The new Hamas-led government is broke and missed the April 1 monthly pay date for tens of thousands of Palestinian public workers, Prime Minister Ismail Haniyeh said Wednesday.

It was the Islamic militants' first admission they will have difficulty running the West Bank and Gaza without massive foreign aid.

Haniyeh offered no solutions to the cash crunch, pledging only to do his best to make up for tens of millions of dollars in aid being withheld by international donors and appealing to the Arab world to send more donations.

The Palestinian Authority is the largest employer in the West Bank and Gaza Strip, providing salaries for 140,000 people that sustain about one-third of the Palestinians. Haniyeh said it was unclear how the government will meet its payroll.

"The Palestinian Finance Ministry has received an entirely empty treasury in addition to the debt of the government in general," Haniyeh told the first meeting of his Cabinet.

"We are going to do our utmost as a government to pay the salaries of the Palestinian Authority employees despite the cash crisis that we are facing."

Finance Minister Omar Abdel Razek said he is waiting for $80 million from Saudi Arabia, Kuwait and the United Arab Emirates.

"If they pay, and I hope they will, we will be able to pay salaries by the middle of the month," he told The Associated Press.

A collapse in the Palestinian Authority would devastate an economy where 44 percent of the population lives under the poverty line of about $2 a day and nearly one-quarter of the work force is unemployed, according to the World Bank.

In a symbolic step, Haniyeh said Cabinet members would not be paid until the financial crisis is solved.

"We are not going to receive our salaries until everyone from the Palestinian Authority is paid," he said.

Haniyeh's Cabinet, sworn into office just a week ago, needs to find ways to make up for foreign aid that Western donors are threatening to withhold, largely because of the Hamas' refusal to recognize Israel and renounce violence. In the past, Palestinians received about $1 billion a year in foreign aid.

Israel also froze the transfer of tens of millions of dollars in tax revenues it collects on behalf of the Palestinians since shortly after Hamas' January election victory.

The United States and Canada already announced they are severing ties with the new government, and the European Union is to decide on its aid program next week.

EU foreign policy chief Javier Solana told the European Parliament on Wednesday that "talking about business as usual simply isn't possible" until Hamas renounces violence and recognizes Israel.

Hamas leaders have rejected calls to moderate and until recently claimed they would be able to cover any shortfall with help from Arab and Muslim countries.

However, Haniyeh conceded Wednesday that Arab pledges are insufficient, and his ministers soon would embark on a tour of the Arab world to drum up more support. The Arab League last week resolved to send the Palestinians about $55 million a month, but Arab nations have largely failed to honor such commitments in the past.

Israel has welcomed Western efforts to continue humanitarian aid to the Palestinians, as long as the money does not reach Hamas, which it considers a terrorist group. The United States and EU also classify Hamas as terrorists.

Wednesday's Cabinet meeting was held via videoconference, with simultaneous sessions taking place in Gaza and the West Bank because Israel does not permit Hamas ministers to travel between the two territories through Israel. The Palestinian legislature also meets this way.

The Cabinet voted to freeze decisions made by the more moderate Fatah-controlled Cabinet just before it left office, including transferring some powers to Palestinian President Mahmoud Abbas and promoting Fatah functionaries, Palestinian officials said.

Hamas has softened its statements since taking power last week but stopped short of meeting the international community's demands.

In the latest mixed message, Palestinian Foreign Minister Mahmoud Zahar wrote to U.N. Secretary-General Kofi Annan on Tuesday that the new Hamas government believes its struggle against Israel's military occupation is just, but it wants to live side-by-side and in peace with its neighbors.

Zahar's letter also referred to Israel's "illegal colonial policies," which he said "will ultimately diminish any hopes for the achievement of settlement and peace based on a two-state solution."

Diplomats said the reference to a two-state solution by Hamas, which calls for Israel's destruction, could be a sign it is moderating. However, Zahar denied that he in any way recognized Israel's right to exist or a two-state solution to the Israeli-Palestinian conflict.

The English translation of Zahar's letter to Annan, including the reference to a possible two-state solution, was sent to the AP by the Palestinian Observer Mission to the United Nations.

Haniyeh also sent mixed signals on contacts with Israel. He said Hamas has "no problem to contact the Israelis to discuss issues related to our people's daily lives." But he ruled out political negotiations.