By Ali Sawafta and Noah Browning
RAMALLAH, West Bank (Reuters) - The Western-backed Palestinian Authority will roll back recent tax increases, Prime Minister Salam Fayyad said on Tuesday, in a policy U-turn aimed at ending angry protests that have swept the West Bank, but a union leader rejected the concession.
The protests are being eyed with growing concern by Israel, which fears the frustration against the Palestinian leadership could snowball into a third, general uprising against the Israeli occupation of the West Bank.
Thousands of youths attacked a police station in the city of Hebron on Monday night, calling for the dismissal of Fayyad who is struggling to keep finances afloat in the face of a slowdown in foreign donor aid and continued Israeli trade restrictions.
Underlying his problems, government employees, many of whom will receive only part of their August salaries because of a government cash crisis, staged a strike on Tuesday and hundreds of them picketed the government cabinet meeting.
"We're doing the best we can, and we have been all along," Fayyad said after announcing that his government would mostly scrap a planned hike in fuel and diesel levies announced last week that amounted to a rise of around five percentage points.
"I hope that the Palestinian citizen could look at this situation, in light of the unique hardships we face, and will find it sufficient. It represents the maximum, most intensive effort to get to a solution, he added.
Fayyad said the shortfall created by the slash in taxes would be made up by cutting high-end government salaries and scaling back the operations of some ministries, but that only donor aid could pay the bills in the short term, pending greater economic independence for the Palestinians.
Out of cash and bound by economic accords that peg its sales tax to steep Israeli rates, the Palestinian Authority is struggling to salvage its legitimacy in the eyes of the public, and officials have blamed Israel for its economic woes.
"There are clear limits to what the Palestinian Authority can achieve economically given the context of Israeli restrictions it experiences, Fayyad said.
UNION REJECTS CONCESSION
The head of the Palestinian public transport union promptly rejected the move and promised more street action, saying fuel prices even before the recent hike were beyond their means.
"These decisions are unsatisfactory, and we will continue in our protests," Jawad Omran told Reuters.
Palestinians have mostly saved their outrage for Israel, which has occupied the West Bank for 45 years, and even some of the protesters were surprised by the intensity of Monday's violence, where more than 50 people were reported injured.
The Islamist movement Hamas, which holds sway in the isolated Gaza Strip and is fiercely opposed to President Mahmoud Abbas, has a strong following in Hebron.
In the wake of Monday's violence, messages were posted on Facebook and other social media appealing for calm.
"Protest, but don't destroy your country," said one message, adding: "Palestine is bigger than everyone."
Fayyad has been a focal point of the protests. Demonstrators in Hebron pelted a giant poster of him with shoes on Monday and chants throughout the West Bank described him as "a collaborator with the Americans" and called for his resignation.
Abbas initially welcomed the protests when they started to pop up last week, equating them with the Arab Spring democracy movements and pinning the blame firmly on Israel for the economic turbulence.
But if the unrest escalates, it could undermine his own position, with the Palestinian leader having little to show for his policy of seeking a negotiated peace settlement with Israel.
Abbas appeared to circle his wagons around the embattled Fayyad late last week, describing the premier as an "integral part" of his administration and taking responsibility for the government's actions.
Azzam al-Ahmad, a top member of the Fatah party which Abbas heads, rejected Tuesday's government decision, hinting at the animus of Fatah officials towards the Western-educated technocrat that has lingered for years.
"It is not enough. It won't solve the problems and doesn't support the steadfastness of the Palestinian people," al-Ahmad told Reuters.
When the Arab Spring first rippled across the Middle East last year, the Palestinian Territories remained quiet. Locals said there was no appetite for fresh confrontation after decades of largely fruitless rebellion against Israel.
Tensions have risen over the summer months, however, with Palestinians angry at continued deep schisms within their own political class, and frustrated at the soaring cost of living.
(Additional reporting by Jihan Abdalla; Editing by Crispian Balmer and Mark Heinrich)