cant use itunes giftcard

You can't choose which payment method to use in your situation.

How App Store and iTunes Store purchases are billed. Click here --> https://support.apple.com/HT201359

"Which payment method is charged?

When you buy items or pay for subscriptions, Apple automatically attempts to charge your payment methods in this order:

1. Apple attempts to use your Apple ID balance to cover the full amount.

2. If you don't have Apple ID balance, you don't have enough to cover the full amount, or an item cannot be paid for with Apple ID balance, Apple attempts to charge your primary payment method (typically a credit or debit card, but varies according to country). The primary payment method is at the top of the list in Settings on your iPhone. You can control which payment method is at the top of the list.

3. If there's a problem with the primary payment method, or if the primary payment method can't be charged for the full remaining amount, Apple attempts to charge your other payment methods in order from top to bottom. If none of them can be charged, Apple may try again.

"but won’t let me click on the gift card, only on the paypal one"

The "gift card" one isn't a gift card, it is like your balance you have in a checking account at a bank. It is the first payment method I mentioned. You can't choose it, or de-select it. In fact you can't select any of the methods other than to remove them completely (you can't remove the balance one) or to reprioritize the ones used. The only thing you can do in your case would be to remove PayPal entirely if you need to. Apparently Apple is having a problem verifying with PayPal that your payment using this method is not valid. They are asking, "Hey Paypal, is everything okay with this account? and Paypal is replying, "No," or maybe they just aren't replying at all. Maybe the problem is the card you are using to back PayPal isn't working and they are just passing that message along.