Jerusalem (CNSNews.com) - The Israeli government did not comment Thursday on the highest-level meeting yet between a U.S. official and the new Fatah-Hamas Palestinian Authority or on reports that the U.S. may ease some financial restrictions on the P.A.
Secretary of State Condoleezza Rice met with P.A. Finance Minister Salaam Fayyad, who was in Washington seeking an easing of banking restrictions that have prohibited international aid transfers to the P.A. since Hamas won elections early last year.
Two months ago, Hamas brought P.A. Chairman Mahmoud Abbas' Fatah faction into a "unity" government in a bid to break the boycott.
Despite Hamas' involvement in the government, the U.S. said it would continue to deal with Fatah and independent ministers, with whom it has worked in the past. For its part, Israel refuses to deal with any ministers in the government, because it is headed by Hamas.
Hamas, like Fatah, is a terrorist group but has refused to recognize Israel's right to exist.
The State Department said Rice had met Fayyad in his "private capacity."
Foreign Ministry spokesman Mark Regev said that although Fayyad has been seen as a Palestinian leader committed to reform, Israel does not believe that "people with moderate credentials" should serve as a "fig leaf" for Hamas Prime Minister Ismail Haniyeh's government.
Asked for Israel's reaction to the U.S. government talking to Fayyad, Regev would only say that Israel would not speak with him.
Fayyad, a U.S.-trained economist and former World Bank official, belongs not to Hamas but to a small faction called the Third Way.
Fayyad told the Palestinian newspaper Al-Ayyam that Rice had "expressed understanding to linking our ability to improve financial performance and the need to function freely with the banks."
Although the U.S. is not willing to lift sanctions against the Hamas-led government, the Bush administration has said it would consider making it easier for money to be transferred to bank accounts under the authority of Abbas and Fayyad.
Israel is concerned that the money will end up in the hands of Hamas.
Palestinian affairs expert Dr. Hillel Frisch of the BESA Center for Strategic Studies near Tel Aviv said Israel favors maintaining the boycott, because it learned from experience that making concessions to the Palestinians does not build confidence - its stated intention - but rather weakens Israel.
He noted that money is "fungible" and that the moment the financial pressure is eased in one area it relieves the pressure on the whole system.
After Prime Minister Ehud Olmert held talks with Abbas earlier this year, Israel released Palestinian tax revenues that it had withheld since Hamas came to power.
The stipulation for releasing the $100 million was that it would be used for humanitarian needs and not to pay P.A. salaries. But it was soon reported that the money had indeed been used for salaries, including those of Hamas members in the security forces.
If the U.S. does ease restrictions, it would represent another crack in the international boycott against the Hamas-led government, Israeli analysts say.
"The stakes are big," said Frisch, adding that Hamas had come to power through the democratic process but then wanted to flaunt the rules of the game. He cited Hamas' refusal to abide by previous agreements between Israel and the Palestinians.
If Hamas is given funds now, it would set a bad precedent for the rest of the world, Frisch argued.
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