Palestinians seek solution over Israeli banks

RAMALLAH, West Bank, Apr 7 (Reuters) The Palestinian Monetary Authority said it was in contact with Israel's central bank to try to stop banks in the Jewish state from cutting ties with Palestinian institutions now that Hamas had taken office.

''The Monetary Authority is ... making contacts with official sides (in Israel) and Palestinian banks to find a work formula that can maintain the relationship,'' said George al-Abed, the head of the authority, which functions like a central bank.

Cutting banking ties would hurt the Palestinian economy and trade flows since some imports are backed by Israeli bank guarantees, a Palestinian official has said.

Major Israeli banks launched a review of dealings with their Palestinian counterparts after the Islamic militant group Hamas, which is sworn to destroy Israel, won elections in January. A Hamas-led government assumed power last week.

Israel's largest bank, Bank Hapoalim , said this week it was severing the main banking ties between Israel and Palestinian areas.

Sources said Hapoalim would phase out dealings over the next three months. Israel's third-largest bank, Discount Bank said it might follow suit.

''The decision of Hapoalim bank in relation to not dealing with banks in the Palestinian territories is an individual decision taken by Hapoalim board of directors for private reasons,'' Abed said in a statement issued late yesterday.

The Bank of Israel could not be reached for comment. But a spokeswoman this week said that while cooperating with Palestinian banks was not illegal, maintaining ties could appear improper.

The Palestinian Monetary Authority is independent of the Hamas-led government.

Hamas is also struggling to find a bank willing to handle its finances, casting doubt on whether it can pay staff or receive foreign aid, Western diplomats and Palestinian officials said this week.

Officials of Hamas, listed by Washington and the EU as a terrorist organisation, say the banking problems are part of an international campaign against the group.

Cutting ties with Palestinian banks would affect the flow of the Israeli shekel into the West Bank and the Gaza Strip, the most common currency in the Palestinian markets.

Palestinians do not have a national currency. They also deal in the Jordanian dinar and in US dollars.

The new Hamas government is facing Western isolation and cuts in aid to its administration unless it recognises Israel, renounces violence and accepts interim peace accords. Hamas says talks with Israel would be futile.

REUTERS SHR KP1808