The State Department is considering supporting the Palestinian Authority in its quest to avoid paying hundreds of millions of dollars in judgments won by American victims of Palestinian terrorist attacks in Israel, according to Palestinian officials and defense lawyers involved in the cases.

U.S. officials insist that no decision has been made regarding the complex litigation, which could force the Bush administration to choose between supporting compensation for victims of terrorism and bolstering the Palestinian government as the United States presses for a breakthrough in Israeli-Palestinian peace talks.

Testimony in Israeli courts has connected senior Palestinian leaders -- such as the late Yasser Arafat -- to specific terrorist attacks involved in the lawsuits. But Palestinian officials have argued that it makes no sense for the United States to be providing millions of dollars in aid to the Palestinian Authority while U.S. courts are threatening to bankrupt it.

In response to a plea for assistance from Palestinian President Mahmoud Abbas, Secretary of State Condoleezza Rice 13 months ago sidestepped the issue, writing that "the United States is not party to these enforcement proceedings." But in December, a U.S. federal judge asked the government whether it would get involved, creating the current dilemma for the administration.

"There has been a rethinking in the State Department that I wholeheartedly welcome," said Afif Safieh, head of mission in Washington for the Palestine Liberation Organization. He said the lawsuits were "politically and ideologically motivated to drive the Palestinian Authority into bankruptcy."

Victims, who will meet with top State and Justice Department officials tomorrow, said that a U.S. intervention with the courts would make a mockery of the administration's fight against terrorism.

Leslye Knox, a 46-year-old mother of six children and widow of Aharon Ellis, a U.S. citizen who was killed in 2002 while singing at a bar mitzvah in Hadera, Israel, said that she has sued under a law passed by Congress in 1990 after the murder of Leon Klinghoffer by terrorists who seized the Achille Lauro cruise ship. In 2006, a federal judge ordered the PLO and the Palestinian Authority to pay Knox and other Ellis relatives nearly $174 million, but nothing has been paid while Knox has struggled to support her family.

"Now here are the wrongdoers, they come to the government, and say, 'Hey, help us,' " Knox said. "It's hard to see why the government listens to them. It makes me feel like, 'Who is on my side?' "

"If the State Department tips the scales of justice against the victims in order to support adjudicated terrorists, the war on terrorism will be seen throughout the world as a farce," said David J. Strachman, a Rhode Island lawyer who has spearheaded many of the lawsuits.

The Justice Department will make the final decision, U.S. officials said. "A court has asked the U.S. government to inform it whether it is contemplating filing a statement of interest, but no decision has been made on how the U.S. government will respond," said State Department spokesman Tom Casey.

The Palestinian Authority initially argued that it had sovereign immunity, meaning that as a state it was beyond the reach of the U.S. legal system. Former attorney general Ramsey Clark, who was hired to defend the Palestinians, described in a court hearing how he had to "break my neck climbing over literally rubble" of Arafat's compound in Ramallah in 2003, only to be told to ignore the cases.

But U.S. courts rejected the Palestinian claim of sovereign immunity, noting that Palestine is not a state. Judgments have been rendered against the Palestinians in the Knox case and a separate case brought by the children of Yaron Ungar, a U.S. citizen killed in Israel in a 1996 terrorist attack. Ungar's relatives were awarded $116 million, which the Palestinian Authority has not paid.

After the Ungar case, about $200,000 in two of the PLO mission's bank accounts were frozen in 2005, a situation that Safieh called a "nightmare." On June 18, 2005, then finance minister (and now prime minister) Salaam Fayyad wrote to Rice, urging State to intervene, saying that the Ungar lawsuit was a "serious obstacle" to effective Palestinian participation in peace talks and was inconsistent with U.S. foreign policy.

Abbas also wrote to Rice in November 2006, after another court froze more than $100 million in retirement funds for Palestinian workers that were being managed in the United States.

Rice responded with a neutral letter. She noted that the Ungar case had gone all the way to the Supreme Court, which declined to review it, so "the judgment is final and enforceable in United States courts." She suggested that the Palestinian Authority explore "out of court solutions so as to avoid enforcement actions."

With a new set of lawyers -- Richard A. Hibey and Mark J. Rochon of the Washington firm Miller & Chevalier -- the Palestinian Authority last year said the Knox judgment should be nullified because the authority was now prepared to litigate the case and offer a vigorous defense. Citing Rice's letter to Abbas, the new legal team urged U.S. District Court Judge Victor Marrero to request a "statement of interest" from State because of the "international ramifications."

"The judgment's potential interference with American foreign policy presents a unique and exceptional circumstance justifying relief from a default judgment," the lawyers argued.

Marrero in December issued an order asking whether the United States contemplated issuing a statement of interest in the case. He gave the government 45 days to respond, but at the government's request, he recently extended the deadline until the end of February.