EU to pay gov't workers in Hamas-controlled Gaza

JERUSALEM, June 17 (Reuters) A European Union aid programme plans to continue making subsistence payments to tens of thousands of Palestinian government workers and pensioners in the Hamas-controlled Gaza Strip, EU officials said today.

The EU payments may be one of the only financial cushions for Gazans after Islamist Hamas seized control of the territory in fierce fighting with President Mahmoud Abbas's secular Fatah faction.

Israel and the United States want to isolate Hamas -- economically, diplomatically and militarily -- in the Gaza Strip, while allowing funds to flow to the Western-backed emergency government set up in the West Bank by Abbas.

Aid groups have warned of dire consequences for Gaza's 1.5 million impoverished residents. Israel controls the land crossings between Gaza and Israel, as well as Gaza's air space and territorial waters. Israel does not allow the crossing of people or goods via the sea or air.

The EU's Temporary International Mechanism pays monthly ''allowances'' -- approximately 360 dollar each -- directly to the Palestinian Authority's non-security work force, bypassing the government.

''It will continue to cover Gaza. It's not our policy to strangle the Gaza people,'' a senior EU official said.

A second EU official said: ''Security concerns permitting, we will continue work as before.'' The TIM provides allowances to more than 77,000 government workers and pensioners, 60 per cent of them in the West Bank and 40 percent in the Gaza Strip.

Abbas swore in an emergency cabinet today after sacking a three-month-old unity government he formed with Hamas, which won parliamentary elections in January 2006.

The United States, Israel and some European states plan to quickly lift a ban on direct aid to the Palestinian government formed by Abbas in the West Bank.

Israeli Prime Minister Ehud Olmert plans to transfer to Abbas a portion of the Palestinian Authority's tax revenues being withheld by Israel.

That transfer -- which could total as much as 400 million dollar -- could be used by Abbas to pay long-overdue government salaries and back-pay to workers in the West Bank.

But it is unclear whether any of the money would be allowed to flow to Gaza.

REUERS PJ KP2235