One week after the Palestinian Authority (PA) swore in its new Hamas-led government, the US last Friday announced that it would suspend all direct aid to the PA while increasing humanitarian assistance to the people under its control. The move, which followed a similar announcement by the European Commission last Thursday, comes as the PA, which was unable to pay its 140,000 employees last month, faces financial collapse. Under the US law, Washington is forbidden to provide any aid to organisations that appear on the State Department’s “terrorism list”. So under the new plan, the US will provide a total of $245 million in humanitarian aid, a 57 per cent increase over what had previously been earmarked for the West Bank and Gaza.

Some observers who have been positive about voting Hamas to power praised the decision to increase the assistance. Still, the increase will not ease the financial crisis faced by the new government. With a monthly budget of roughly $165 million, of which only $35 million is internally generated, the PA must obtain some $135 million from other sources. In addition, Israeli curbs on movements of Palestinians and commerce in and out of the territories since the January poll has further depressed the economy. Israeli and international banks are worried that their business with a Hamas-led PA may make them liable for prosecution under US and EU anti-terrorism laws.

The PA has also relied on some $70 million a month in direct assistance, almost all of it from the EU and its member states. That money is now almost certain to be suspended or redirected into humanitarian aid channelled through private contractors and NGOs. Hamas leaders have suggested that they could make up the difference with aid donations from friendly Arab states, Iran, and wealthy Arab philanthropists, but concrete commitments have yet to materialise.

Hamas is considered almost certain to blame any deterioration in the territories on the aid embargo, possibly triggering a backlash against the West and those Palestinian parties that it supports against Hamas. As a result, many analysts believe that the EU, Israel’s new government, and the Bush administration are prepared to be more flexible in dealing with Hamas than this week’s announcements suggest.

Indeed, the Bush administration this week sought amendments to pending legislation to prohibit all bilateral aid to PA that would permit it to provide such aid if “it was important to the national security interests of the US”. Under the State Department aid plan, US will increase its contribution to the UN Relief and Works Agency from $100 million to $130 million.

It also plans to increase food aid to the Palestinian territories from $10 million to $60 million and to increase “democracy”-related aid, including “alternatives to Hamas” from $30 million to $42 million. At the same time, it will suspend or cancel $45 million in direct assistance to the PA and $130 million in infrastructure projects in which PA ministries play some role. — IPS