Abbas says Palestinian aid freeze destabilising

RAMALLAH, West Bank, May 9 (Reuters) Palestinian President Mahmoud Abbas urged Middle East peace brokers today to end a freeze on foreign aid to the Hamas-led government, saying lack of funds could ''jeopardise the very foundation'' of government.

Western powers led by the United States and the European Union froze direct aid to the Palestinian Authority to put pressure on Hamas to renounce violence, recognise Israel and abide by interim peace deals.

Local and international banks, fearful of being hit with US anti-terrorism sanctions and lawsuits, have also refused to deal with the Authority, creating a liquidity crisis.

As a result, the Palestinian Authority has been unable to pay salaries to 165,000 civil servants since March, prompting concerns of a humanitarian crisis that could trigger an upsurge of Middle East violence.

''A quarter of Palestinians rely on public sector salaries, and failure to pay these salaries could jeopardise the very foundation of the institutions of the Palestinian Authority and the future Palestinian state,'' Abbas told the Quartet of Middle East peacemakers -- the United States, Russia, the European Union and the United Nations.

''I therefore urge you to ensure that salaries are paid,'' he wrote in a letter obtained by Reuters.

The moderate Palestinian president made the remarks ahead of a meeting today to hammer out how to deal with a government led by Islamist Hamas, which remains sworn to Israel's destruction although it has largely abided by a truce for more than a year.

''Besides the potential humanitarian crisis resulting from the general deterioration of the economic situation, inability to pay salaries might have deep destabilising political and security implications,'' Abbas said.

Washington remains opposed to direct aid to the Hamas government, which took office in March after defeating Abbas's long-dominant Fatah party in a January parliamentary election.

REUTERS OM PM1745