In the one month since Washington agreed to allow donors to send funds to Finance Minister Salam Fayyad through a Palestine Liberation Organization (PLO) account, it has received at least $160 million.

On Monday, the European Union said it was renewing support by launching a four-million-euro ($5.3 million) project to help ensure that Palestinian taxpayers' money is spent efficiently and that expenditures are accounted for.

Diplomats said the EU was also considering expanding an existing aid mechanism to pay Palestinian police.

Some Israeli officials have criticized what they see as a shift in US policy aimed at bolstering Palestinian President Mahmoud Abbas, whose Fatah faction joined a unity government led by Islamist Hamas three months ago. They also object to plans to finance the police, which fall under the Hamas-run Interior Ministry.

"The Palestinian Authority's financial position is much better today than six months ago. We are losing," said a senior Israeli official involved in overseeing the embargo imposed after Islamist Hamas came to power in 2006.

The embargo was leveled after Hamas, which is blacklisted by the West as a terrorist organization, took office in March 2006. The party has continued to defy Western demands to recognize Israel, renounce violence and abide by previous interim peace deals.

Support from EU

Palestinian information minister Mustapha Barghuti on Monday welcomed the resumption of EU aid to the Palestinian finance ministry and urged Brussels to keep it flowing.

"This is a positive step that should be followed" by others, he said in Berlin, where he was a guest of the Friedrich Ebert Foundation.

"We don't see why there should not be direct cooperation now," added the minister, who is also the spokesman for the power-sharing Palestinian government.

Barghuti, who is due to travel to Brussels on Tuesday, said Palestinians did not want to become dependent on foreign hand-outs but required financial support from the European Union for much-needed "institution-building."

"We don't want to create a dependency. If you want Palestinians to survive, this Palestinian government should be empowered," he said.

Despite the freeze on direct aid, the European Union's financial assistance in 2006 -- extended indirectly through a mechanism that avoided the Hamas-led government -- reached around 700 million euros.