America and the European Union moved swiftly to shore up Palestinian moderates yesterday, releasing millions of dollars for the new Government based in the West Bank.

Washington and Brussels announced the lifting of economic sanctions after Mahmoud Abbas, the Palestinian President, sacked all members of Hamas, the militant Islamic group, which staged last week’s bloody takeover of the Gaza Strip. In a telephone call yesterday President Bush told Mr Abbas that the US would support “Palestinian moderates”.

Later Condoleezza Rice, the US Secretary of State, reaffirmed America’s commitment to the “two-state solution” for the Israeli-Palestinian conflict, first promised by Mr Bush five years ago. Palestinians faced a choice, she said, between pursuing more violence or peace and a better life.

The US has recognised Mr Abbas and his new Prime Minister, Salam Fayyad, as the legitimate leaders of the West Bank and Gaza. Dr Rice promised yesterday that this meant the US would resume normal “government-to-government contacts”.

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

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Yesterday’s decision has raised speculation that the US may adopt a “two-and-a-half-state strategy” in which the divided territories of the Palestinian Authority will be treated as separate political entities.

Dr Rice rejected such a notion, saying: “There is one Palestinian people and there should be one Palestinian state.” She said that it was Hamas that had sought to “divide the Palestinian nation”, and pledged $40 million (£20 million) to United Nations relief efforts in Gaza. “We will not leave one and a half million Palestinians at the mercy of terrorist organisations,” she added.

Mr Abbas asked Mr Bush to resume Middle Eastern peace talks — a subject that is certain to be raised in White House talks with Ehud Olmert, the Israeli Prime Minister.

Mr Olmert, speaking in New York on Sunday, said that his country would be a “genuine partner” of a new Palestinian government, and promised to consider easing travel restrictions on the West Bank and to release hundreds of millions of dollars in tax funds.

The money has been frozen since Hamas, which is dedicated to the destruction of Israel, took power last year.

“I think that despite what has happened in the last two days there is a genuine opportunity that the moderate forces headed by President Abbas will be able to form a solid government administered by the Palestinians,” Mr Olmert said.

He said that such a government would find “a genuine partner in Israel”, and indicated that Israel could ease travel restrictions on the West Bank, as well as release Palestinian tax receipts.

In Gaza aid groups desperately sought ways of alleviating a looming humanitarian crisis as Israel has all but sealed the border. John Ging, the head of the UN aid agency UNRWA in Gaza, said that there were enough stockpiles of basic commodities to last at least ten days. The agency supplies flour, oil, salt and wheat to about 860,000 people in Gaza, more than half the population.

But Mr Ging said: “It doesn’t take long for the situation to become dire here.”

Israel says that the Palestinian police who used to work on the other side of the crossing have fled, with only refugees, looters and occasional groups of masked Hamas gunmen across the divide.

About 200 people had gathered at the main Erez crossing point, some trying to flee to seek medical treatment, others to avoid the impending economic crisis that the Hamas takeover has triggered.

One Palestinian was killed and at least 10 others wounded after Israeli troops at the crossing traded fire with gunmen inside Gaza.

Red Cross officials were being allowed by Israeli guards to escort the chronically ill across the border, but most of the fleeing Gazans were stuck there, watching as looters dismantled the Palestinian side.

“I’m not a wanted man but I just don’t want to live here,” said Muhammad Arafat, 20, who was trying to get to the West Bank to find work. “Everything is quiet here now. It’s not like before, but I don’t want to see that type of thing again.”

Mr Arafat said that three Hamas fighters had driven up firing in the air and arrested three men in plain clothes suspected of being members of Fatah.

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