The Palestinians may be turning to the international courts to advance their bid for statehood, but they have lost a first battle in the US courts that could cost them dearly.
Monday's US ruling was hailed by Israel as a "moral victory", with Prime Minister Benjamin Netanyahu saying it showed the "hypocrisy" of the Palestinian attempt to join the International Criminal Court to sue Israel for alleged war crimes.
But the Palestinian leadership denounced the decision and vowed to appeal, saying the US justice system was being exploited by "hardline rightwing Israeli factions opposed to peace".
The ruling found the Ramallah-based Palestinian Authority and the Palestine Liberation Organisation (PLO) responsible for six attacks, which killed 33 people and wounded more than 390 others between January 2002 and January 2004.
It held both organisations liable and ordered them to pay the victims' families and the wounded more than $218 million in damages. Under US anti-terrorism laws, the damages are automatically tripled, meaning the full amount is more than $650 million.
The attacks were carried out by militants from the Islamist Hamas movement and from the Al-Aqsa Martyrs Brigades, an armed offshoot of the ruling Fatah party headed by Palestinian president Mahmud Abbas.
- Time of crisis -
The ruling does not bode well for the Palestinian Authority, which is already struggling to handle a major financial crisis that has been exacerbated by Israel's freezing of millions of dollars of tax revenues as a punishment for the ICC move.
Even before the ruling Washington had expressed concern that the crisis could lead to the collapse of the Authority.
But it remains a question whether the Palestinian leadership will have to pay the damages.
Israeli lawyer Nitsana Darshan-Leitner, who represented the victims, said she would leave no stone unturned in forcing them to pay and would target Palestinian assets in both the United States and Israel.
But senior PLO official Hanan Ashrawi told reporters in Ramallah: "We cannot pay. We do not have this money."
She expressed confidence that as long as the Authority cooperated with the US justice system, it would not have its American assets seized.
She also admitted that the ruling had come at a very bad time.
"This decision comes at a moment when the Authority is fighting for its survival... If it collapses, there will be consequences for the entire world."
Monday's ruling was made at a point of growing Israeli-Palestinian tension.
The Palestinian leadership is seeking to internationalise its decades-long conflict with Israel by joining the Hague-based ICC, in a first step toward suing Israeli officials for alleged war crimes.
The move has infuriated Israel, which hit back by freezing the monthly transfer of tax monies it collects on behalf of the Palestinian Authority -- money which makes up some two-thirds of Ramallah's annual budget, excluding foreign aid.
- 'We will win' -
"Instead of drawing the requisite lesson, the Palestinian Authority is advancing steps that endanger regional stability such as the hypocritical application to the International Criminal Court even as it is allied with the Hamas terrorist organisation," Netanyahu said after the US ruling.
The Palestinian move to join the ICC has drawn some international opposition on the grounds it could damage chances of the two sides ever reaching a peace agreement.
Diplomats have also warned the measure could rebound, with Palestinians themselves under investigation for anti-Israeli violence.
But Ashrawi of the PLO said the US ruling "only reinforces our determination" to pursue international legal action.
"We will continue in our quest for justice and we will win," she said.
Just hours after the verdict was handed down, Israeli troops shot dead a 19-year-old Palestinian youth in a refugee camp in Bethlehem during clashes sparked when the army entered the Dheishe refugee camp, medics and witnesses said.
The army said troops opened fire after coming under attack by Palestinians throwing stones and incendiary devices, wounding a soldier.