June 18 (Bloomberg) -- The U.S. and Europe are restoring direct financial aid to the Palestinian Authority to support the emergency government set up by President Mahmoud Abbas after a violent takeover of the Gaza Strip by the Hamas movement.

After Abbas's security services lost control of Gaza, Abbas booted Hamas out of a coalition government and appointed a new cabinet, including Salam Fayyad, an economist, as prime minister.

The U.S. and EU imposed aid limits after last year's parliamentary election victory by Hamas, which refuses to recognize Israel and which the U.S. and EU regard as a terrorist organization.

The fast-moving developments have interrupted Secretary of State Condoleezza Rice's bid to make progress on the Israeli- Palestinian peace process. Abbas now controls only the West Bank, leaving the Palestinians bifurcated politically and geographically.

Rice, in announcing today the resumption of aid to Abbas's government, said the U.S. rejects the division of the ``Palestinian nation'' represented by the Gaza takeover. ``It is the position of the U.S. that there is one Palestinian people and there should be one Palestinian state,'' she said.

Any division that leaves Gaza as a Hamas-run enclave may amplify security problems including a resumption of rockets fired into Israel, triggering more Israeli-Palestinian fighting.

U.S. Aid

Most of the $1.8 billion in U.S. assistance to the Palestinians since the 1993 Oslo peace accords was channeled through non-governmental organizations. In recent years, the U.S. has approved sporadic, direct payments to the Palestinian Authority to help pay bills and for infrastructure projects.

Rice said the U.S. now plans to distribute $86 million allocated for assistance to Abbas's security forces. The request had been controversial with some U.S. lawmakers who expressed concern that the money could fall into the hands of Hamas while it was still a partner in Abbas's government.

The U.S. will contribute $40 million to the United Nations Relief and Works Agency to address humanitarian needs in Gaza, Rice said. The agency offers health care and educational services.

``A fundamental choice confronts Palestinians and all people in the Middle East,'' Rice said at a news conference in Washington. ``More clearly now than ever, it is a choice between a violent extremism on the one hand and tolerance and responsibility on the other.''

EU Aid

Earlier today, the EU announced it was resuming direct aid to the Abbas's government and called on Israel to back Abbas as the only legitimate Palestinian leader. The EU had been the biggest donor to the Palestinians, providing 259 million euros ($347 million) in the first half of 2006.

President George W. Bush spoke earlier in the day by telephone with Abbas and pledged support without offering immediate backing for the resumption of peace talks, a step sought by the Palestinian leader.

``What is important is that you have to have a partner who is committed to peace, and we believe president Abbas is,'' White House Press Secretary Tony Snow told reporters in Washington, in describing the call.

Peace Talks

Nabil Abu Rudeineh, an aide to Abbas, said at a news conference in the West Bank city of Ramallah today that Israel and the so-called Quartet of powers backing a Middle East peace agreement, which includes the U.S., should resume peace talks immediately.

Abbas's new government, which is committed to the 1994 Oslo peace accords, is ``a test of Israel's good faith'' toward the peace process, he said. The charter of Hamas, an Arabic acronym for Islamic Resistance Movement, calls for the destruction of the Jewish state.

Bush and Abbas talked a few hours before Israeli Prime Minister Ehud Olmert arrived in Washington to draw up a new blueprint with Bush for making peace with the Palestinians. Olmert meets tonight with Rice and with Bush tomorrow.

To contact the reporter on this story: Janine Zacharia in Washington at jzacharia@bloomberg.net ; Roger Runningen in Washington at rrunningen@bloomberg.net

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By Janine Zacharia and Roger Runningen

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