In a populated region with very high potential evapotranspiration, where the rainwater falls only during the winter and mostly in the mountains, the need for sustainable water management and fair distribution is crucial. In the West Bank, Palestine, the main potable water source is a karst mountain aquifer system. Precipitation occurs usually in the form of rainfall in the mountainous regions during winter period and recharges the groundwater systems. The water either reaches the surface as spring water, or is extracted through pumped wells. But the scarcity of drinking water in Palestine is not due to lack of water resources or technical knowledge of water extraction but a direct consequence of Israeli policies, water management, breached water rights and the occupation of Palestinian territories. Because of such restrictions, ground water is not an option to provide more freshwater, instead it is suggested to collect rainwater runoff in reservoirs. In 2011, the first surface water dam was built in Palestine in Al Auja, just north of Ariha. It was built as an experimental project for future dams and is therefore a small earth fill dam which will be expanded to collect water also from an adjacent watershed, much larger than the current one. The purpose of this study is to determine how much bigger the reservoir needs to be to safely store the inflowing rainwater runoff in the future. This was achieved through hydrological modelling using the HEC-HMS software which is a physical based model. The data used in this study were: 25 m DEM, land use data, soil data (both from remote sense and field visit), river network map, precipitation data, location of the gauges and geological formations. Field visits and soil tests were also great contributions of insights and knowledge crucial for the project. Hourly time-series data for precipitation for the winters 2011-2012 and 2012-2013 and monthly evapotranspiration for 2010-2011 were used as input to the model. Water level data in Al Uja reservoir with 20 minutes intervals were used to evaluate the simulations. Simulations were first optimized for the current scenario to find sets of parameters that match the changes in water level in the dam reservoir. This was done both for single rainfall events as well as for the whole seasons. The parameters creating the most matching results were used in additional simulations with the adjacent watershed included. The difference in results between the simulations with the current watershed and the expanded one was used to answer how much more water the reservoir would have received during 2011-2012 and 2012-2013 if the larger watershed were included. The model results reveal that the reservoir should have been able to hold about three times as much water as today. Installation of an inflow meter is suggested for the future along with an evaluation of local climate change in precipitation and evapotranspiration.