Abbas warns of financial crisis

Israel is tightening economic screws against the Palestinian Authority

Palestinian leader Mahmoud Abbas has said the Palestinian Authority (PA) is facing a "real financial crisis".

Mr Abbas was speaking hours after Israel approved a series of punitive measures against the PA, including withholding tax revenues.

He said aid had begun to decrease after last month's Palestinian poll. It was won by Hamas - regarded as a terrorist group by Israel, the US and the EU.

The row over Palestinian finances came amid renewed violence in the West Bank.

Late on Sunday Israeli troops operating in Nablus shot and killed a senior member of the militant group Islamic Jihad, Palestinian sources said.

No-one can assure Israel that we won't see these funds come back to haunt us in the form of suicide bombers Mark Regev Israeli government spokesman Press anxiety over Hamas

In an earlier incident, Israeli soldiers killed four Palestinians during a raid on the Balata refugee camp near Nablus.

Mr Abbas is due to hold talks on the formation of a new Palestinian government with Hamas leaders on Monday.

He is expected to ask Hamas' Ismail Haniya to form a government, after his widely anticipated nomination was confirmed on Sunday.

The militant group has carried out nearly 60 suicide bombings and hundreds of armed attacks against Israelis in recent years, although it has been observing an informal truce with Israel since 2005.

The EU - the biggest donor to the PA - has threatened to stop funding unless Hamas recognises Israel, renounces violence and abides by previous peace accords.

'Aid decreasing'

Speaking after the Israeli cabinet announced tough steps against the new Hamas-dominated PA, Mr Abbas said the Palestinians' situation was grave.

Ismail Haniya, the Hamas nominee for PM, is seen as a pragmatist

"Unfortunately, the pressures have begun and the support and the aid started to decrease... therefore we are currently in a real financial crisis," he told reporters in Gaza.

He confirmed that the United States had asked the PA to return $50m following Hamas' victory, but he said talks on the subject were continuing, AFP news agency reported.

Earlier Acting Prime Minister Ehud Olmert said Israel would not work with a PA in the hands of Hamas.

"The PA is, in practice, becoming a terrorist authority," Mr Olmert said.

"Israel will not hold contacts with the administration in which Hamas plays any part - small, large or permanent," he said.

He also announced a raft of punitive measures, including:

• Withholding monthly tax payments to the PA.

• Increased security checks at crossings between Israel and the Gaza Strip.

• A ban on the transfer of equipment to Palestinian security forces.

• Tightening restrictions on the movement of Hamas officials.

• Ask foreign donors to stop all payments to the PA.

Israel would however allow humanitarian aid to reach the Palestinians, Mr Olmert said.

The cabinet did not adopt harsher measures proposed by security officials, in apparent deference to US calls to avoid increasing hardships for ordinary Palestinians.

The newly elected speaker of the Palestinian parliament, Hamas legislator Aziz al-Duwaik, said Israel's new measures would prove counter-productive.

"This is a faulty decision, and the Israelis must reconsider their decision. It will only increase hatred."