The Justice Department has decided not to intervene, at least for now, to prevent the wife of a terrorism victim from pursuing a $174 million legal judgment against the Palestinian Authority and the Palestine Liberation Organization.

In a letter to a federal judge in Manhattan, Victor Marrero, Justice Department lawyers said they were declining the judge’s invitation to offer the American government’s official position on a lawsuit brought by Leslye Knox, the widow of Aharon Ellis, an American killed in a shooting attack on a bat mitzvah Ellis was performing at in Hadera, Israel, in 2002.

“The United States supports just compensation for victims of terrorism from those responsible for their losses and has encouraged all parties to resolve these cases to their mutual benefit. At the same time, the United States remains concerned about the potentially significant impact that these cases may have on the financial and political viability of the defendants,” a deputy assistant attorney general, Carl Nichols, wrote on Friday. The Palestinian authorities did not respond to the suit when it was filed. However, they are now seeking to undo the default judgment entered in the case. The PLO is also facing a $116 million default judgment in a similar case and the prospect of millions or billions of dollars more in damages in other suits. A spokesman for the PLO office in Washington, Nabil Abu Znaid, said turning the money over would undermine America’s policy of bolstering the Palestinian Authority against the rival faction in Gaza, Hamas. “You could paralyze the Palestinian Authority when you’re trying to help them survive every month,” the spokesman said. “It’s also in the interest of the Israelis to see the Palestinian Authority survive.”

Mr. Abu Znaid also said any money paid in the lawsuits would effectively come from American taxpayers. “We get this money, this assistance from the United States,” he said.

A lawyer for Ms. Knox and other families of terrorism victims, David Strachman, said the decision must have been disappointing to Palestinian officials. “They were really looking for the government to support them,” he said.

Mr. Strachman noted that American support is a fraction of the Palestinian Authority’s overall budget. “One would think that an organization that seeks the help of the U.S. government should honor judgments that have been duly entered against them,” he said.

In January, at least nine senators, led by Senator Specter of Pennsylvania, wrote to Secretary of State Rice urging the American government not to step into the litigation. “We are concerned that as courts render judgments holding terrorists and sponsors of terrorist acts accountable … political efforts to have our government intervene and unduly influence the courts may undermine verdicts imposed by independent arbiters,” the senators wrote. “Victims who bring forth claims in good faith and win judgments against terrorists should not be thwarted in their efforts.” A State Department spokesman said American officials would like the terrorism victims and the Palestinian entities to reach a settlement that satisfied all parties to the cases.