EU aid offer includes contacts with Hamas

Plans to channel funds for basic services to the Palestinians via the offices of President Mahmoud Abbas rather than its Hamas government are likely to win tacit United States acceptance this week, European officials believe.

But the European Commission, which has suspended direct aid to the Hamas government, has made a clear suggestion that some contacts with Hamas ministers from the Palestinian Authority should now be considered.

A document from the Commission, dated 27 April, says EU member states may "wish to decide to permit limited contacts with PA ministries and ministers for specific practical purposes such as implementing key strategic financial programmes, ensuring security for international staff or addressing urgent global issues such as avian flu".

Hamas's refusal to renounce violence and accept the existence of the state of Israel has led to the freezing of direct aid from the EU, although humanitarian funding via other agencies continues. With fears of economic collapse fuelling further instability, officials hope that cash can be fuelled via a new "international supervisory mechanism" with President Abbas acting as interlocutor.

Ahead of a meeting in New York tomorrow of the Quartet - the EU, US, United Nations and Russia - European officials are confident that America will not seek to block the scheme involving around €34m (£23.2m) of EU cash.

Benita Ferrero-Waldner, the European commissioner for External Relations, said she hopes to agree with the US on the proposal and that one issue to be decided is whether "some salaries should be paid for health and education". Asked about US opposition to such a move, the commissioner replied: "We are speaking about European aid".

In fact, European officials say the US has made it clear in private that, although they will not take part in the new mechanism, they will not seek to block it. Because of Hamas's failure to renounce violence, the EU has suspended €31m in project aid, with a further €32m-worth likely to be frozen.

In trying to stave off economic and social collapse while not talking directly to the Hamas-led government, the EU faces a sizeable challenge. Its paper written on 27 April predicts a deterioration in the humanitarian situation within two to three months and Palestinians will "see greatly increased unemployment and poverty levels, and possibly the breakdown of law and order". It says that "over 152,000 people are employed by the PA and their salaries support approximately one million people".

But the Europeans' position paper adds that experience shows "when implementing financial assistance with the PA, it is difficult to avoid contacts at ministerial level". It says the use of an acceptable mechanism to channel funds to essential services should help to convince Israel it too could start remitting the $60m (£32.3m) a month in revenues owed to the PA without directly boosting Hamas.

A Western diplomat said yesterday that there was widespread agreement in the international community - with the notable exception of the Americans - that if Israel transferred the money it collects on behalf of the PA this would go a long way to containing the mounting crisis.

Suspending institution-building projects could undermine efforts to promote good governance, the document argues. But it adds that if these are continued "the political risk is that some level of contact would be required with the PA ministries and possibly PA ministers".