Israel calls for continuing aid for Palestinians

WASHINGTON (Reuters) - Israel is urging the international community to continue aid to the Palestinians just as U.S. lawmakers are contemplating an aid cutoff if the Palestinians press for statehood at the United Nations.

An Israeli government website on Thursday carried a report saying the Palestinian Authority already faced economic and fiscal woes, in part due to a decline in donor aid.

"Israel calls for ongoing international support for the PA budget and development projects that will contribute to the growth of a vibrant private sector, which will provide the PA an expanded base for generating internal revenue," said the Israeli report.

"The economic slowdown can be attributed largely to the fiscal crisis currently plaguing the PA, which is due primarily to a decline in donor aid, and the inability to obtain loans from the banking system to finance the shortfall," it said.

The document, titled "Measures Taken by Israel in Support of Developing the Palestinian Economy and Socio-Economic Structure," is to be submitted September 18 in New York to the Ad Hoc Liaison Committee.

The 12-member committee of the European Union and United States serves as the principal policy-level coordination mechanism for assistance to the Palestinians.

U.S. lawmakers have threatened to review the roughly $500 million in annual economic and security aid the United States gives to the Palestinians if they stick to plans to press their statehood claim at the United Nations this month, a step opposed by Israel and the United States.

But some U.S. lawmakers have said they want to know more about what Israel thinks about aid to the Palestinians, before they make any decisions about whether to continue it.

The new report could help answer such questions, said Dylan Williams, director of government affairs at J Street, an American Jewish lobbying group in Washington that has been defending U.S. aid to the Palestinians.

"The significance of this report is that whatever does or does not happen at the U.N., the Israeli government is putting forth just two days before the Palestinians are expected to approach the United Nations, a very compelling and clear case that continued international assistance is not only in the interest of the Palestinian Authority, but in the interests of the Israelis and their security," Williams said.

No spokesman for the Israeli Embassy was available in Washington on Thursday evening for comment. But Israeli Foreign Minister Avigdor Lieberman has warned the Palestinians of "grave consequences" if they pressed plans to upgrade their U.N. status.

Other Israeli ministers have suggested withholding funds from the Palestinians or annexing settlements.

U.S. and EU officials as well as former British Prime Minister Tony Blair have been trying to get the Palestinians and Israelis into talks so as to avert a U.N. showdown.

(Editing by Bill Trott)