WASHINGTON - US Secretary of State Condoleezza Rice announced Monday that America was resuming economic assistance and normal political contacts with the Palestinian Authority following the removal of Hamas from the government. The US announcement mirrors a European Union declaration earlier Monday that it would be resuming aid to the Palestinians. The moves effectively end a boycott of the PA that began when Hamas took office in early 2006, though a formal decision, expected as early as Tuesday, will need to be taken by the Quartet of the US, EU, UN and Russia. In a phone call Monday, US President George W. Bush pledged American support to PA Chairman Mahmoud Abbas, who kicked Hamas out of the Palestinian national unity government following its violent takeover of the Gaza Strip last week. Rice made similar assurances Monday in a conversation with newly appointed PA Prime Minister Salaam Fayad, the former PA finance minister, and told reporters that the US would be increasing its humanitarian aid to the Palestinians. "We intend to lift our financial restrictions on the Palestinian government, which has accepted previous agreements with Israel and rejects the path of violence," said Rice, referring to demands the Quartet had previously made of the PA as a condition for aid. "This will enable the American people and American financial institutions to resume normal economic and commercial ties with the Palestinian government." At the same time, the EU demanded that Israel release frozen Palestinian tax money to Abbas, something Prime Minister Ehud Olmert indicated Sunday night he was willing to do. Foreign Minister Tzipi Livni, who met with the EU ministers in Luxembourg, said the government would resume transfers of tax revenue it collects on behalf of the Palestinians if Fayad's government committed to the goal of a future Palestinian state living side by side in peace with Israel. The new government, she said, "can send the message of hope." "We are willing to work with those who support the goal of the two-state solution," Livni said. If the Fayad administration commits to that "Israel will... of course release" hundreds of millions in tax money that it froze while Hamas was part of the Palestinian government." Yet other demands, some less appealing, might be made of Israel in the wake of the formation of the new government. The international community has supported Israel in its argument that it could not work with a PA led by Hamas, labeled a terrorist entity by the EU and US as well as the Jewish state. But with the West looking to shore up Abbas and the Hamas role in government curtailed, Israel could expect to face more pressure. Rice said Monday that she will continue her work of creating a "political horizon" of a Palestinian state so that the choice facing Palestinians, "between violent extremism on the one hand and tolerance and responsibility on the other," will be clear. At the same time Rice stressed, "It is the position of the United States that there is one Palestinian people and there should be one Palestinian state." The US has been criticized both in America and in the EU for developing what is observers are referring to as a "West Bank first" approach where Abbas and the West Bank is bolstered in part to create a contrast for Palestinians between life under a Fatah-led government that is willing to engage in peace talks with Israel and Gaza under the militant Islamic rule of Hamas. But Rice declared that "we will not leave one and a half million Palestinians at the mercy of terrorist organizations," referring to Palestinians in Gaza, and said $40 million in additional US funding would be sent to the United Nations Relief and Works Agency "to help ease the suffering of all Palestinians, especially those in Gaza." She added that the US would be reviewing its democracy and development assistance and "restructuring" an $86m. plan to upgrade the Palestinian security services, of which only $59m. has so far been allocated. During meetings Olmert will hold with Bush, Rice and other administration officials Monday and Tuesday, it is expected that further steps to be taken by Israel will be outlined. According to the Prime Minister's Office, Rice's announcement was coordinated with the Israelis. They said the timing was due to the urgency in taking action and extending support for Abbas. In Luxembourg, EU foreign policy chief Javier Solana said the 27-nation bloc would resume direct aid that was frozen more than a year ago. "In order to help the Palestinian people in Gaza, we will need some mechanism that cannot be a direct support" given that Hamas is sworn to destroy the Jewish state, Solana said at an EU foreign ministers meeting. Herb Keinon and the Associated Press contributed to this report.