Foreign Minister Tzipi Livni said Monday that Israel would resume payments of Palestinian tax revenues if the new Fatah-led West Bank government commits to peace and supports Israel's right to exist. "We are willing to work with those who support the goal of the two-state solution" of Israel and the Palestinians living side by side in peace, Livni said on arrival at a meeting with EU foreign ministers. "With this kind of government," she added, "Israel will work and, of course, release" hundreds of millions in tax revenue Israel has held back from the Palestinian Authority government while it included Hamas. Earlier Monday, the European Union said it would resume direct aid to the new Palestinian Authority government of Prime Minister Salam Fayad. Reacting to a dramatic new situation in the Middle East, EU foreign policy chief Javier Solana said the 27-nation bloc would resume direct aid that was frozen more than a year ago after Hamas came to power.

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Solana said the EU planned to deliver aid for Palestinians in the Gaza Strip through the United Nations or an existing temporary program that bypasses the Hamas leadership there. The bloc, however, will continue to try to isolate Hamas, which seized control of the Gaza Strip last week, prompting PA Chairman Mahmoud Abbas to dissolve the Hamas-Fatah unity government and establish a new, Fatah-led administration to govern the West Bank. "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 on arrival at an EU foreign ministers meeting. EU External Relations Commissioner Benita Ferrero-Waldner said aid to Fayyad's West Bank government can only be given if it commits to sound bookkeeping. There was no immediate word on when the EU assistance would resume. German Foreign Minister Frank-Walter Steinmeier, the meeting's chairman, criticized Hamas for last week's violent takeover of the Gaza Strip, which left the Palestinians physically divided and under rival leaderships. "I think that it is mainly to Hamas that we have to look when we have to point the finger at someone," Steinmeier said. "As far as Gaza is concerned we have to continue helping the Palestinian people," said Solana. "We cannot let them down at this moment." Ferrero-Waldner said the EU would ask that Israel release to the West Bank government taxes it had collected on trade in and out of Palestinian areas. She estimated that to total some US $850 million. Direct international aid from the EU, the US and others evaporated in March 2006 after Hamas won parliamentary elections. Fayad was finance minister of the national unity government that collapsed last week. He has created a Palestinian account to receive funds that bypass an international boycott of Hamas. To date only Saudi Arabia, Qatar and Norway have put money into that account When the EU withheld aid for the Palestinian government in 2006 it established a temporary program, overseen by the World Bank, that makes regular cash payments to destitute Palestinians, including civil servants who went unpaid as the Hamas government coffers ran dry, and provides funds for fuel for hospitals and power plants. Officials said that temporary program may be continued for Gaza Palestinians. Under the so-called Temporary International Mechanism, the EU and its 27 member states have contributed almost â‚¬700 million (US$916 million) in aid for Palestinians in addition to payments through U.N. relief agencies. In the first half of 2007 alone, EU aid through the TIM totaled â‚¬320 million (US$426 million).

FM: We may resume tax transfers to PA

But Livni says Fatah-led gov't must first commit to peace and recognize Israel.