Israel may release tax funds to Abbas -sources

JERUSALEM, Dec 20 (Reuters) Israel is considering handing over millions of dollars in withheld Palestinian tax funds to President Mahmoud Abbas in a move that could bolster him in the run-up to elections over his Hamas rivals, sources today said.

Western diplomats and Palestinian sources, who spoke on condition of anonymity, said the proposal under consideration calls for releasing the tax money to Abbas in stages with assurances it will bypass the Hamas-led government.

That could allow the moderate president to make direct payments to Palestinian civil servants, who have not received their full salaries since Hamas came to power in March. Israel is under US and European pressure to help strengthen Abbas.

Abbas is expected to hold long-awaited talks with Israeli Prime Minister Ehud Olmert in the coming days, Palestinian officials say.

Olmert told reporters the meeting would be ''very soon'' but gave no date.

Abbas's call for new presidential and parliamentary elections has triggered fierce fighting in Gaza between his Fatah forces and those loyal to Hamas.

Today, Fatah and Hamas forces withdrew from the streets after a fresh ceasefire aimed at halting a slide to civil war took effect.

The previous truce fell apart within 24 hours.

ISRAEL HOLDS 500 MILLION DOLLAR Israel is holding about 500 million dollar in Palestinian tax revenues, an Israeli Finance Ministry official said.

Olmert's office declined to comment on Israel's plans for the money, which it collects on the Palestinians' behalf.

''We have not been officially informed. We don't know how much the sum would be,'' top Abbas aide Rafiq Husseini said.

Hamas spokesman Fawzi Barhoum said the ruling faction would prefer the tax money to go through the Hamas-led government.

''But under the current siege, if this money comes through any other channel, including the channel of the president, we have no objection as long as its final destination will be the employees and our needy people,'' he added.

Ten Palestinians have been killed in Gaza since Abbas called on Saturday for early elections to break a political deadlock with Hamas and get Western sanctions lifted.

A senior aide to Abbas said the president planned to issue a decree next week to lay the legal foundations for fresh elections, which Hamas described as unconstitutional.

The expected Abbas-Olmert meeting would be the first formal talks between the two leaders since Olmert took over as prime minister in January.

Israel has been under pressure from Europe and the United Nations for months to release the tax money to Abbas, who favours peace talks with the Jewish state.

If a final decision is made to release the funds, one source said, ''not all the money would go at once''. The first instalments could total hundreds of millions of dollars.

Israel wants assurances that tax money transferred to Abbas will not benefit Hamas or its government, the sources said.

Israel refuses to deal with the Hamas Islamist movement, which formally seeks the Jewish state's destruction.

Western diplomats said earlier this week Western powers and their Arab allies would try to boost Abbas ahead of elections, but Palestinian analysts said the effort could backfire if Hamas succeeded in painting Abbas and his Fatah faction as beholden to US and Israeli interests.

Hamas, which trounced Abbas's once dominant Fatah in parliamentary elections last January, has said it would boycott any new polls. No date has been announced.

Reuters SY GC2200