Van Dam was in sublime form as she hit a seven-birdie round to move onto 10-under par and take the outright lead.
Scotland's Kelsey MacDonald is two shots further back on eight-under, while Hall's 67 helped her claim third at the Emirates Golf Club.
England's Charley Hull lost ground after a second straight 70 left her six behind Van Dam, while Catriona Matthews missed the cut by a single shot after a round of 73.
Hall admits she struggled to sleep on Wednesday night after flying over from Qualifying School in Florida but insisted she was content with her round.
She told Sky Sports: "I did putt well today and I wanted to take advantage of the morning round, because the greens were in better condition and less wind, so I'm glad I did it.
"I woke up at midnight and didn't get back to sleep, so I wasn't in the best of moods today. I'm quite tired, but I played well."