JERUSALEM, May 5 (Reuters) A European Commission proposal to ''avert or delay'' the Palestinian Authority's collapse calls for pooling donor funds and using President Mahmoud Abbas's office to funnel them to provide basic services, a Commission document shows.
The European Union has frozen direct aid to the Hamas-led Authority, but the April 27 document says the commission intends to provide assistance to bolster Abbas's office in anticipation that it will play the role of go-between.
''With current or even substantially increased levels of funding, the EU will not be able to stave off a crisis but might be able to avert or delay a collapse,'' the document said.
Western diplomats say the Bush administration has moved in recent days to scuttle the European proposal on the ground that letting it go ahead would take pressure off Hamas to renounce violence, recognise Israel and abide by interim peace deals.
But they said the Bush administration has agreed to back an expansion of Abbas's elite presidential guard. The EU would provide the funds for training and equipment.
Hamas officials and some Western diplomats say Washington's goal is to shore up Abbas while making it impossible for the Palestinian Authority to function.
Like proposals floated by Britain and France, the European Commission said donors could establish a pool of funds in coordination with the United Nations, the World Bank or the International Monetary Fund.
The money would be funnelled to specific sectors like health and education, bypassing the Hamas-led Authority.
Abbas, whose Fatah faction was trounced by Hamas in parliamentary elections in January, ''could act as an interface between the international community and the Palestinian Authority,'' the document said.
''He would, de facto, play the role of go-between for the international community,'' it added.
AID TO ABBAS While the United States and the EU cut aid to the Hamas-led Authority, they have placed no restrictions on aid going through Abbas or his office.
''The commission has already received requests for assistance from President Abu Mazen (Abbas) for capacity building to which it intends to respond favorably,'' the document said.
The Hamas-led government has yet to pay March and April wages to 165,000 employees. It has been unable to receive funds from abroad because banks fear sanctions by the United States.
Palestinian officials said this week that U.S. pressure on regional and local banks thwarted a Hamas-backed plan for the Arab League to deposit donor funds directly into the accounts of government workers.
The EU document said the financial crisis in the West Bank and Gaza could deepen in the next two to three months, ''which will see greatly increased unemployment and poverty levels, and possibly the breakdown of law and order''.
''In such a crisis situation the international community will have a strong imperative to intervene,'' it said. ''The dilemma is how to do this without engaging with the PA (Palestinian Authority)'', the document said.
Re-routing aid to circumvent Hamas will be a major focus of a meeting of the ''Quartet'' of international peace mediators -- the United States, the EU, Russia and the United Nations -- planned in New York on May 9, diplomats said.
While the EU has severed political contacts with the Palestinian Authority, the document said ''limited contacts'' may be permitted with Hamas-led government ministries and ministers ''for specific practical purposes'', such as combating the spread of avian flu.
''A full resumption of EU aid at current or even increased levels will not be able to stave off the crisis,'' the document said. ''At most it will provide only minor and temporary alleviation of the plight of the Palestinians.'' REUTERS CH ND1048