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When they buried Rafiq Siam, the traffic stopped and hundreds of armed men, some firing into the air, gathered at the Gaza mosque. Eight men wearing red berets and black combat uniforms lifted his body wrapped in a white shroud and Palestinian flag and carried it inside with as much ceremony as the pressing crowd would allow.

Mr Siam, 40, a father of seven, was the victim of a single bullet to the base of his skull. He died on Sunday a week after he was shot, the latest victim in the worst outbreak of factional violence in Gaza for more than 10 years. Years of rivalry between the Islamic Hamas movement, which now dominates the government, and the more secular Fatah, which was ousted from power in January elections, is spilling over into a struggle for power.

Protests over pay

A few hours after the funeral, Mr Siam’s father sat with a dozen mourners outside the family home. His son, he explained, had worked at the office of the Palestinian president and Fatah leader, Mahmoud Abbas. The morning he was shot, armed men from a new Hamas unit, the Executive Force, clashed with Fatah protesters who were demonstrating about unpaid government salaries. “He was hit by a bullet on the back of his head,” said his father, Yusuf, 74. At least 15 people were killed in the clashes last week.

“This is no small thing that is happening. There is no nationalism here. It’s just a competition between two forces. I’m sick of both sides because they can’t control the situation. We are the victims. The victims are my son and the sons of others.”

There have been clashes between Palestinian factions before, particularly in Gaza where clan rivalries are frequently the rule of law. But what distinguishes the troubles this time is the power of Hamas and a worsening economic crisis.

As soon as Hamas formed a government after winning January’s elections, Israel withheld $60m (£32m) in monthly tax revenues and the international community halted direct financial aid to the Palestinian Authority. That, combined with frequent Israeli closures of the crossing points into Gaza, has prompted a severe economic crisis and left hundreds of young men, who have ready access to weapons, without salaries.

The funding freeze came because Hamas refused to meet Israeli and international demands to recognise Israel’s right to exist, to renounce violence, and to accept all past peace agreements. Despite the crisis, there is no sign that Hamas is ready to meet those criteria and fading hope that they might agree to a coalition government with Fatah.

A year after Israel’s withdrawal of settlers from Gaza promised a new future for Palestinians here, the coastal strip is being swallowed up in an internal feud.

As Yusuf Siam stood to greet mourners, a boy arrived with a handful of papers marked from the al-Aqsa Brigade, a Fatah-affiliated militant group, and handed them out. The letter offered condolences to the family and then vowed revenge. “For the families of the people who lost their sons at the hands of Hamas we swear that their blood will not be spilt for nothing,” it said. “We will give a lesson to Hamas.”

Civil war

There are signs that this is more serious than rhetorical rivalry between militants. “The Palestinian situation is marred by sharp divisions and battling; it is a misery and shameful for any Arab and any Palestinian,” Egypt’s foreign minister Ahmed Aboul Gheit, who has tried to mediate in this crisis, told the Al-Ahram newspaper this week. Some senior Palestinians are openly warning now of the danger of civil war.

In the offices of Palestinian politicians some try to downplay the crisis. “We are not worried about this⊃...⊃I am confident we will not reach the point of war,” said Yehya Mousa, a Hamas MP from Khan Yunis in southern Gaza.

But in the rival camp, aides to Mahmoud Abbas, the Palestinian president, are suggesting that he assert his authority, dissolve the Hamas government, and set up an emergency interim administration. This, Mr Mousa said, would be tantamount to a “coup”. Hamas leaders see this as Fatah smarting from its election loss and trying to take back power.

Alaa Edin Yaghi, a Fatah MP, said he believed a coalition government was now out of reach and favoured, eventually, replacing the current government with an emergency administration. He wanted Fatah to reinforce its strength on the ground before it takes action.

“We are not ready for a civil war or a hard fight with Hamas,” said Mr Yaghi. “It is not reasonable to go into a battle you will lose. But maybe if Hamas starts to feel Fatah is organising itself and getting stronger and seriously thinking of attacking them then they will withdraw and back down.”

Fatah and Hamas have been here before. Mr Yaghi once ran a Fatah committee that controlled the Jabiliya refugee camp and rounded up dozens of Hamas militants in a crackdown in the late 1980s. Then in the 1990s there was an official crackdown on Hamas. But now the Islamic movement has gone from being a militant opposition group to running the government. At the same time, Fatah’s power has ebbed.

“I think the situation was never worse than this,” said Mahmoud Ajrami, a Palestinian foreign ministry official. He argues that any attempt by Mr Abbas to dissolve the Hamas government could trigger a much more serious escalation of violence. “We are running towards a catastrophic end,” he said. “I don’t see anything but a civil war.”