The Obama administration is warning that forcing the PA to turn over too much money to the court could destabilize the only Palestinian entity the U.S. can work with in the troubled region.
At issue right now is the amount of bond that the PA must put up while it appeals a $655 million judgment.
The suit was originally brought in 2004 by families of victims of terror attacks in Israel. In February, a jury found the Palestinian Authority and Palestine Liberation Organization responsible for the attacks and liable for damages.
On behalf of the State Department, Deputy Secretary of State Antony Blinken wrote in a filing late Monday before the U.S. District Court in the Southern District of New York that a substantial bond could bankrupt the Palestinian Authority, which would be a major foreign policy and national security concern.
"An event that deprives the PA of a significant portion of its revenues would likely severely compromise the PA's ability to operate as a governmental authority," he wrote. "The collapse of the PA would undermine several decades of U.S. foreign policy and add a new destabilizing factor to the region, compromising national security."
Blinken wrote that without the Palestinian Authority, terror groups that want to wipe out Israel would fill the void, with regional implications.
"At a time when the United States is leading international efforts to counter extremism and degrade and defeat ISIS, the collapse of the PA could potentially create a new vulnerability for terrorists to exploit," he added.
The State Department also repeatedly made clear in the filing that the government supports compensation for the families of victims of terror attacks -- and noted that the government is not formally opposing the multimillion-dollar judgment in favor of the victims.
But the filing also demonstrates the awkward position the government finds itself in. The optics of seeking a lower bond payment for the Palestinian Authority to appeal the ruling pits the government against Americans terror victims, since the U.S. also has to weigh its diplomatic responsibilities in the Middle East and fostering stability for Israelis and Palestinians.
The timing is also sensitive, as the White House continues to push for congressional approval of its Iran nuclear deal.
One of the most powerful opponents on the deal, Senate No. 3 Democrat Chuck Schumer of New York, just last week implored
the administration to stay out of the terrorism case altogether.
"The size of the judgement in this case reflects the severity of the crimes and the large numbers of families affected," Schumer wrote in a letter to Obama administration officials urging them to stay out of the case. "I believe that the jury's decision in this case, and the judge's subsequent determinations, should be respected and the wheels of justice should be allowed to move forward without interference from the administration."
The move could also increase tension with Israel, which is vociferously opposed to the Iran nuclear deal.
Congress will be voting on whether to disapprove of the Iran deal when it returns in September. The current whip list
shows positive signs for the administration, but it's not yet assured that a presidential veto of an anticipated vote of disapproval
would be sustained.