Palestinian prime minister Salam Fayyad announced on Sunday that he is putting on hold his plan to raise taxes, his bureau said.
Fayyad "decided to postpone the new procedures on taxes until February 15 and open a dialogue with all institutions and factions," a statement from his bureau read.
According to the statement, Fayyad will ask his cabinet to approve the decision to postpone the tax hikes in the upcoming Tuesday meeting.
At the beginning of January, Fayyad announced a number of economic austerity measures, which included tax hikes and early retirement for public servants, in a bid to reduce what is forecast as a $1.1 billion (853 million euro) budget deficit in 2012.
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Earlier this month, hundreds of people marched in the West Bank city of Nablus to protest the measures, banging on pots and some calling for Fayyad to quit after he disclosed the measures.
"We want a government that defends the people rather than robbing them of their food and money by raising taxes," complained Khaled Mansur, one of the leaders of the leftist Palestinian People's Party.
Fayyad's plans for spending cuts come as he himself faces an uncertain future as the head of the Ramallah-based government.
Representatives of the rival movements Fatah and Hamas are currently trying to form an interim government of independents -- as called for by a reconciliation deal the two sides signed last year.
Hamas has insisted that the caretaker government, which is supposed to pave the way for elections by May, not be headed by Fayyad, who has said he has no objection to stepping aside with the formation of a new government.