U.S. to keep Palestinian aid ban

By Adam Entous

JERUSALEM (Reuters) - The United States said on Sunday its ban on direct aid to the Palestinian government would remain in place but it broke ranks with Israel by authorizing contacts with some members of the new unity administration.

The U.S. consulate in Jerusalem said Washington would continue to shun Hamas ministers in the power-sharing Palestinian cabinet but permit contacts with non-Hamas members on a case-by-case basis.

The decision to allow some contacts marked a shift in U.S. policy and a split with Israel, which said it would boycott the new government in its entirety, including non-Hamas ministers.

Israeli Prime Minister Ehud Olmert ruled out resuming talks on Palestinian statehood with President Mahmoud Abbas and urged the world to shun the government sworn in on Saturday. Olmert's cabinet voted not to recognize the new administration.

Palestinians hope the partnership between Abbas's secular Fatah faction and Islamist Hamas will stop factional fighting and ease a crippling aid embargo that has increased poverty.

"The loser from the formation of the unity government is Israel and Olmert," said Information Minister Mustafa Barghouthi at the start of the government's first cabinet meeting, adding that delegations would be sent abroad to lobby for support.

Micaela Schweitzer-Bluhm, spokeswoman for the U.S. consulate in Jerusalem, said the year-old U.S. ban on direct aid to the Palestinian government would remain in place until it recognized Israel and renounced violence as demanded by the "Quartet" of Middle East mediators.

"This must continue to be the measure for any support," she said. "There's no change in our assistance policy. But we remain committed to providing assistance to the Palestinian people and we'll continue to do that through the U.N. and other organizations."

Israel has also vowed not to hand over to the unity government tax revenues it has been withholding.

LIMITED CONTACTS

Olmert said contacts with Abbas would be limited to matters related to "the quality of life of the Palestinian population".

"The new government, as it has been declared and presented, limits our ability to conduct a dialogue with ... (Abbas) and narrows the range of issues which we might have been able to discuss in the coming period," he told his cabinet.

He said the new government's platform contained "very problematic elements", an apparent reference to its call for "resistance" against Israel in "all its forms".

While the unity government gives Abbas authority to negotiate with Israel, Hamas would have an effective veto over any deal that emerges, Israeli officials said.

Schweitzer-Bluhm said Washington was disappointed by what she called the new government's "missed opportunity to reinforce the Quartet's principles".