"The EU will resume normal relations with the Palestinian Authority immediately," the bloc's ministers said in a text of conclusions from a meeting in Luxembourg.

The EU partially froze ties with the Palestinian government and suspended direct aid when Hamas swept to power last year because the Islamist movement figures on its blacklist of outlawed "terrorist" groups.

The new emergency cabinet does not contain Hamas members.

The ministers said the EU would "resume direct financial support to the government," as well as provide support to the Palestinian civilian police.

It will also undertake "intensive efforts to build the institutions of the future Palestinian state."

"Part of the money will be direct," EU foreign and security policy chief Javier Solana said at a meeting with EU foreign ministers in Luxembourg Monday. But "in order to help the Palestinian people in Gaza, we will need some mechanism that cannot be a direct support."

EU funds would be distributed in Gaza through United Nations agencies or the EU's current emergency aid system which sidelines Hama leaders in the territory.

The EU chief diplomat did not give details of when the bloc would resume aid payments to the Palestinian government.

Technical details being discussed

The EU has expressed its support for the emergency cabinet created by Abbas. Last week, Abbas dissolved the Hamas-led unity government and declared a state of emergency. The militant group launched an all-out assault on Fatah's security forces in Gaza, taking complete control of the Strip. More than 100 people were killed in the clashes.

The emergency cabinet is led by former finance minister Salam Fayyad. Hamas has denounced the new cabinet as illegal.

The recent violence led to the creation of two separately zones: a Hamas-ruled Gaza and a Fatah-controlled West Bank. The Islamic militant group is black-listed as a terrorist organization by the EU and the United States.

EU External Relations Commissioner Benita Ferrero-Waldner told reporters she was still discussing with Fayyad the technical details of when and how aid flows would be re-established.

"We are of course ready to continue to work with Fayyad in order to be ready in future to see how we can work directly with the emergency government," Ferrero-Waldner said.

She said the EU was working closely with the Palestinian Authority to establish strict financial channels for the resumption of direct assistance.

Financial controls on EU aid had to be clearly defined and very transparent, she insisted, adding: "We have to be very careful...this is not just political but also technical."

Humanitarian aid never stopped

Despite the ban on direct assistance to the Palestinian Authority, European governments have been sending humanitarian aid to both Gaza and the West Bank. Officials said an estimated 700 million euros ($939 million) in such emergency aid was sent to Gaza and the West Bank last year. The money was used to pay the salaries of teachers, doctors and health workers and for supplies of fuel, water and electricity to the territories.

Once aid flows were re-established, Ferrero-Waldner said it would be up to Fayyad to decide how funds were distributed in Gaza. Both Solana and Ferrero-Waldner voiced full confidence in the new Palestinian premier, saying they trusted him and had known him for years.

Israel supports Abbas

Attending EU talks in Luxembourg, Israeli Foreign Minister Tzipi Livni said her government was ready to transfer blocked Palestinian tax revenues to the Palestinian government.

"Israel is going to work with Abbas and Fayyad to transfer the money," said Livni after talks with EU foreign ministers.

Livni said Israel was "not looking for excuses" to delay the delivery of Palestinian funds since it wanted to make a clear distinction between Palestinian extremists like Hamas and the moderate Fatah movement of Abbas and Fayyad.

Livni did not indicate how much money would be transferred to the Palestinians, but EU officials said Israel owed up to 850 million dollars in blocked tax money to the Palestinians.

German Foreign Minister Frank-Walter Steinmeier described the Israeli move as "significant."

Livni said the creation of the emergency Palestinian government provided new opportunities for Israeli-Palestinian peace.

Isolating Hamas

The US favors isolating Hamas economically, diplomatically and militarily in the Gaza Strip. Some European diplomats have expressed misgivings about such a strategy.

"The international community does not want two Palestinian states, otherwise it will be impossible to find a solution," said Luxembourg Foreign Minister Jean Asselborn.

Russia wants the emergency cabinet to enter into a "broad dialogue" between all Palestinian forces, including Hamas.

"Moscow expects the new emergency cabinet to take all necessary measures to normalize the situation, improve the humanitarian situation... and above all to halt inter-Palestinian conflict," according to a statement from the Russian foreign ministry.

"This requires the establishment of broad dialogue between all Palestinian political forces including Hamas," the statement said.

US also normalizes relations

In Washington, US Secretary of State Condoleezza Rice meanwhile announced the US government was lifting a 15-month embargo on direct aid to the Palestinian territories.

"We intend to lift our financial restrictions on the Palestinian government," she told reporters after meeting Abbas in Washington. "This will enable the American people and American financial institutions to resume normal economic and commercial ties with the Palestinian government.

"We will not leave 1.5 million Palestinians at the hands of terrorist organizations," Rice said, referring to the impoverished Gaza Strip.