Israel is considering handing over millions of dollars in withheld Palestinian tax funds to Palestinian President Mahmoud Abbas in a move that could bolster him ahead of elections over his Hamas rivals, sources said on Wednesday.
Western diplomats and Palestinian sources, who spoke on condition of anonymity, said the proposal under consideration called for releasing the tax money to Abbas in stages on the condition that it will bypass the Hamas-led government.
Transferring the funds would mark a shift in Israeli policy, and could allow the moderate Abbas to make payments to Palestinian civil servants, who have not received their full salaries since Hamas came to power in March.
Two sources said Israel was prepared in principle to transfer tax funds directly to Abbas once several technical and timing issues were addressed.
"No final decision has been made," an Israeli official said.
Olmert's office declined to comment on Israel's plans for the funds, which total about US$500 million.
"We have not been officially informed. We don't know how much the sum would be," top Abbas aide Rafiq Husseini said.
Another senior Abbas aide, Saeb Erekat, said Israel would not transfer the money directly to Abbas, but use it to pay Palestinian bills to Israeli utilities as it has in the past.
Abbas was expected to hold long-awaited talks with Israeli Prime Minister Ehud Olmert in the coming days, Palestinian officials said.
Olmert told reporters the meeting would be "very soon" but gave no date.
Abbas' call for new presidential and parliamentary elections has triggered fierce fighting in Gaza between his Fatah forces and those loyal to Hamas.
On Wednesday, Fatah and Hamas forces withdrew from the streets after a fresh ceasefire aimed at halting a slide into civil war took effect. The previous truce fell apart within 24 hours.
Hamas spokesman Fawzi Barhoum said that 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.
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