The European Commission has halted aid payments to the Hamas-led Palestinian government, it announced today.

The millions of euros in support which Europe has pumped into propping up the Palestinian state was halted temporarily, pending a decision by European Union foreign ministers next week on future assistance.

"For the time being, there are no payments to or through the Palestinian Authority," Emma Udwin, a Commission spokeswoman, told a news briefing.

She said that the EU’s executive arm was adopting "a policy of maximum prudence" so as not to prejudge the ministers’ discussion next Monday in Luxembourg.

She added that Hamas has not yet met the international community’s conditions of recognising Israel, renouncing violence and accepting past peace agreements.

The EU sends around €500 million (£348 million) a year to the cash-strapped Palestinian Authority, making it the largest donor. The authority is already facing a financial crisis, with Ismail Haniya, the Prime Minister, declaring earlier this week that the government coffers were empty.

A Hamas MP condemned the move, accusing the EU of "collective punishment" of the Palestinian people. A Hamas spokesman described it as blackmail.

Ghazi Hamad, a government spokesman, told reporters: "We will not accept such a blackmail. Hamas was elected democratically and the Palestinian people are punished for their choice.

"The EU will not only punish the government but all the Palestinian people -- the poor, the students, the workers.

"It is unjust because first of all it’s Israel should be punished, Israel continues its aggression. They should rethink and understand that this government will not fail its political positions."

The Islamic militant group has recently been trying to present a more conciliatory face to the international community. Speaking to The Times yesterday, Mahmoud al-Zahar, the hardline Foreign Minister, repeatedly refused to rule out the possibility of Hamas accepting a two-state solution and even raised the prospect of his Hamas-led Government putting the issue to the Palestinian people in a referendum.

The Islamic militant group has never accepted Israel’s right to exist but now that it is in government it faces huge pressure from the West to relent. Abandoning his hardline rhetoric, Dr al-Zahar said that Hamas was ready to enter talks with the international community over the prospect of Israeli and Palestinian states co-existing. But he gave warning that his Government would demand to know what Israel and the international com munity would offer in return.

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