EU extends aid to Palestinians in bid to prevent 'mini Iran'

The EU is first awaiting coalition-building efforts, which officials said could last as much as three months, while making it clear that any future funding to the Palestinian administration would be made dependent on Hamas backing down on its radicalism.

A statement read "The [EU] Council expects the newly elected PLC [Palestinian Legislative Council] to support the formation of a government committed to a peaceful and negotiated solution of the conflict with Israel based on existing agreements and the Roadmap as well as to the rule of law, reform and sound fiscal management."

"On this basis the European Union stands ready to continue to support Palestinian economic development and democratic state building," ministers added.

Fear of radicalisation and Iran influence

Diplomats indicated that an immediate stop of EU funding was not an option, as this would mean a break-down of the Palestinian administration, followed by chaos and fresh violence.

This would undermine EU hopes for a broad coalition government, also involving the moderate Fatah faction led by Palestinian president Mahmoud Abbas.

"We should avoid a situation of chaos, which could lead to an Islamic regime at the heart of the Middle East, or, as someone termed it, a mini-Iran", Dutch foreign minister Bernard Bot told reporters, referring to existing ties between Iran and Hamas.

German foreign minister Frank-Walter Steinmeier suggested according to FT Deutschland that a cut-off of EU funding would create a void for Iran and Saudi Arabia to step in.

"I definitely see a danger that [other] financers will be found, that will fill the gap," Mr Steinmeier indicated.

EU external relations commissioner Benita Ferrero-Waldner stressed that last year, only €70m of the total of €500 EU aid was targeted as direct administrative support to the Palestinian Authority, while the rest did not touch the hands of Palestinian officials and was spent through, for example, United Nations programmes.

Only half of the allotted €70m was actually handed out, the commissioner added, due to insufficient financial safeguards on the Palestinian side.

But Mr Bot indicated the budgetary support for the Palestinian Auithority is crucial, as it involves Palestinian officials' salaries.

Hamas rejects demands

Ursula Plassnik, the foreign minister of Austria which holds the EU presidency, said there is "no timeframe" for assessing whether Hamas complies with EU demands.

But Mr Bot and officials indicated that an assessment was planned in around three months, which is the period Mr Abbas estimates coalition talks could last.

Meanwhile, Hamas on Monday rejected demands by the middle east diplomatic quartet consisting of the EU, the US, Russia and the UN, that it renounce violence and recognise Israel.

"The quartet should have demanded an end to (Israeli) occupation and aggression ... not demanded that the victim should recognise the occupation and stand handcuffed in the face of the aggression," Hamas spokesman Sami Abu Zuhri said according to Reuters.