palestinian Authority — which failed to deliver statehood, its central promise to the Palestinian people — will encourage a further degradation of security within the Palestinian areas, possibly sparking a power struggle that could lead to a full-scale Palestinian civil war.

So far, the greatest short-term damage to the Palestinians has been caused by the Palestinians themselves: Corruption, violence and prevarication over peace talks have combined to erode good will and cause aid from a disenchanted international donor community to virtually dry up.

Even the Arab states, anxious to demonstrate solidarity with their Palestinian brethren, have reneged on the $1 billion pledge to the Palestinian Authority by a consortium of Arab leaders in Cairo last October, led by Saudi Arabia and other Gulf states.

Faced with Arafat's continued refusal to permit transparency in the use of the funds, less than one-quarter — some $230 million — of the pledges have materialized.

Concerned that even that relatively modest aid package will wind up in the personal bank accounts of Arafat and his economic adviser Mohammed Rashid, Arab donors have opted to establish their own independent vehicles for bypassing the Palestinian Authority and delivering humanitarian medical and food aid directly to the Palestinians in need.

Even Iraqi President Saddam Hussein, Arafat's closest ally in the region, has appointed a member of the tiny pro-Iraqi Arab Liberation Front in the West Bank to personally disburse his $4.5 million aid package — $10,000 to each family of the current intifada's "martyrs."

The last of the true believers is the 15-member European Union, the most generous benefactor of the Palestinian Authority. Since November, it has sent Arafat some $52.5 million in emergency aid, ostensibly to cover salaries of Palestinian Authority employees. A further $55.3 million is in the pipeline.

But even the forgiving Europeans, who were loudly urging Arafat to grab the peace deal offered by outgoing Israeli Prime Minister Ehud Barak, are now talking of disengagement.

Shortly before the Israeli election that cost Barak his job, the Europeans sent Arafat an urgent message: Europe was prepared to be "extremely supportive on economic issues" if Arafat struck a deal. But if there was no peace agreement, "he should not take E.U. support for granted."

Europe's continued aid to Arafat in the absence of peace, a top European official said this week, was not entirely altruistic. It is, said the official, an attempt to prevent Iran and Iraq, both of which are willing and able to step into the fiscal breech, from securing an influential — and purely destructive — voice in the conflict.

But European patience has its limits: "By the spring," that official said, "we will certainly reassess the situation and act accordingly."

Where does that leave Israel? The collapse of the Palestinian Authority — which has run into the political and economic buffers — will remove the final semblance of coherent governance, and hand power to Arafat and his small band of loyalists.

It is estimated that — at least as long as Arafat is around — they will be able to control the multiplicity of armed security forces that have been established, but the infrastructure of administration, including the ability to collect taxes, will disappear.

Having wasted the opportunity for peace and having destroyed the Palestinian economy, Arafat is returning to the military option. Considerable effort is now being invested in resuscitating the PLO and its various institutions, which have been virtually moribund since the Oslo accords, to replace the Palestinian Authority.

For Israel, that means a return to the bad old days, to the violent cycle of terrorism and reprisal. With several important differences: "Now they are inside the gates," an Israeli analyst said this week. "We have brought Arafat back to Gaza and we have armed his security forces."

The tragic irony is that the arms that were intended to police the peace are now being used to line up Israelis in their sights and will, conceivably, be used to plunge the area into a murderous civil war.

Not least, it is a concoction of elements that contains the seeds of a full-scale Mideast war by an Arab world that senses a reduction in Israel's deterrent ability.