Yoav Kislev sent me his 2008 report on water in the Palestinian territories [pdf] in which he discusses the intertwined relations between Israeli and Palestinian engineers, farmers, administrators and citizens. The report confirms some known facts (settlers get more water than Palestinians) while adding some useful details (Palestinian water use has tripled; it's hard to collect money to pay for the system).
In my opinion, Yoav misses one point when he asserts that Merkot (Israel's water company) is filling a role the Palestinians could not easily replace. I'd argue that the Palestinians -- should they take over from Merkot -- would do a better job (collecting revenue, fixing leaks, etc.) because they would be responsible for results. The current situation in which Palestinians "depend" on Merkot allows incompetents to blame Israel -- just as Cuban leaders blame the US embargo for the people's poverty.
Bottom Line: "The technical difficulties Mekorot poses and the restrictions we impose on the committee were intentionally made in order to limit the supply to the residents of the territories... In the areas the State of Israel controls a growing number of Jewish residents live who receive a free water supply, to households, gardens, public parks, swimming pools as well as agriculture -- as well as Palestinians, to which the supply is limited and irregular. That is clear-cut discrimination and it is our responsibility."