EU Resumes Aid to Palestinian Govt.

"This support for the ministry... will help me ensure that we work in accordance with the best international standards," said Fayyad.

"Minister of finance Dr Salam Fayyad and European Commission representative John Kjaer today signed a memorandum of understanding which relaunches European Union assistance to the ministry of finance," the European Commission said in a statement, Agence France-Presse (AFP) reported.

The EU and the United States, the biggest donors to the Palestinians, have imposed a financial and political boycott on the Palestinians since the resistance movement Hamas rose to power in March 2006.

The EU policy shift was prompted by the formation of a Palestinian national unity government in March.

The EU foreign ministers, however, made clear that the euro bloc would engage with ministers of the new Palestinian cabinet, who are not members of Hamas and backed an Arab peace initiative with Israel.

Under the new agreement, four million euros will be paid in installments until June 2009 and training will be provided for the finance ministry employees.

"This support for the ministry... will help me ensure that we work in accordance with the best international standards, and that the government can give every Palestinian taxpayer the assurance that their money is being legally and honestly spent," Fayyad said in a statement.

Despite the freeze on direct aid, EU resumed aid in 2006 indirectly to Palestinian President Mahmoud Abbass through a mechanism that avoided the Hamas-led government.

International relief agency Oxfam called in April for an immediate resumption of Western aid to the Palestinians, warning that the year-long boycott has sent the Palestinians deeper into poverty.

Norway was the first European country to break international boycott of the Palestinians by normalizing ties with the new Palestinian unity government.

The US remained adamant to resume aid and threatened to slap sanctions against any bank that transfers money to the Palestinian government.

It says the Hamas-led government must first eschew violence, recognize Israel and respect past agreements with Israel.

Outgoing British Prime Minister Tony Blair said on Saturday, June 9, that Hamas was sending some "not unhelpful" signals about the Middle East peace process but should be clearer on where it stands.

Not Enough

However, Fayyad warned that the Palestinians' financial crisis will not end until Israel releases millions of dollars it has withheld from the Palestinian government.

"We call on Israel to transfer the money as rapidly as possible," he told reporters.

Kjaer, the European Commission representative, agreed, calling on Israel to pay money owed to the Palestinians in the form of tax receipts withheld since early 2006.

"I take the opportunity to recall that the European Union continues to call on Israel to transfer to the Palestinians the money that Israel collects on their behalf," he said.

Pushing the Hamas-led government to the brink of financial collapse, Israel has since March 2006 stopped transferring customs duties worth around $50 million a month, which were previously collected for the Palestinian Authority.

Fund-raising campaigns for the Palestinians had been launched across the Arab world, but the donations could not make their way to the occupied territories because of the Israeli siege.

The International Labour Organization said earlier this month that poverty soared in the Palestinian territories over the past year due to the Israeli restrictions.

The report, based on missions sent to the occupied lands, cited a 40 percent drop in the per capita gross domestic product (GDP) in 2006.

A recent World Bank report said Israeli restrictions were dividing the occupied West Bank into economically isolated enclaves, preventing the already sluggish economy from growing and denying Palestinians access to half of their lands.