Abbas, West seek ways to stem flow of Hamas cash

JERUSALEM, June 15 (Reuters) Hamas is challenging a US-led economic boycott of the Palestinian government by hand-carrying millions of dollars into Gaza, but Western pressure could stem the flow of funds, diplomats today said.

Palestinian President Mahmoud Abbas's aides are looking for ways to stop such large sums being brought in after European monitors at the Rafah border crossing with Egypt sent him a letter of protest, raising fears the passage could be shut down.

Diplomats said Abbas was considering issuing a decree capping the amount of money that can be brought into Gaza, but that it was unclear whether he had the legal authority to do so.

Major Palestinian banks said they would not deposit or transfer the cash brought into Gaza by Hamas, making it difficult for the government to distribute the money to the bulk of the Palestinian workforce, located in the occupied West Bank.

''This will certainly not be deposited in the Bank of Palestine, no way,'' its chairman, Hani Shawa, told Reuters. ''We must know the source and the source must be approved by us.'' Diplomats said paying cash to workers in Gaza but not those in the West Bank could fuel tensions.

A freeze in Israeli and Western funds since Hamas came to power in March has pushed the new Palestinian government to the brink of financial collapse, preventing it from securing enough funds to pay salaries to 165,000 workers.

Abbas has increased the pressure by calling a referendum on a statehood proposal that implicitly recognises Israel. Hamas has labelled the July 26 referendum a coup attempt.

Nobody knows percisely how much money Hamas has been able to bring into Gaza. Intelligence estimates range from tens of millions of dollars to 0 million.

Since May 19, Hamas officials have openly carried at least 27 million dollars through the Rafah border crossing, the monitors say.

The biggest known shipment so far totalled 20 million dollars and was brought through Rafah by Foreign Minister Mahmoud al-Zahar.

CASH MOUNTAIN Hamas has promised to use the cash to pay some overdue salaries and provide essential services. Some Western and Arab diplomats are sceptical.

''The 20 million dollars (from Zahar) will not help anyone. It will finance the Hamas opposition to the referendum,'' said a security source involved in discussions on the issue.

An Arab diplomat outside the Palestinian territories said: ''We all know where this money is going -- to arms or to strengthen the Hamas force.'' Under the current rules, Palestinians who bring more than JERUSALEM, June 15 (Reuters) Hamas is challenging a US-led economic boycott of the Palestinian government by hand-carrying millions of dollars into Gaza, but Western pressure could stem the flow of funds, diplomats today said.

Palestinian President Mahmoud Abbas's aides are looking for ways to stop such large sums being brought in after European monitors at the Rafah border crossing with Egypt sent him a letter of protest, raising fears the passage could be shut down.

Diplomats said Abbas was considering issuing a decree capping the amount of money that can be brought into Gaza, but that it was unclear whether he had the legal authority to do so.

Major Palestinian banks said they would not deposit or transfer the cash brought into Gaza by Hamas, making it difficult for the government to distribute the money to the bulk of the Palestinian workforce, located in the occupied West Bank.

''This will certainly not be deposited in the Bank of Palestine, no way,'' its chairman, Hani Shawa, told Reuters. ''We must know the source and the source must be approved by us.'' Diplomats said paying cash to workers in Gaza but not those in the West Bank could fuel tensions.

A freeze in Israeli and Western funds since Hamas came to power in March has pushed the new Palestinian government to the brink of financial collapse, preventing it from securing enough funds to pay salaries to 165,000 workers.

Abbas has increased the pressure by calling a referendum on a statehood proposal that implicitly recognises Israel. Hamas has labelled the July 26 referendum a coup attempt.

Nobody knows percisely how much money Hamas has been able to bring into Gaza. Intelligence estimates range from tens of millions of dollars to $300 million.

Since May 19, Hamas officials have openly carried at least 27 million dollars through the Rafah border crossing, the monitors say.

The biggest known shipment so far totalled 20 million dollars and was brought through Rafah by Foreign Minister Mahmoud al-Zahar.

CASH MOUNTAIN Hamas has promised to use the cash to pay some overdue salaries and provide essential services. Some Western and Arab diplomats are sceptical.

''The 20 million dollars (from Zahar) will not help anyone. It will finance the Hamas opposition to the referendum,'' said a security source involved in discussions on the issue.

An Arab diplomat outside the Palestinian territories said: ''We all know where this money is going -- to arms or to strengthen the Hamas force.'' Under the current rules, Palestinians who bring more than $2,000 through the Rafah crossing must declare it. But there is no dollar limit and cabinet ministers are exempt.

The head of the EU's Rafah monitoring mission sent a letter to senior aide to Abbas, Saeb Erekat, to protest at the flood of unaccounted for funds.

The spokesman for the EU monitors, Julio De La Guardia, said the monitors were not threatening to withdraw from Rafah.

But he said the letter warned of ''consequences'' if the rules were not changed ''so that the luggage of everybody is checked in order to have proper control over the inflow of money''.

Like Abbas, whose presidential guard controls the Rafah crossing, Egypt is also under pressure from Israel and the United States to stop the funds, Western diplomats said.

''We've made it known to the relevant parties our concerns on this issue,'' said Israel Foreign Ministry spokesman Mark Regev.

Reuters SY GC2336 ,000 through the Rafah crossing must declare it. But there is no dollar limit and cabinet ministers are exempt.

The head of the EU's Rafah monitoring mission sent a letter to senior aide to Abbas, Saeb Erekat, to protest at the flood of unaccounted for funds.

The spokesman for the EU monitors, Julio De La Guardia, said the monitors were not threatening to withdraw from Rafah.

But he said the letter warned of ''consequences'' if the rules were not changed ''so that the luggage of everybody is checked in order to have proper control over the inflow of money''.

Like Abbas, whose presidential guard controls the Rafah crossing, Egypt is also under pressure from Israel and the United States to stop the funds, Western diplomats said.

''We've made it known to the relevant parties our concerns on this issue,'' said Israel Foreign Ministry spokesman Mark Regev.

Reuters SY GC2336