International donors threatened to withdraw millions of dollars in aid from the Palestinian Authority today unless Hamas renounces terrorism after its stunning victory in parliamentary elections.

The United States said that it will review "all aspects" of its aid programmes if the militant group Hamas is in government after its victory in this week’s elections.

"To be very clear, we do not provide money to terrorist organisations," said Sean McCormack, a State Department spokesman.

Israel also threatened to stop transferring customs revenues that it collects on behalf of the Palestinians. Those revenues, estimated at more than $40-50 million a month, are the main source of revenue with which the Palestinian Authority pays 135,000 civil servants and security forces.

"We will face practical problems of how you deal with people that call for the destruction of Israel," Joseph Bachar, director general of the Israeli Finance Ministry, told the World Economic Forum in Davos.

Mazen Sinokrot, the Palestinian Economy Minister complained that Israel was obliged to make the payments. "This is not donor money," he said. "If those salaries are not coming, this is a message for violence."

Hamas, officially listed as a terrorist organisation by the United States and the European Union, gained 76 seats in the 132-seat parliament in this week's elections. Fatah, founded by the late Yassir Arafat and committed to the peace process, secured just 43 seats.

Meanwhile in the West Bank and Gaza the political situation remained fluid. The Palestinian leader, President Mahmoud Abbas, announced that he has asked Hamas to form a new government.

The senior Hamas leader, Ismail Haniya, said that the two men had agreed to meet shortly to start consultations on "a political partnership" and the make-up of the next administration.

But the first signs of a backlash erupted on the streets of Gaza, when thousands of Fatah members demonstrated outside their party offices, demanding that the group should not agree to be part of a coalition with Hamas.

Angry gangs of young men took to the streets, burning cars and shooting in the air, demanding the resignation of Mr Arafat’s old guard, whom they blame for Hamas’s victory.

Mr Haniya, a possible candidate for prime minister, used a Friday sermon at his local mosque today to urge supporters to stay calm.

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