Both the United States and the European Union, which is the main donor to the Palestinians with 500 million euros a year, have suspended aid to the Palestinian Authority leaving it on the verge of bankruptcy after Hamas assumed power in March. Israel has further stopped transferring customs duties worth around $50 million a month and previously collected for the Palestinian Authority. The UN agency for Palestinian refugees warned on May 5th, that a humanitarian crisis was now "on our doorstep" in the Gaza Strip due to the aid freeze.

The US is leading an international campaign to isolate the Hamas-led Palestinian government and has ordered diplomats and contracts not to communicate with the cabinet ministers. On May 23rd, the US House of Representatives overwhelmingly backed a bill calling for the Palestinian Authority to be designated a "terrorist sanctuary," and imposing broad restrictions on US aid to the PA. The legislation, passed by 361 votes to 37 with nine abstentions, bans visas for entry into the United States of any official or member of the PA or any component of the PA. It also recommends withholding US contributions to the United Nations proportional to the amount the world body provides the PA. The vote came during Israeli Prime Minister Ehud Olmert's first trip to Washington. During his visit, Olmert vowed to fix Israel's final borders by 2010 which include annexing large Jewish settlement blocks in the occupied West Bank, dividing Palestinian areas and making it almost impossible to create a contiguous and viable Palestinian state.

On May 29th, Israel gave a minister and three MPs from Hamas 30 days to resign their posts or face expulsion from Al-Quds (occupied east Jerusalem). Mr Abu Tir, a senior figure who was second on the Hamas candidates' list last January, said: "No one can deport residents of the holy city from their lands. We will fight this erroneous decision every way we can, via the Israeli legal system, the international courts, Palestinian public opinion and the Arab world opinion - in order to defeat these Israeli intentions."

Since Hamas won parliamentary elections in the Palestinian territories it has been under immense pressure to offer Israel recognition. Hamas has simultaneously rejected flat-out recognition while offering a number of unprecedented policy shifts, including spelling out terms for peace with Israel. Ever since assuming office, Palestinian Foreign Minister Mahmoud Al-Zahar has been on an almost non-stopped shuttle diplomacy to break a US-led campaign to isolate his government and drum support for the Palestinians in their current financial crunch. Palestinian President Mahmoud Abbas, meanwhile, has set a deadline for agreement on seeking a settlement with Israel - and will call a referendum if none is reached. Hamas complains bitterly that Fatah, possibly encouraged by Israel and the US, is refusing to come to terms of Hamas's electoral victory and is trying to rob the Hamas government of its basic powers and authorities, such as controlling police and security forces. While Israel has authorized deliveries of light weapons and ammunition to the presidential guard of Abbas in a bid to "contend with Hamas", Palestinian factions agreed Friday, May 26th, to stand firmly in the face of attempts trying to spark an internecine conflict and called for adopting a national code of conduct. The Hamas-led Palestinian government ordered its militia off Gaza's streets in the wake of clashes with the Fatah movement that stirred fears of civil war. Hamas had been planning to move its 3,000-strong paramilitary force into Gaza police stations in a move which threatened to undermine the rival Fatah faction's control of the main domestic security forces.

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