The US "understands" Israel's policy of not transferring tax and custom revenues to the Palestinian Authority, US Ambassador Richard Jones said on Tuesday, placing the US at odds with Europe over this matter. Jones, who briefed the press on the US decision to suspend aid to the Palestinian Authority and redirect it to humanitarian aid through NGOs, was asked whether Washington supported the Israeli decision not to transfer some $50 - $60 million in customs and tax revenue Israel collects for the PA each month. "We understand why the Israeli government is not providing funds for a terrorist organization," Jones said. "We ourselves have legal inhibitions on providing funds to terrorist organizations." Jones said the US "appreciates" that Israel is looking for ways to use those funds for humanitarian support for the Palestinians. The cabinet on Sunday approved using the money to pay Israeli suppliers for electric, water, gas and medical services provided the Palestinians. Europe, on the other hand, has called on Israel to transfer the money. EU foreign policy chief Javier Solana said last week that Israel was obligated to transfer the funds. "This is Palestinian money, which cannot be withheld," he said. Jones said the US policy of cutting aid to the PA was not meant to punish the Palestinians, nor even to bring down the Hamas government, but rather to get that government to change its policies. "The US is deeply concerned about the direction of the Hamas-led Palestinian government because of that government's continued refusal to commit to non-violence, recognize Israel and respect previous agreements and obligations between the parties," Jones said. Until the Hamas government abides by these principles, he said, the US would be unable to support the government, and that government "must take responsibility for the consequences of its policies." Regarding Acting Prime Minister Ehud Olmert's plan to unilaterally set the country's eastern borders, Jones said it was clear that the US continued to support the road map and negotiations. "We believe the only way to resolve the dispute between Israel and the Palestinians is through negotiated settlement," he said. "This is the only way final borders can really be determined." At the same time, Jones said that if "after a period" it became clear that there was not a partner for peace, unilateral steps would be "an understandable position." But, he stressed, "at this time we agree there must be a negotiated settlement and are encouraging Hamas to be a negotiating partner, to adopt polices that will make it a partner to peace." Jones said that since 1993 the US has given some $2.7 billion in aid to the West Bank and Gaza. According to figures provided by USAID deputy director David Harden, the Palestinians stand to lose as much as $350 million dollars as a result of the new US decision. The US will continue to provide some $249 million in humanitarian aid to the Palestinians, and is reviewing another $165 million in ongoing and planned projects. Before the decision was made to cut aid to the PA, some $600 million worth of various types of US assistance to the PA was in the pipeline.