Regardless of the actions the terrorist performed, his family is not responsible and should be treated with respect. This includes the ability to mourn their lost loved one. By alienating and ostracizing families just because they are related to someone who did wrong, the government would create resentment and possibly inspire future terrorism.
The families of terrorists should receive aid from their government if they are entitled to it. They did not commit the crime, and therefore, should not punished for said crimes. The children of terrorists still need to eat, receive medical care, and attend school. Not caring, and providing for these children and families could potentially lead to their radicalization if the terror group comes to their aid.
While this may seem somewhat cold, governments should not support the families of terrorists. That is to say, while world governments have the responsibility of taking care of their constituents, they are also required to defend themselves and the world around them. Saying "terrorism is bad!" but then throwing a tea party for the relatives of those who inflict evil is more than just hypocrisy.
The Palestinian Authority was meant to help represent the Palestinian people. Instead, the Palestinian government often uses its money to support the families of terrorists that have attacked Israelis. The Palestinian government should not be helping the families of terrorists. Instead, the organization should be condemning terrorists acts, and working to promote peace.