INTERNATIONAL donors threatened yesterday to cut off aid to the West Bank and Gaza unless Hamas moderated its stance toward Israel.

As green-clad supporters of the militant Islamic group massed in celebration of its election victory, key donors said that they would slash the £647 million cash injections that keep the Palestinian territories afloat.

Virtually sealed off from the outside world and shattered by five years of intifada and Israeli closures, the Palestinian economy would collapse without US, European, Japanese and Arab money.

Jacob Walles, the US consul-general in Jerusalem, said that Washington would not continue to deliver its $368 million (£208 million) annual direct aid to what it has officially labelled a terrorist organisation.

“I don’t see how we would do that if those ministries were controlled by Hamas,” he said.

Israel also threatened to stop transferring customs revenues that it collects on behalf of the Palestinians. Those revenues, estimated at between $40 million and $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.”

James Wolfensohn, a special envoy to the Middle East, gave warning that the Palestinian Authority could face a cash crisis within days if Israel and other donors stopped the funding. “The crunch time is next week,” he said. “The Palestinians are basically bankrupt.”

Clashes between Hamas and Fatah supporters yesterday suggested that Gaza remained a tinderbox. Thousands of angry young Fatah members also took to the streets, burning cars and shooting in the air, to vent their anger at the election results, demanding the resignation of Yassir Arafat’s old guard, whom they blame for Hamas’s victory.

Hamas remained defiant in the face of the donors’ threats, and warned the West not to penalise the democratic choice of the Palestinian people.

The voice of Khaled Mashal, Hamas’s supreme leader who lives in exile in Damascus, was relayed to 10,000 supporters in Gaza’s Khan Younis. “We’re telling the world that it’s in your interests to support the Palestinian people because we will reach our goals with or without you,” he said. “If you help us, we will be good to you. We will be faithful to you.”

Behind the rhetoric there remains room for manoeuvre on both sides. Israeli officials insist that they will do nothing to provoke a confrontation, and Hamas leaders have assured the West that they are willing to co-operate.

WHO GIVES WHAT

Times Recommends

• Google to digitise Iraqi artefacts
• Renault angers parents by naming new car Zoé
• Analysis: most lawless part of Philippines