The dispute is yet another indication of Israel's determination to block any hopes on the part of the Palestinians that east Jerusalem should one day become their capital. For the EU, the biggest single donor to Palestinians, the Israeli action is a cause of deep frustration.
The EU, like the UN, deems east Jerusalem to be illegally occupied by Israel. While its status remains to be negotiated, say officials, Palestinians in the city have as much right to aid as those in the occupied West Bank or Gaza Strip. Israel, however, insists that east Jerusalem will remain forever under its sovereignty.
For several months the Israelis also barred the EU from setting up an office in east Jerusalem to administer the aid programme. Until recently crateloads of valuable equipment, including computers and trucks intended for Gaza and Jericho, have been held up by red tape at Israeli ports.
To press Israel into co-operating with the distribution of funds to the Palestinian zones, the EU has warned that a new trade agreement, much valued by Israel, could be delayed. Officials concede that the Jerusalem issue is such a hot potato that little public pressure is likely to be brought on the Israelis to break the deadlock.
When the Oslo accords were announced the European Union pledged a generous aid programme with the intention of underpinning Palestinian autonomy. More than 50 large aid projects were drawn up under EU auspices to be put into effect once full peace had been achieved.
None of these projects have left the drawing board. Officials in the Commission monitoring the way EU money is spent acknowledge that the political stalemate in the region has undermined the success of the programme. The aid effort is "constantly under review", say officials, but for now there is no likelihood of calling a halt.Reuse content