This study examines the main territorial, political, and economic obstacles facing the development of the Palestinian public administration in the West Bank and Gaza Strip (WB&G) in the post Oslo Accord period. It analyzes the effects of Israeli territorial and non-territorial policies on the viability and performance of the Palestinian public sector en route to statehood. It reviews the different initiatives adopted by the Palestinian National Authority (PNA) to develop and modernize the public management system in the WB&G and how these were jeopardized by Israeli policies that eventually resulted in the current predicament facing the Palestinian polity reflected in the creation of two rival governments, each with a territorial base, raising the specter of institutionalizing the separation between the WB&G to the demise of Palestinian aspirations to build a viable state within the geographic framework of these two areas.