European diplomats say the US is blocking a plan to resume direct financial aid to the Palestinians.
The UN warns poverty will rise if salaries continue to go unpaid
The European Commission is considering plans to send funds to the office of the president, bypassing the Hamas-led Palestinian government.
Under the proposal, money for basic services such as health and education, could go to Mahmoud Abbas' office.
The commission's report said the plan might "avert or delay" a collapse of the Palestinian Authority (PA).
Direct aid to the authority was cut off following Hamas' election victory.
The United Nations estimates that a quarter of the Palestinian population depends on government salaries. The PA employs some 165,000 people.
But the severance of donor funding has meant that the government has been unable to pay wages for March and April.
BBC Middle East analyst Roger hardy says the Bush administration wants to maintain the economic pressure on the Hamas-led government.
PA FINANCIAL CRISIS
$116m: PA's monthly wage bill
PA employs 165,000 people
25% of people in West Bank and Gaza depend on PA wages
The official view in Washington is that if Hamas refuses to recognise Israel, and eventually collapses, it will have no-one to blame but itself.
But, our correspondent says, many in Europe feel that wielding the big stick against Hamas will be counter-productive, and that it is in no-one's interests for Gaza and the West Bank to descend ever deeper into poverty and lawlessness.
Also on Friday, thousands of Palestinians took part in demonstrations in the West Bank and Gaza in support of the Hamas government.
Hamas beat Mr Abbas' Fatah faction in January's election, but has faced a severe financial crisis since forming a government.
Hamas has faced a severe financial crisis since it took office last month
International donors say they cannot pass funding to a government led by a group they designate as a terrorist organisation and are hoping to pressure Hamas into recognising Israel and renouncing violence.
A European Commission report on the proposal says: "With current or even substantially increased levels of funding, the EU will not be able to stave off a crisis but might be able to avert or delay a collapse."
Under the European plan, which is similar to one proposed recently by France, donors could set up a pool for funds in co-ordination with the UN, the World Bank or the International Monetary Fund.
The Arab League and Hamas have been trying to find a way to pay PA employees directly from abroad.
Hamas accused the US of blocking this deal.
Sweden and Hamas
In a separate development, Swedish Prime Minister Goran Persson has defended his country's decision to grant a visa to a Palestinian cabinet minister, Atef Odwan, who is a member of Hamas.
Mr Persson said the Swedish government considered Hamas to be a terrorist organisation but said this did not mean that individual members of the group could not be granted visas.
Mr Atef is expected to visit Sweden on Saturday to attend a conference in the southern city of Malmo.
Earlier this week, Sweden rejected visa applications from two other Palestinian officials belonging to Hamas.