Palestinian bank pays some government salaries

GAZA, June 4 (Reuters) One Palestinian bank began paying some government workers a month's salary today, witnesses said, the first bank to do so despite threats of sanctions against institutions dealing with the Hamas government.

The Bank of Palestine said in a statement that government employees who held accounts at its branches and earned 1,500 shekels a month less could start withdrawing their money from automated teller machines (ATMs).

''I did not believe that the salary would ever be paid again. I don't believe it even now,'' said Mohammed al-Qilani, a policeman, after withdrawing his salary from a Bank of Palestine ATM in the Gaza Strip.

The Palestinian Authority's 165,000 workers have gone without salaries for three months since the Islamic militant group Hamas took power, prompting Israel and Western countries to cut off aid and other transfers to the administration.

Israel, the United States and the EU regard Hamas as a terrorist organisation. That categorisation has also discouraged local, regional and international banks from doing any business with the new government.

The move by the Bank of Palestine came after other local banks, in the wake of threats from militants, agreed to pay out of their own funds thousands of other government workers.

The banks said they would provide interest-free loans, covering one month's salary, to the Palestinian government's lowest-paid employees.

By dealing directly with the employees, those banks sidestep the threat of international sanctions against financial institutions that deal with Hamas.

Hamas has rejected international demands to renounce violence, recognise Israel and abide by interim peace deals.

Reuters SRS DB2324