Israeli anger at Europe's aid for Palestinians

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Sharp differences emerged between Israel and the international community over the acute financial crisis faced by the Palestinian Authority as the EU agreed to an emergency aid package of $143m (about £82m).

The differences are over Israel's refusal to transfer between $50m and $60m a month in duties it collects on the PA's behalf - most of which is used to pay salaries - and the increasingly hard line taken by its government against the Palestinian President, Mahmoud Abbas.

The bulk of yesterday's EU-agreed aid package will go on direct humanitarian aid paid through the UN and other agencies. But the EU will also release $21m for salaries which had been frozen in a World Bank Trust fund - providing this is spent before the new Palestinian government is formed.

Yesterday's EU decision followed a stern warning by James Wolfensohn, a former World Bank chairman and the international community's special envoy, that the failure to pay salaries "may have wide-ranging consequences - not only for the Palestinian economy, but also for security and stability for both the Palestinians and the Israelis".

Some European member states, including Britain, had argued, against German-led opposition, that the World Bank sum should be doubled to help meet the salary bill, and some European diplomats said a further tranche could yet be forthcoming.

Mr Wolfensohn's letter of 25 February to the international quartet, leaked to Reuters and AP, had said that the PA was facing financial collapse within two weeks because of the Israeli decision to cut off funding.

A separate note composed two days earlier by Mr Wolfensohn and seen by The Independent said that among remedies for the PA's cash crisis, the international community should "insist that Israel pays $60m monthly cash receipts to Palestinians". It said that $60m to $80m is needed to pay part of the PA's wages and that remedies will "be difficult without US pressure to persuade Israel to reverse its decision" to withhold the transfers.

In a separate but closely related dispute, Israel is at odds with Western governments over its view - in the words of its new Foreign minister, Tzipi Livni - that Mr Abbas is "irrelevant". Ms Livni, who leaves for Austria, France and Britain on Wednesday to press her case for isolation and against further funding of a Hamas-dominated PA, said at the weekend: "Abu Mazen [Mr Abbas] cannot serve as a figleaf to a terrorist authority. Abu Mazen cannot be the pretty face of the ugly terror hiding behind him."

She was speaking shortly after the US Assistant Secretary of State, David Welch, was reported in the Israeli media to have assured Mr Abbas of Washington's continuing support. While the US is also urgently reviewing its aid budget to stop funds reaching Hamas, it has been involved in talks on the possible channelling of funds directly through Mr Abbas's office to avert a crisis, while at the same time bypassing Hamas-controlled ministries.

While acknowledging the need for continuing humanitarian aid to the Palestinians, Ms Livni will also adopt a tough stance in Europe this week over what qualifies as such aid, Israeli officials indicated. She is expected to question sharply whether medical aid, for example, can be seen as "humanitarian" if it falls within the ambit of a Hamas controlled health ministry which can claim credit for the spending.

Mark Regev, the Israeli foreign ministry spokes-man, played down the differences over funding, saying it was a technical one of timing, with the international community judging the cut-off point as when a Hamas government takes office and Israel seeing it as the swearing in of the new Palestinian Legislative Council nine days ago. He said the cash crisis referred to by Mr Wolfensohn predated Israel's decision to withhold duties at the end of this month and arose because of increased salary spending to help Fatah's election effort last month.

At yesterday's meeting in Brussels, EU foreign ministers went out of their way to stress that the decision was not a verdict on Hamas, which remains on Europe's list of banned terrorist organisations.