Palestinian Prime Minister Salam Fayyad said Saturday that the release of $88.6 million in development funds by U.S. lawmakers would help ease a fiscal crisis in the aid-dependent Palestinian economy.

“This is very important in order to help us deal with the economic crisis,” Fayyad told reporters in Ramallah.

In August, Republican lawmakers put a hold on $147 million in U.S. assistance because they objected to a Palestinian push for recognition at the United Nations, arguing that Palestinian statehood should be achieved through peace talks with Israel.

On Friday, U.S. Representative Kay Granger announced she was ready for the entire sum to go to the Palestinians. But the other representative who had a hold on the funds, Ileana Ros-Lehtinen, limited the release to $88.6 million.

In a sharply worded letter, Ros-Lehtinen made clear that the legislative branch has the power to expend funds and to stop them mid-course.

She said the money could be spent with the understanding that it not be used for assistance and recovery in the Hamas-controlled Gaza Strip; road construction projects in the West Bank, except if directly related to security and projects with permits from Israel in other areas; and trade facilitation, tourism promotion, scholarships for Palestinian students and other aid for the Palestinian Authority agencies and ministries.

Ros-Lehtinen said she would continue to block the $58.6 million because part of the money is for Gaza assistance and recovery.

“Just a week after the recent rocket attacks against Israel, the administration is pressuring Congress to provide resources and funding for Gaza that allows Hamas the flexibility necessary to continue its rule over the area,” she wrote, arguing the money could be used by Hamas and other extremists.

The Republican lawmaker also criticized the administration for its pressure on the issue.

“I am disappointed that the administration would employ hardball tactics against Congress and threaten to send, over congressional objections, U.S. taxpayer dollars to the Palestinian Authority,” Ros-Lehtinen wrote. “I hope this is an isolated incident and that we continue the otherwise productive relationship between the committee, the State Department and USAID.”

The administration and even Israel have pressured lawmakers to free up the Palestinian aid. In an interview with The Associated Press last year, U.S. Secretary of State Hillary Rodham Clinton said the administration has reached out to Israel, which has an interest in maintaining Palestinian security aid, to persuade Congress to support assistance.

“We’re asking the Israelis on a case-by-case basis,” she said.

Last November, Ros-Lehtinen lifted her hold on millions in economic support funds for the Palestinian security forces and other assistance.

The Palestinians have received about $500 million a year from the U.S. alone in recent years, including tens of millions of dollars for training the Palestinian security services.

In a statement, Granger said she had taken “a strong position on aid to the Palestinian Authority to send a message that seeking statehood at the United Nations, forming a unity government with Hamas and walking away from the negotiating table with Israel were not pathways to peace. Right now it is in our interest, and the interest of our allies in the region, to allow aid to flow to address security and humanitarian concerns.”

Fayyad said he hoped that the entire amount, meant to support development projects, would be released.

“The entire sum must be sent in order to begin allocating spending for the year 2011 and this is important in order to support the Palestinian Authority’s budget,” Fayyad said.

There have been growing warnings, including from the International Monetary Fund, that the Palestinians are facing a deepening financial crisis due to a drop in aid from Western backers and wealthy Gulf states as well as Israeli restrictions on trade.

The IMF urged donors last week to meet their aid pledges to the Palestinian Authority in the West Bank, which has a projected 2012 budget deficit of $1.1 billion.

Earlier this month, an Israeli government report said the Palestinian Authority is not economically stable enough for statehood.

The report is set to be presented this week to donors to the Palestinian Authority. They include the U.S., the EU, the World Bank and the International Monetary Fund.

The report says Palestinian “financial stability is now challenged.’’ It cited a shortfall of foreign aid and lack of development in the private sector.