The Islamic militants of Hamas were warned last night that future aid would depend on the new Palestinian government's commitment to renounce violence and recognise Israel.
At a meeting in London, the EU, US, Russia and the UN decided to give Hamas a breathing space while a government is formed following its victory in Palestinian parliamentary elections last week.
But the representatives of the "Quartet" group said in a statement read by Kofi Annan, the UN secretary general, that "future assistance to any new government would be reviewed by donors against that government's commitment to the principles of nonviolence, recognition of Israel" and commitment to the roadmap for peace.
Hamas was quoted on an Arab television station as having rejected the Quartet's demands, which were more forthright than an earlier statement from the EU.
The EU, which spends ¤500m (£342m) a year in the region, yesterday repeated demands for Hamas to recognise Israel and reject terrorism, but in a carefully balanced statement said it "expects" a new government to be "committed to a peaceful and negotiated solution". On that basis, the EU said it was "ready to continue support to Palestinian economic development". Officials say Hamas's credibility as a political partner will be assessed over a period of up to three months during most of which time, they hope, the Palestinian Authority will operate under a transitional authority led by President Mahmoud Abbas.
A diplomatic source in London said it remained to be seen whether Hamas actually wanted to form a government after its landslide success in a general election which took even Hamas leaders by surprise.
Mr Abbas stressed yesterday that under his leadership, the Palestinians remained committed to eventual peace talks, and stood by all agreements with Israel, highlighting "the importance of the continuation of financial and other types of support by the donor countries".
The military wing of the group has been on a list of terrorist groups since December 2001. It was extended to the whole Hamas organisation in September 2003. But diplomats concede that the international community faces an acute dilemma over its funding for the PA as its collapse would risk creating a dangerous vacuum.
One positive sign emerged from Gaza where Ismail Haniyeh, a prominent Hamas leader, pledged that foreign aid would go only towards helping ordinary Palestinians and said a Hamas government is prepared to have its spending monitored. He also said the group was ready to negotiate the terms of continued foreign aid with international donors.
"We call on you to direct all the aid and revenues to the treasury of the Palestinian Finance Ministry," he told a news conference. "We ... ask you to deal with our message with an open mind and big responsibility."
But when asked about disarming, Mr Haniyeh said the EU had to understand "Palestinian reality" and not press demands that "increase the suffering of our people who are looking for freedom, right of [refugee] return and independence".
The PA faces a deficit of about £393m this year. Foreign aid pays for 135,000 public sector workers in the West Bank and Gaza Strip, including 70,000 security officers, 34,000 teachers and 9,000 medical staff. Their salaries support up to one-fifth of the population. Europe is the biggest donor to the PA but it knows that its hand is weak when it comes to exerting financial pressure on Hamas.
Of the £192m spent by the European Commission last year in the region, most was channelled through NGOs with only ¤70m (£48m) earmarked for the PA. Half of that money, which passes through a World Bank fund, was withheld because conditions on financial control were not met.
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