Palestinian Authority Chairman Mahmoud Abbas said Thursday he was prepared to make critical decisions on the fate of the Palestinian government, indicating he might dismiss the Hamas-led cabinet as a step toward relief from crippling Western aid sanctions.

Addressing diplomats in the West Bank city of Ramallah at a feast marking the end of the day's Ramadan fast, Abbas said, "We are going to make the decisions about forming a cabinet that abides by Palestinian and Arab and international legality to lift the siege from our people and alleviate its suffering."

It was Abbas' clearest indication that he might dismiss the current cabinet. Abbas has been promoting the idea of a cabinet of technocrats that would replace the current one, which is comprised mainly of Hamas politicians.

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An aide said Abbas would not let the crisis boil on indefinitely.

Abbas' Fatah and the Islamic Hamas have been in talks for weeks about forming a joint government, but the contacts have deadlocked over Hamas' refusal to accept international demands of recognizing Israel, renouncing violence and endorsing past peace deals.

When Hamas took office in March, Israel, the U.S. and European Union cut off hundreds of millions of dollars of aid, listing Hamas as a terror group, bankrupting the Palestinian Authority and causing widespread hardship.

On Thursday, Abbas' office said it received 23 million euros from the European Union to pay some government salaries. In a statement, Abbas' office said the money would be used to pay partial salaries to 62,000 of the 160,000 government workers - civilians and not security personnel. The statement said additional funds would come from the EU by the end of the month to pay health workers.

The government is the largest employer in the Palestinian areas. Most workers have received little money since Hamas took office seven months ago.

While cutting off aid to the Hamas-led government, the EU has been channeling some funds through Abbas as an effort to alleviate some of the hardships and boost the standing of Abbas among his people.

As PA Chairman, Abbas also has the authority to dismiss parliament and call new elections, but he has hesitated to do that because polls show that Hamas would have a good chance of defeating Fatah again.

UN official: 'Siege' of Gaza not helping Israel achieve goals
The "virtual siege" of Gaza does not appear to be helping Israel achieve its goals in the volatile area even as it fuels Palestinian despair, a senior UN official told the Security Council on Thursday.

Israel's operations in the Gaza Strip since Palestinian militants kidnapped Israel Defense Forces soldier Gilad Shalit on June 25 have killed 295 Palestinians including 66 children and have wounded 1,113 others, said Alvaro de Soto, the UN coordinator for the Middle East peace process.

"However, neither these intensive operations nor continuing diplomatic efforts have led either to the release of the captured soldier or to the cessation of indiscriminate rocket attacks, which have injured 20 Israelis since 25 June," de Soto told the council's regular monthly meeting on the Middle East.

A number of Israel Defense Forces military and intelligence sources say militants have been smuggling even more arms into Gaza in recent months, he said.

Forming a Palestinian government of national unity remains the best way out of the crisis, de Soto said. "Only a political way out can defuse it."

Palestinian efforts toward a unity government have failed so far over the elected Hamas government's refusal to recognize Israel's right to exist and to swear off violence.

Israeli Ambassador to the UN Dan Gillerman told the council it was "clear to all that the Hamas government currently leading the Palestinian Authority is driving dangerously on a road that only leads to further isolation."

"Today the Palestinian people face a critical decision, one that can reverse their situation, a situation they chose and for which they alone are responsible," Gillerman said.

De Soto said Israel's withholding of Palestinian tax and customs receipts and its near-blanket closure of the Gaza crossings, while driven by valid security concerns, continued to cripple the Palestinian economy and its civil service.

The combination of a nonfunctioning public sector including security forces, continued IDF strikes and a lack of political progress has created "a truly explosive" situation, "as potentially dangerous for Israel as it is currently dangerous for Palestinians," he said.

"The virtual siege of Gaza is having a devastating effect on the lives of ordinary Palestinians, stifling hope and fomenting despair, while the continued dangerous launching of rockets at Israeli population centers such as Sderot is a source of deep distress for ordinary Israelis," he said.

Israel withdrew its troops and settlers from the Gaza Strip last year and has said it has no intention of reoccupying it, arguing its operations since June are necessary to protect the people of Israel.