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Sep 7, 2008 – When a Palestinian gunman burst into a bat mitzvah celebration in northern Israel in 2002, killing 6 people and wounding more than 30, the attack sparked anger and despair, and military retaliation by Israel. It also prompted a lawsuit in New York, which has taken an unusual turn.

The family of the sole American, Aharon Ellis, killed in the attack, charged the Palestine Liberation Organization and the Palestinian Authority with orchestrating the shooting that killed him. The suit was brought under a law that allows American victims of international terrorism to sue for triple damages in federal court.

A federal judge awarded the family a default judgment of $192.7 million in damages after the P.L.O. and the Palestinian Authority refused to defend the suit on the merits.

But now the Palestinians, holding themselves out as a partner in the Middle East peace process, have changed lawyers, and asked the judge for a second chance. The judge, Victor Marrero of Federal District Court in Manhattan, has agreed to set aside the judgment and give them that chance.

But there’s a catch. He is requiring the Palestinians to post a bond of $192.7 million so that if they lose again, the damages would be paid.

The new defense lawyers have proposed a bond of $15 million, saying that their clients cannot afford $192.7 million, which they said was nearly 10 percent of the annual budget of the entire Palestinian Authority. The defendants “are teetering on the verge of bankruptcy,” they said in court papers.

And so the case has veered for now into a detailed discussion and examination of Palestinian finances. But should those matters be resolved, the suit stemming from the 2002 rampage may be heard and defended in Judge Marrero’s courtroom, thousands of miles from the scene of the attack.

The defense lawyers have filed affidavits from Salam Fayyad, prime minister in the government of the Palestinian president, Mahmoud Abbas, citing a financial crisis caused by international embargos on foreign aid, a withholding of payments by Israel and restrictions on trade and movement in the West Bank and the Gaza Strip.

The lawyer for Mr. Ellis’s family, David J. Strachman, has opposed any reduction in the bond, telling the court he believes the defendants are misleading the court and concealing property like valuable bank accounts that were once controlled by the P.L.O. chairmanYasir Arafat, who died in 2004.

“We think we can prove that there are hundreds of millions of dollars that are available in assets by both of these defendants,” Mr. Strachman said.

The court, which has not yet ruled on whether to reduce the bond, ordered the Palestinians to provide the family with a fuller accounting of properties and bank accounts. Late last month, the defendants filed new financial documents with the court.

Richard A. Hibey, a lawyer for the Palestinian defendants, has told the court that the documents will show how “this utterly insolvent, destitute operation runs.”

Neither Mr. Hibey nor Mr. Strachman would comment publicly. But legal experts said the case shows how hard it can be for victims of international terrorism to recover damages in the civil courts, even where there is a law passed on their behalf.

“Civil litigation, even in normal circumstances, is time-consuming, expensive, and you certainly can’t be certain of victory,” said John F. Murphy, a Villanova University law professor. “That kind of problem is exacerbated in the terrorist context.”

Professor Murphy estimated that there had been a few dozen cases under the law, which was passed in the early 1990s after the murder of Leon Klinghoffer in a Palestinian hijacking of the cruise ship Achille Lauro. Another expert, Beth Van Schaack, an associate law professor at Santa Clara University, said that the legal process, if the Palestinians do participate fully, could allow an inquiry into Palestinian finances, and whether money went to support terrorism.

“The Abbas administration has gotten themselves in a little bit of a bind,” Professor Van Schaack said. “If they are claiming, ‘We can’t put up the bond because we don’t have the money,’ ” she said, “that opens the door to do some level of discovery about money.”

Mr. Ellis, 31, was born in Israel to American parents who moved there to help found a religious community for the African Hebrew Israelites. Mr. Ellis was trying to build a life for his family, court records show, performing as a singer in hotels and clubs, at weddings and other celebrations.

The attack occurred the night of Jan. 17, 2002, as he was performing before about 180 guests at the David’s Palace banquet hall in Hadera, where a girl was celebrating her bat mitzvah.

The gunman, Abdul Salaam Sadek Hassouneh, identified in court filings as a Palestinian Authority security officer, entered and opened fire on the crowd. Another singer later testified that Mr. Ellis had protected her from the bullets by pushing her down and laying on her, even after he had been shot. Mr. Hassouneh was eventually shot dead by police officers.

The lawsuit argued that the P.L.O. and the Palestinian Authority assisted in the planning and carrying out of the attack.

The defendants’ original lawyer, Ramsey Clark, a former United States attorney general who has made a second career out of representing unpopular defendants, tried unsuccessfully to have the suit dismissed.

Later, in 2005, he wrote to Judge Marrero, saying that his clients had instructed him “to present only their position that U.S. courts have no jurisdiction over them and not to answer on the merits.”

After Judge Marrero ordered the default judgment, a magistrate judge held an emotional hearing to establish damages for the economic loss and pain and suffering that Mr. Ellis’s death had caused. The defendants did not participate.

In 2006, the family was awarded damages of $192.7 million.

In March, when Judge Marrero agreed to give the defendants another chance if they posted the bond and complied with other conditions, he cited their arguments that they had undergone significant changes in political leadership and, as a result, had adjusted their legal strategies.

Mr. Abbas, for example, had written to Secretary of State Condoleezza Rice, asking for guidance in handling the case and other pending lawsuits.

“I encourage you, as I would any government, to respond to U.S. legal proceedings in good faith and a timely manner,” Ms. Rice responded in January 2007.

The judge noted that the Palestinians had new lawyers who had “a clear directive” to participate fully in the litigation. He also noted that the defendants were prepared to defend the suit in court, arguing that the gunman acted alone, without their direction or assistance.

In ordering the bond and other conditions, the judge cited concerns about the defendants’ record of defaulting on judgments and not participating in the court process.

The filing of financial records late last month followed extensive debate over whether the defendants were providing a clear picture of their assets, as requested by the plaintiffs.

Mr. Strachman argued in court papers that the descriptions of Palestinian finances had been “woefully incomplete and frankly disingenuous.”

“The issue is: What assets do they have?” he told the court in July.

The defense lawyers, Mr. Hibey and Mark J. Rochon, who have denied those assertions, have said that the financial crisis was real. “It is not an overstatement,” they wrote, “to say that the current bond requirement would force defendants to choose between their ongoing viability and defending themselves in this case.”