The UK Government must engage with Palestinian political leaders to end the humanitarian crisis and revive the peace process following the formation of a national unity government, Christian Aid said.

The charity warned yesterday that if the crippling boycott of the Occupied Palestinian Territories continues, public administration will collapse.

Rival politicians from Hamas and Fatah announced the formation of the national unity government on Saturday after months of negotiations. Christian Aid said it was a "bold initiative that deserves international recognition and support", as the alternative would be a further descent into poverty, violence and lawlessness in the occupied territories, it said.

"The Palestinians have stepped back from the brink. Christian Aid is calling on the UK Government to speak out in support of the new unity government and use its influence to bring an immediate end to the boycott. The alternative could be a catastrophic slide towards civil war," said Janet Symes, Christian Aid's Middle East regional manager.

The Palestinian Authority has been starved of funds since Hamas was elected in January 2006. Israel has also been withholding millions it owes the Palestinian Authority in tax revenues, Christian Aid reports.

This has led to a breakdown of public services and law and order in the occupied territories. Government ministries, hospitals, schools and the courts have all faced closure over the last year and are functioning at minimum capacity, with staff salaries withheld.

"A year of economic and political sanctions on the Hamas-led Palestinian Authority, together with the closure of borders, extreme restrictions on movement and frequent Israeli incursions, has led to an unprecedented humanitarian crisis in the West Bank and Gaza Strip," said Ms Symes.

80 per cent of Gazans currently have no income and two-thirds live below the poverty line.

"Gaza is a prison - 1.4 million people are trapped and the result is violence. Sanctions, closure and isolation are killing us," said Naila Ayesh of Christian Aid's partner, the Women's Affairs Centre.