"Money will not flow to the new authority unless it seeks peace by peaceful means," said Ferrero-Waldner.

SALZBURG, Austria, March 11, 2006 (IslamOnline.net & News Agencies) - The European Union vowed on Friday, March 10, not to soften demands that Hamas "moderate" its stance on Israel as foreign ministers sought ways to ensure the stand-off did not hit EU aid to the Palestinian people.

EU External Relations Commissioner Benita Ferrero-Waldner noted that the bloc had set out conditions against which it would review funding once a new government was fully in place, reported Agence France-Presse (AFP).

"The new government's positions on violence, on recognition of Israel and on existing agreements like the (Middle East peace) 'road map' remain absolutely crucial," Ferrero-Waldner told reporters in Salzburg.

"We want to remain a reliable partner for the Palestinian people, but we will not go soft on our principles... Money will not flow to the new authority unless it seeks peace by peaceful means."

A paper drafted by the executive European Commission and EU foreign policy chief Javier Solana concluded that much of the EU's total annual aid of 500 million euros ($596 million) would be badly hit if the bloc severed ties with the Authority, Reuters reported.

The paper further found that even EU support for work being carried out by NGOs and UN agencies required contacts with the Authority and would face potential disruption.

"Without a statement on that (change) we will not work with a Hamas-led government. It is absolutely clear this can't be hot air," Reuters quoted as saying German Foreign Minister Frank-Walter Steinmeier..

"We have to repeat over and over again that Hamas must recognize Israel, and that we cannot make progress with violence," added Luxembourg Foreign Minister Jean Asselborn.

Washington and Israel cut funds to the Palestinian Authority when Ismail Haniyeh of Hamas was nominated as prime minister.

But the 25-nation EU has given the Palestinians a short-term lifeline, releasing 120 million euros ($143 million) in aid that mostly bypassed the Palestinian Authority.

Hamas has played down the aid threat, stressing that it has received generous aid pledges at the grassroots and state levels in the Muslim world double the aid which the US, the EU and others were threatening to cut off.

"We must find ways to support the Palestinian people," said Solana. (Reuters)

Other options being canvassed include "rerouting" aid through Palestinian President Mahmoud Abbas, and creating a new disbursement agency independent of the Palestinian Authority.

The EU will give Abbas, whose stock has risen in Europe as a rampart against Hamas, a political boost next week when he visits Vienna, Strasbourg and Brussels.

"We must avoid suffocating the Palestinian territories. That would lead to economic, social and security chaos," said French Foreign Minister Philippe Douste-Blazy.

"I talked about targeting aid more precisely to schools, hospitals, the justice system and so on," he added.

EU foreign policy chief Javier Solana echoed a similar stance before the meeting.

"We must find ways to support the Palestinian people," he told the Austrian daily Der Standard before the meeting.

"We want to see to it that we can maintain what has taken us so many years to build up -- namely, a Palestinian Authority which is the embryo of a state which we must complete, and which one day will exist."

Hamas this week presented proposals for forming a Palestinian coalition government with the Fatah party.

Under the Palestinian constitution, Hamas has three weeks to form a government, but the charter also provides for another 14-day extension.

The resistance group swept the parliamentary elections in January, winning 74 seats in the 132-seat Palestinian Legislative Council, while Abbas's ruling Fatah only got 45 seats.