The European Union threw the Palestinians a short-term aid lifeline Monday to help stave off imminent financial collapse, despite the appointment of a leader of the Islamist militant group Hamas as prime minister.

But the 25-nation bloc made sure most of the € 120 million  (US$142 million) would bypass the Palestinian Authority in a move to sharpen pressure on Hamas to moderate its radical policies when it takes over government responsibility.

"Today I will announce a very substantial package of assistance to meet basic needs," European External Relations Commissioner Benita Ferrero-Waldner said as EU foreign ministers met to discuss how to respond to the impending formation of a government by Hamas, which does not recognize Israel's right to exist and espouses armed struggle.

The package included € 40 million (US$48 million) to pay energy bills and € 64 million (US$77 million) channeled through the UN Relief and Works Agency for Palestinian refugees (UNRWA). But only € 17.5 million  (US$21 million) would go to the PA to help pay salaries, if ministers give the green light as expected.

"In effect we will pay electricity bills for them, direct to the utilities concerned, including in Israel," she said.

International envoy James Wolfensohn warned in a confidential letter that without emergency funds, the Palestinian Authority faced financial collapse within two weeks now that Israel has cut off tax transfers.

The EU is the largest donor to the Palestinians, but its funding has been thrown into doubt by the ascendancy of Hamas, which the 25-nation bloc lists as a banned terrorist group.

Israel has stopped monthly transfer of US$50-55 million in tax payments to the Palestinians, and the United States has demanded the return of US$50 million in aid to prevent it falling into Hamas' hands.

Wolfensohn said that even if the authority survived with emergency funding, the financial crisis could bring violence and chaos unless the Quartet of international mediators the United States, the EU, Russia and the United Nations developed a long-term funding plan once a Hamas-led government is in place.

(China Daily February 28, 2006)