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U.S. redirecting Palestinian aid

Humanitarian projects to get bulk of assistance after Hamas win

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A Palestinian woman picks up a month's worth of food aid from a Gaza food bank this week.

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WASHINGTON (CNN) -- The United States will increase humanitarian aid to the Palestinians but will cut off all assistance for building projects in the Palestinian territories, the State Department said Friday.

In all, $411 million in U.S aid will be canceled or suspended out of concern the money could help the new Hamas-led Palestinian government, the department said.

Of that amount, $165 million remains under review by the Bush administration.

The decision follows a comprehensive review of U.S. aid in the wake of Hamas' unexpected landslide victory in Palestinian elections this year.

After Hamas' win, the United States, European Union and other Palestinian donors threatened to end assistance to a Hamas-led government unless it recognized Israel, renounced violence and adhered to agreements with Israel brokered by the previous Palestinian government.

The European Union announced Friday that it will cut off direct aid to the Hamas-led government. (Full story)

The cut in funding will affect infrastructure, employment and economic development projects in the Palestinian territories, such as public works construction, the training of public officials and revitalization of the economy, the State Department said.

The United States will redirect about $100 million in increased funding toward basic humanitarian needs, such as health, food and education. Overall humanitarian assistance will rise by 57 percent to $287 million over several years, the State Department said.

The United States will also provide $40 million for promoting democracy.

About $13 million will be used to establish new vetting procedures, including a special inspector general, to ensure that humanitarian aid funneled through approved organizations does not end up benefiting Hamas, the department said.

The Bush administration had budgeted an additional $150 million in Palestinian aid for fiscal year 2006. Most of it was to be coordinated through the U.S. Agency for International Development.

While the administration continues to support Palestinian Authority President Mahmoud Abbas, officials say they don't expect to provide his office with any U.S. money. After Hamas' victory, the United States asked Abbas to return $50 million it had provided directly to the Palestinian Authority but which had not been spent.

U.S. Secretary of State Condoleezza Rice approved the new policy this week. U.S. officials briefed lawmakers on Capitol Hill about the administration's plans.

The review took much longer than expected, but officials said they wanted to find a formula for delivering aid that neither supported Hamas-led ministries or organizations that work with Hamas, nor added to the suffering of Palestinians.

The only funding that will be coordinated with Hamas is a small amount to combat an outbreak of the avian flu in Gaza, at the request of the Israeli government.

Hamas says it's ready for 'serious' dialogue

The new Hamas-led Palestinian government, which is suffering financial hardship because of the cutoff in aid, has made statements in recent days suggesting it might rethink its long-held positions about the destruction of Israel.

In a letter sent this week to U.N. Secretary-General Kofi Annan, the new Palestinian foreign minister said Hamas is prepared to engage in "serious and constructive dialogue" to reach a "just and comprehensive solution" of its differences with Israel.

The minister, Mahmoud Zahar, even mentioned the possibility of a "two-state" solution under which Palestinians would have "freedom and independence side by side with our neighbors" -- despite Hamas' long-standing vow to eradicate Israel. (Full story)

Zahar also said the Palestinian Authority is hoping that nations threatening to withhold aid will reconsider.

Officials said that while some Hamas officials had made some conciliatory statements, others have denied that the group's policy has changed.

"It is clear they are dealing with the pressures that governing brings," said a senior State Department official involved with the plan, adding that Hamas seems "unsettled" about its new role as leader of the Palestinians.

"Obviously there is a debate going on about how to deal with the new realities of governing and how to face that, but there is nothing conclusive yet," the official said.

Until Hamas recognizes Israel and renounces violence, "there is still a question as to whether they consider violence a legitimate tool to advance their objectives," the official said.

CNN's Elise Labott contributed to this report.

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