Gaza, Apr 5: Prime Minister Ismail Haniyeh told the first full meeting of his Hamas-led cabinet today that the Palestinian government was broke and urged the international community not to slash aid.
''The Ministry of Finance has inherited an entirely empty treasury, in addition to the debts of the ministry and the government in general,'' said Haniyeh, who is also a senior leader of the Islamic militant group.
The new Palestinian government is facing Western isolation and cuts in aid to its administration unless it recognises Israel, renounces violence and accepts interim peace accords.
Haniyeh said the government would do its best to pay salaries to the Palestinian Authority's 140,000 employees despite a cash crunch caused in large part by cuts in Israeli tax revenue transfers following Hamas's election win in January.
Hamas has previously expressed confidence it would make up for any cash shortfalls with aid from Iran and other Muslim nations. Haniyeh gave no figures on the Authority's debts.
Palestinian Finance Minister Omar Abdel-Razeq said the government expected to receive 80 million dollars from Saudi Arabia, Kuwait and the United Arab Emirates to help pay March salaries.
But he said it was unclear when the Palestinian Authority would secure the funds. March salaries totalling about 118 million dollars were scheduled to be paid earlier this week.
''We have promises, but efforts are needed to make the promises real,'' Haniyeh said.
Israel, like the European Union and United States, brands Hamas a terrorist group and refuses to negotiate with it.
Hamas has offered a long-term truce if Israel was to withdraw fully from land occupied in the 1967 West Asia war.
But the group has vowed never to recognise the Jewish state.
Israel will move closer to forming its own new government on Thursday when President Moshe Katsav asks interim Prime Minister Ehud Olmert to build a coalition. Olmert's centrist Kadima Party won most seats in elections last week, but not a majority.
SHORT-LIVED ''PLEDGE'' FOR CO-EXISTENCE
The ''Quartet'' of West Asia mediators -- the United States, the European Union, the United Nations and Russia -- has threatened to cut direct aid to the Palestinian Authority unless Hamas abandons its charter call for Israel's destruction.
A Palestinian diplomat at the United Nations raised hope of a breakthrough yesterday by saying Foreign Minister Mahmoud al-Zahar, a senior Hamas member, had written of two-state co-existence as a solution to the West Asia conflict.
But a Hamas official in Gaza called the Zahar letter a mix-up. The official told Reuters that Zahar made changes to an initial draft of the letter, such as deleting references to the two-state solution. The older version was mistakenly sent.
Holding out an olive branch, EU foreign policy chief Javier Solana said his 25-nation bloc was disappointed by the Hamas government programme but there was room for it to change.
''The Union doesn't and shouldn't want the Hamas government to fail,'' he told the European Parliament.
It is unclear how much of the more than 1 billion dollars a year that the Palestinians get in foreign aid will be withheld now that Hamas has taken control.
Speaking by video-link with ministers in the West Bank city of Ramallah because of Israeli travel curbs on senior Hamas officials, Haniyeh condemned recent Israeli air strikes and shelling in the Gaza Strip.
Israel has said it was responding to repeated cross-border launches of makeshift rockets by Palestinian militants.
The statement from Katsav's office said the Israeli president would meet Olmert tomorrow and then announce he had asked the interim leader to form the government. Olmert will have 42 days to complete the task.
Speaking with Kadima's new parliamentary faction, Olmert said a majority of legislators wanted him to be Prime Minister.
''Only the chairman of Kadima can create a government in Israel. I will make a great effort to complete the process as quickly as possible,'' Olmert said.
Kadima won 29 seats in the 120-member Parliament in the March 28 elections, less than expected, on proposals to impose Israel's final borders with or without Palestinian agreement.
The Palestinians condemn Olmert's plan as a land grab.