The European Union announced the resumption of direct financial aid to the Palestinian Authority for the first time in 18 months today as Israel and the West reached out to the territory's battered moderates.

Javier Solana, the EU's foreign policy chief, said that the aid would help prop up President Mahmoud Abbas and his Fatah movement, which threw Hamas out of the Palestinian unity government after the Islamist group took over the Gaza Strip by force last week.

Support for President Abbas also flowed from the White House, where President Bush talked to him for 15 minutes on the telephone and pledged his help, and from Israel, where Tzipi Livni, the Foreign Minister, said the Palestinian crisis was an opportunity to engage with those seeking peace with Israel.

But even as the new Fatah-led Palestinian government was welcomed back into the international fold, there was no sign of how it will go about re-asserting its authority over the Gaza Strip, where Hamas remains firmly in control and separated from the West Bank by around 30 miles of Israeli land.

Blockade drains life from Gaza

The movement of goods into Gaza had been intermittent at best since Hamas won Palestinian elections early last year

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BACKGROUND

• Israel continues Gaza blitz as 310 dead

• Q&A: Hamas and Gaza

• 97 days and counting for BBC's man in Gaza

• Now war is with the enemy within

• The little girl trapped by a quirk of war

Related Links

• 97 days and counting for BBC's man in Gaza

• West backs Abbas in battle with Hamas

• New Palestinian government is sworn in

"We still do not have a clear plan," admitted President Abbas’s Information Minister Riyad al-Malki today when asked how Fatah planned to retake Gaza. "I swear to God I do not know," said Abdel-Razzak Yahya, the new Interior Minister.

Emphasising the group's independence, and the troublesome prospect of a third mini-state to go alongside Israel and the West Bank, Hamas held a rival cabinet meeting in Gaza today, insisting that it was still the elected Palestinian Government and denounced President Abbas's actions as a coup.

Although President Abbas's Fatah movement has very little power in the Gaza Strip, his officials said today that the released EU funds would go to both Gaza and the West Bank and will mark an important boost for the newly-constituted Government.

Palestinians have been starved of aid since the EU and the US imposed a boycott after Hamas won elections last January. The Islamists have been accused of denying ordinary Palestinians assistance by their dogged refusal to recognise Israel's right to exist, renounce terrorism, and acknowledge previously signed interim peace agreements.

Mr Solana announced the intention to end the boycott as he spoke to reporters before a meeting of EU foreign ministers in Luxembourg.

"There will be a direct relationship, economically also with the Government," he said. "There will be a part of the money that will be direct."

The EU foreign policy chief added that the bloc had confidence in Salam Fayad, a moderate, US-trained economist and former Palestinian Finance Minister who was named as the new Prime Minister last week.

"No doubt, part of it will go through the account that, when he was Minister of Finance, he had established and he will have kept as Prime Minister, so it will be a direct relationship with the Government," Mr Solana said.

Despite refusing to have any dealings with Hamas, Mr Solana confirmed that the EU would also try to find a way to provide humanitarian aid to the increasingly impoverished 1.4 million residents of the Gaza Strip, who have been largely cut off from the outside world since the Islamists seized power in a volley of gun battles which killed more than 100 mostly Fatah-affiliated fighters last week.

Today, Gaza residents were panic-buying essential provisions such as flour, oil, milk, vegetables and canned food in anticipation of a major shortage in the coming days as the area's isolation begins to bite. Long queues were seen outside supermarkets and petrol stations in the strip.

Israeli officials promised to allow Gaza residents who want to flee the territory to get to the Fatah-controlled West Bank, as long as they are not affiliated to Hamas.

"We should allow residents of Gaza who are looking to flee the terrorism of Hamas get to the West Bank," Daniel Friedman, the Israeli Justice Minister, told reporters in Jerusalem.

Avoiding a humanitarian crisis in Gaza and bolstering President Abbas at the cost of Hamas appears to be the diplomatic priority for the EU, Israel and the US.

Ms Livni, the Israeli Foreign Minister, was asked by her EU counterparts today to release £304 million in frozen tax revenue to the Palestinian Authority as a further vote of confidence in the Abbas government.

Israeli diplomats have spoken of their intention to take advantage of the dramatic split in the Palestinian territories to isolate Hamas and hardliners on both sides. On her way to today's meeting with the EU, Ms Livni said: "We should take advantage of this split to the end. It differentiates between the moderates and the extremists."

Ehud Olmert, the Israeli Prime Minister, is expected hear similar demands when he meets Condoleezza Rice, the US Secretary of State, and President Bush in Washington. Yesterday, he said his Government would be prepared to take "more risks" for peace now that Mr Abbas had disposed of Hamas.

Today White House press secretary described Hamas as "a terrorist organisation" and said that America was "commited to working with this new emergency government".

"What’s important is, you have to have a partner who is commited to peace, and we believe that President Abbas is," said Tony Snow.

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