Israel transfers $120 million to Abbas in first stage

By Adam Entous

JERUSALEM (Reuters) - Israel transferred to the Palestinians on Sunday a portion of the hundreds of millions of dollars in tax funds it had frozen for 17 months, hoping to bolster President Mahmoud Abbas while isolating Hamas.

Nearly $120 million in frozen tax revenues were transferred in the first installment -- one sixth of the total that the Palestinians say Israel has been withholding and more than enough to cover one full month's wages to Palestinian Authority workers and pensioners.

Israel will also transfer newly collected tax revenues, expected to total another $50 million, later this week, according to a senior Israeli official.

Israeli Prime Minister Ehud Olmert said steps taken by Abbas to try to rein in militants since Hamas's violent takeover of the Gaza Strip last month could also lead to progress on the diplomatic front, but he offered no specifics.

Israel started withholding the tax revenues, which it collects on behalf of the Palestinian Authority, on February 1, 2006 after the Islamist militant group Hamas trounced Abbas's secular Fatah faction in parliamentary elections in January.

The funds are the main source of funding for the cash-strapped Palestinian Authority.

Olmert's spokeswoman Miri Eisin said Israel transferred the money to the emergency government set up by Abbas in the occupied West Bank after he dissolved a unity administration led by Hamas.

"Israel is committed to working with the new Palestinian government. We hope that together they (Abbas's cabinet) will be able to build a strong administration which will give them a better capability to enter into full negotiations."

Israel's freeze on tax revenue transfers, coupled with economic sanctions imposed by Western powers, had pushed the Palestinian Authority to the brink of financial collapse and prevented government workers from receiving full wages for nearly a year and a half.

Those sanctions were lifted last month on Abbas's government but remain in place against the Hamas administration in Gaza.

Eisin said the tax money transferred to the emergency government could be used to pay long-overdue salaries, fund development projects and provide public services.

CONFLICTING ESTIMATES

Olmert's office has yet to publicly disclose exactly how much Palestinian tax money was being withheld by Israel.

Before Sunday's transfer, Palestinian officials estimated that Israel held at least $700 million.

Israeli officials estimated that figure at closer to $500 million, and said that $300 million to $400 million was all that was available for transfer to Abbas because the rest had been frozen by court order to cover Palestinian debts.