Palestinian prime minister Salam Fayyad on Tuesday announced cuts to fuel prices and VAT after more than a week of protests across the West Bank over the spiralling cost of living.
But the head of the government workers' union rejected the measures as "disappointing" and warned the protests could escalate to a general strike.
The price of fuel "will be returned to what it was in late August, starting tomorrow," Fayyad told reporters after the weekly cabinet meeting.
"We will reduce the VAT to 15 percent, which is the minimum available to us at the moment," he added.
The measures were announced as hundreds of bureaucrats gathered in front of Fayyad's office for new protests over the cost of living, a day after a mass strike by transport workers that paralysed much of the West Bank.
Fayyad said government workers would be paid part of their overdue August salaries on Wednesday, and pledged to work to pay the remainder within days.
He said the fuel price and VAT cuts would be paid for by a freeze on spending in all ministries except health, education and social affairs, as well as progressive cuts to the salaries of high-ranking government officials, including ministers.
Palestinians in the West Bank have been demonstrating for the past 10 days over the cost of living, and particularly the price of fuel, which has risen from six to eight shekels (from $1.50 to $2.00, 1.18 to 1.57 euros) per litre in the past two months alone.
Much public anger has focused on Fayyad and the policies of his government, with about 1,500 demonstrators joining Tuesday's sit-in outside his office.
"Our demand is for an immediate reduction in the cost of fuel," union head Bassam Zakarneh told demonstrators.
"We are not calling for the departure of Fayyad himself, but for the end of his economic policy," he added, calling for a 30 percent reduction in fuel prices.
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But he was not impressed by the cuts announced by the prime minister.
"What Fayyad has adopted is disappointing and doesn't fulfill even a small part of our demands," he told AFP.
"Actions are ongoing and we will hold a meeting on Sunday to develop a programme that could lead to a general strike," he said.
Mahmud Abbas's West Bank government has struggled to respond to public frustration, although it has approached Israel for talks to amend the Paris Protocol, a key accord which has a direct impact on local taxes and fuel prices.
The 1994 agreement governs Israel's transfers of tax revenue to the Palestinians and sets limits on the difference in fuel prices applicable in Israel and the Palestinian territories.
It sets Palestinian VAT at between 15 and 16 percent, and puts the maximum difference between Palestinian and Israeli fuel prices at 15 percent.
Israeli Prime Minister Benjamin Netanyahu on Tuesday said his government was "working on several fronts to help the Palestinian Authority with its economic problems."
"We have made several changes to the tax agreements and we are working on the transfer of certain amounts of money to the Authority," he said.
"I hope they will succeed in getting through this, which is in the mutual interest of both sides," he added.
The Palestinian Authority is facing its worst economic crisis in years, largely because of a failure by donors to deliver pledged funds.
The crisis has left the Ramallah administration unable to fully pay tens of thousands of government workers.