US, Israel weigh easing sanctions to boost Abbas

JERUSALEM, June 15 (Reuters) The United States and Israel are considering rapidly easing sanctions in the occupied West Bank to try to bolster an emergency government being formed by Palestinian President Mahmoud Abbas, Western and Israeli officials said today.

A senior Israeli official said Prime Minister Ehud Olmert and US President George W Bush would discuss a series of ''gestures'' that could quickly be taken, including Israel's release to Abbas of a portion of the Palestinian Authority's tax revenues being withheld by Israel.

Western and Israeli officials said the goal would be to strengthen Abbas, his secular Fatah faction and other ''moderates'' in the West Bank, while isolating Hamas Islamists who seized control of the Gaza Strip in less than a week of fierce fighting.

Western donors led by the United States cut off direct financial aid to the Palestinian Authority in March 2006 after Hamas defeated Abbas's Fatah faction in parliamentary elections.

Coupled with Israel's withholding of tax revenues that it collects on the Palestinians' behalf -- the Authority's main domestic source of funding -- the sanctions have pushed the Hamas-led government to the brink of financial collapse.

''If there will be an emergency government without participation of Hamas, then the funds can flow,'' said a senior Israeli official involved in the internal deliberations. ''From our point of view, there isn't a Hamas government any more.'' An economic and diplomatic embargo of the Hamas administration in Gaza would remain in place and be tightened in some areas.

Washington wants Egypt to step up efforts to help prevent the group from smuggling into Gaza more sophisticated weapons, according to the officials.

A senior Western diplomat said funds could quickly begin to flow: ''The emergency government could work out of the PLO account for a start and the money would be controlled in the West Bank,'' he said.

TAX REVENUE While an international force along Gaza's border with Egypt is under consideration, US and Israeli officials said they were sceptical that major powers would be willing to contribute troops and face Hamas attacks.

The official said Israel was considering releasing a portion of the tax revenues at first and that an announcement could be made when Olmert meets Bush in Washington next week.

Officials said they could turn on the financial taps rapidly because the Bush administration has already given a green light for donors to send funds to a Palestine Liberation Organisation (PLO) account controlled by Salam Fayyad, who some officials expect to serve as prime minister in the emergency government being formed by Abbas.

''From our point of view, there is no problem for money to go to the PLO account if there isn't a Hamas government,'' the senior Israeli official said.

Israel has also signalled a willingness to transfer withheld tax revenues to the Palestinians, although far less than the 700 million dollars sought by Abbas.

Israeli officials estimate that only 300 million dollars to 400 million dollars could be transferred to the Palestinians because the rest of the money has been frozen by court orders.

REUTERS JT BST1320