Palestinian President Mahmoud Abbas said he would seek to take the dispute to arbitration at the International Criminal Court
The Palestinian Authority will pay partial salaries to most of its employees for a fourth straight month in April after Israel failed to transfer revenue it collects on the Palestinians' behalf, the Palestinian Finance Ministry said.
Israel started withholding around $130 million a month in tax and customs revenues in December after the Palestinians announced that they were joining the International Criminal Court (ICC), a move finalised on Wednesday.
Under international pressure, Israel agreed last week to resume the transfers, saying it would immediately pay around $400 million - the withheld revenues less what the Palestinians owe for utilities supplied by Israel.
But Palestinian finance minister, Shukri Bshara, said no money had yet been received from Israel and as a result most Palestinian Authority employees will receive 60 percent of their salaries on Thursday, the fourth month of pay cuts.
Angry at the delay, Palestinian President Mahmoud Abbas said he would seek to take the dispute to arbitration under terms of a 1993 interim peace deal with Israel, and that if that did not resolve it, he would consider appealing to the ICC.
Abbas also rejected the sum Israel was offering, accusing it of having calculated utility costs owed by Palestinians unilaterally.
Despite the shortage of funds, Palestinians earning less than 2,000 shekels a month ($500) will continue to receive their full salary. The Palestinian Authority employs around 150,000 people in Gaza and the West Bank.
"This procedure is because Israel has not yet transferred the Palestinian tax revenues for a fourth consecutive month," Bshara said in a statement on Wednesday.
The International Monetary Fund has warned of dire consequences for the Palestinian economy if the transfers are not rapidly resumed.
Not only does it affect consumption, but it means loans taken out by Palestinian Authority employees and the Palestinian Authority itself are in danger of falling into default.
The Palestinian Monetary Authority, the central bank, warned last week that lending had nearly reached its limit, with the banking system increasingly in danger.
When Prime Minister Benjamin Netanyahu said last Friday that the government would release the transfers for humanitarian reasons and because it was in "Israel's interests", he received praise from the United States and the European Union for the decision.
Israeli officials had no immediate response on Wednesday when asked to explain why the money had not been transferred.
According to Bshara, a total of 2.1 billion shekels ($500 million) is now outstanding - four months' worth of withheld revenue less the amounts the Palestinians pay for water, electricity and other services supplied by Israel.