EU heads in Brussels have backed a plan to resume aid for Palestinians, frozen since a Hamas government took power.
The aid freeze has hit the Palestinian territories hard
It provides funding for healthcare, power supplies and support for poor families, while maintaining a funding freeze on the Hamas-led government.
EU spokeswoman Emma Udwin said it was considering an initial 100m euros (£86m), and wanted to have the funding mechanism operating by early July.
A Hamas official dismissed the plan, saying it ignored democratic realities.
Information Minister Youssef Rizqa said a funding plan that bypassed the Hamas government would widen the gap between the people, the Hamas government and the Palestinian presidency, led by the Fatah faction.
The EU and other donors froze direct aid after Hamas came to power earlier this year.
The group has refused to renounce violence or recognise Israel, and has been branded a terrorist organisation by the EU and US.
In a statement on the aid plan, the 25-member EU said it would contribute a "substantial amount" via an international mechanism bypassing Hamas.
The EU statement said the plan was drawn up in consultation with other members of the "Quartet" of Middle East peace brokers - the US, Russia and the UN.
Ms Udwin said she expected final approval from the Quartet and other donors "within days".
EU External Relations Commissioner Benita Ferrero-Waldner said: "We Europeans are determined to play our part in preventing a humanitarian crisis in the Palestinian territories."
Ms Ferrero-Waldner will visit the region on Monday and Tuesday next week for meetings with Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas.
The EU has been the biggest aid donor to the Palestinians, giving some 500 million euros a year.
About 165,000 government employees - including teachers, health workers and security personnel - have not been paid for three months as a result of the aid freeze.
There was no mention in the statement of the payment of salaries to Palestinian government workers, which is opposed by Israel, but it did refer to "social allowances" which would allow payments to health workers and families in need.
The fund will be managed by the World Bank and the EU, working with the office of Mr Abbas, whose Fatah movement is the main political rival of Hamas.
EU leaders insisted there would be no contact with Hamas unless it renounced violence, recognised Israel and respected existing peace agreements.
"There can be no business as usual with a government that has not yet accepted the fundamental principle of peace," Ms Ferrero-Waldner said.
The EU urged Israel to resume the transfer of more than $50m (£27m) in monthly tax revenues it collects on behalf of the Palestinians, a move "essential in averting a crisis in the Palestinian territories". It said the revenues could be channelled through the new mechanism.
In its statement, the EU urged other donors, including Arab states, to "consider early and substantial contributions".
A close aide of Mr Abbas, Saeb Erakat, told the AFP news agency: "We welcome the European decision. Any aid to the Palestinian people is welcome."
But he added: "We call on them to review their boycott of the government and resume aid payments according to the customary means."