Angry EU denies claims that funds reached bombers

Internal links

40,000 in Trafalgar Square for pro-Israel rally

Israel's assault on West Bank 'caused £270m of damage'

Leading article: What Mr Bush must say to the prime minister of Israel

Podium: Jonathan Sacks: Israel, this is why I am proud of you

Israli claims that millions of pounds of EU taxpayers' money have been diverted to fund Palestinian suicide bombings were firmly denied by officials in Brussels yesterday.

While promising to investigate the allegations, the European Commission insists its aid to the Palestinian Authority is for civilian projects only, and is subject to rigorous controls before cash is released.

Gunnar Wiegand, spokesman for Chris Patten, European Commissioner for external relations, said the Israeli claims would be taken seriously and investigated "as soon as the government of Israel shares its documentary evidence with us – something that is not yet the case".

Mr Wiegand also pointed out that the EU was not the only international organisation under fire from Israel, which has even accused the US Central Intelligence Agency of indirectly supporting terrorism by backing the Palestinian security services.

The sharp response from Brussels follows claims form the Israeli cabinet minister Dan Naveh that some €10m (more than £6m) in EU aid was "used indirectly to finance terrorist acts". The EU is the biggest donor to the Palestinian Authority and, during the past two years, has spent about €369m in budgetary support and humanitarian aid.

Before cash is released, the Commission says, EU auditors and experts from the International Monetary Fund have to give an assurance that a lengthy series of conditions has been met. "This takes place every month and we do not send money until we get the green light," Mr Wiegand said.

Despite their pledge to investigate, EU officials are convinced that their funds have not be misappropriated. The €10m a month paid to the Palestinian finance ministry by the EU is monitored closely by the IMF, which has insisted on consolidation of accounts so that there is no spending outside the budget. The IMF is represented in the Palestinian ministry of finance, checks incoming payments and requests for payments from other ministries and verifies these against agreed budget plans.

EU officials say they have seen no reason to believe that any cash is being diverted to military spending or to non- government structures, and that there is no room for diversion of our funds.

Officials in Brussels see the latest allegations as part of a political strategy to persuade President Bush that Mr Arafat is a supporter of terrorism and therefore should be excluded from Middle East peace talks.

Relations between Israel and the EU have deteriorated since Ariel Sharon's hardline government took military action in the occupied territories. Even before the latest Israeli offensive there was tension, however, because Israeli forces had destroyed EU-funded projects in the West Bank and Gaza Strip costing millions of pounds.

Earlier this year the EU sent a letter of complaint to the Israeli government, claiming that it was responsible for some €19m in damage to Palestinian Authority projects.

Commission officials argue that the aid was vital to prevent a total collapse of civil society. By the end of 2001 the gross national income was less than 30 per cent of its 1994 level, and 40-50 per cent of the population of the Palestinian territories was living below the poverty line of $2 day.