However, the EU insisted that money would be used only on direct humanitarian support for Palestinians and to avoid the economic collapse of the interim government, before Hamas takes control. It left any decision about its relations with Hamas until after the Islamist group forms the new government, expected in about a month’s time.

Hamas has been the driving force behind the suicide bombings aimed at Israeli citizens, and is committed to the destruction of the state of Israel. The US has refused to work with it unless it renounces violence and accepts Israel’s right to exist.

More than half the EU money will go to a UN agency providing relief work for Palestinians, while €40 million (£27.5 million) will go towards paying electricity bills.

The most controversial element is €17.5 million (£12 million) which will go directly to the Palestinian Authority, mainly to pay the salaries of employees.

The Palestinian Authority, which runs the territory, faces financial collapse after Israel stopped paying customs revenues that it collects on the Palestinians’ behalf after the Hamas victory. EU leaders fear that if the authority can no longer pay its staff, it will lead to chaotic violence in the Gaza and the West Bank.

Last year the EU had blocked a €35 million (£24 million) payment to the authority because of fears about financial mismanagement, but it agreed yesterday to unblock half the sum.

The payment was welcomed by the World Bank, which is managing a trust fund for the Palestinians. But Israel said that it "sent the wrong signal".

Tzipi Livni, the Israeli Foreign Minister, said that her country would no longer hold peace talks with the Palestinian President, Mahmoud Abbas.

Before her first visit to London as a foreign minister – the first woman to hold the post since Golda Meir – Ms Livni said that Mr Abbas was "not relevant".

She added that Israel’s key concern was that if the Hamas took over the government, a "terrorist" group would control the security forces and the ministries, such as education, that would imbue hatred and incitement against Jews.

"The question of what happens to the Palestinian Authority as a body is less important than the question of what happens in future if the PA is going to be used for terrorism and hatred," said Ms Livni, 47, in an interview with The Times.

"Our policy is to avoid a humanitarian crisis in the Palestinian Authority. The idea is to find a way to delegitimise a PA led by terrorists.

"We have to face the results of the election. The results are a new parliament with a Hamas majority. The new reality is the head of parliament is a Hamas leader who is a substitute for the president."

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