``It is generally not a good idea to not pay the salaries of armed people,'' Alvaro De Soto, top UN envoy to the Middle East
The Palestinian Authority is facing financial collapse because Israel and the U.S. are refusing to give it futher tax revenues (in Israel's case) and financial aid (U.S.). To me, this appears to be an incredibly short-sighted political move.
The problem Israel is facing, at this point, is a popular uprising, and has previously dealt with an unpopular, underfunded government, which would be no more able to enforce peace on a restless populace than the Israeli security forces could. Now, the P.A. has a government with a popular mandate -- probably the only organized entity in the last 5-10 years with a chance of actually negotiating and enforcing a lasting peace settlement.
Does Hamas have connections to terrorism? Absolutely. Does it mean we shouldn't negotiate with them? Absolutely not. It's not a line in the sand. After all, Yassir Arafat was a world-renowned terrorist in his time, yet he was invited to the White House and received the Nobel peace prize. If we can swallow that, we can certainly suck it up and talk to Hamas.
At some point, you need to forgive the sins of the past to move forwards.