By Jonathan Beale
BBC News, Washington
The Palestinian Authority has agreed to return $50m (£28.7m) of American aid following a request from Washington.
The US says Hamas must renounce violence and recognise Israel
The US State Department said that it did not want the money going to a Hamas-led government that refused to recognise Israel.
The US has already said that it is reviewing all aid to the Palestinians in light of Hamas' election victory.
As proof that it is serious, it has asked for $50m of aid to the Palestinian Authority to be returned.
The money was to be spent on regenerating the Palestinian economy following Israel's withdrawal from Gaza.
However, most of the $50m is still in the bank and the Palestinian Authority has agreed to return it.
President Bush has already made clear that he will not deal with Hamas, which the US lists as a terrorist group, until it renounces violence and recognises Israel.
However, the State Department says it will continue to work to meet the humanitarian needs of ordinary Palestinians.