THE US last night indicated that it would cancel or suspend more than $240 million (£140 million) of aid projects to the Palestinians to ensure that they did not benefit the militant Islamist movement Hamas.

Instead, funding for humanitarian projects for impoverished Palestinians will be increased by 57 per cent to $287 million, a State Department official said.

The move comes amid increasing pressure on the newly elected Hamas government. The US and other administrations have banned contact with Hamas officials and the European Commission confirmed yesterday that it has cut off all payments to the Hamas-led Palestinian Authority before a meeting of EU foreign ministers on Monday.

Ahead of the ministers’ meeting to decide European-wide policy, Emma Udwin, a Commission spokeswoman, said that the Islamist group had failed to meet the EU’s conditions of recognising Israel, ending violence and accepting existing agreements.

The vast majority of EU humanitarian aid, about €600 million (£417 million) a year, will not be affected because it is paid direct to the UN or non-governmental organisations.

Hamas officials, resigned to seeing the US cut off aid, warned the Europeans that the decision would wreck their credibility in the Arab and Islamic world.

Ismail Haniya, the Palestinian Prime Minister, said: “It is as if they want to punish the Palestinian people for being committed to the culture of democracy.”

Mr Haniya held a four-hour meeting last night with Mahmoud Abbas, the Palestinian President, and said afterwards his Hamas-led Cabinet would work with Mr Abbas to resolve the financial crisis.

Hamas has sought to moderate its image, seeking to head off financial crises if the West cuts off all aid. While it does not recognise Israel, Dr Mahmoud Zahar, the new Hamas Foreign Minister, told The Times that the group would discuss a two-state solution if the international community clarified what that would entail for Palestinians and Israelis.

Israel has dismissed Hamas’s efforts as “verbal gymnastics”. Mark Regev, a Foreign Ministry spokesman, said: “I see no indication that Hamas is moving to accept the international community’s benchmarks.”

Some US officials have made clear that the aim is to crush Hamas as a political force. “The question must be, ‘how can we make them fail’?” one speaker told a recent congressional hearing into US policy. Amid continuing debate about how to draw the line between cutting off government money and hurting ordinary Palestinians, hardliners advocate a hawkish approach. “Not a single penny of US taxpayer money should end up in Hamas coffers,” Democrat Tom Lantos told the hearing.

Some analysts caution that coercing Hamas into submission will backfire.

• Six Palestinians were killed and 14 injured when Israeli aircraft bombed a car in a training camp run by militants in the southern Gaza town of Rafah.

Times Recommends

• Fish and chip shops ‘selling cobbler as cod’
• T in the Park festival at Kinross
• How to get Madonna’s Thighs