Abbas still relevant: Israel

In the aftermath of the Islamist movement's sensational victory on January 25, Washington has underscored its support of Abbas who has pledged to continue working towards a negotiated settlement to the conflict with Israel.

But at talks with US Middle East envoy David Welch on Sunday, Livni raised eyebrows by reportedly telling Washington that Abbas, who has asked Hamas to form the next government, "mustn't be your fig leaf for a terrorist authority".

"He heads a Palestinian Authority that is led by a terror organization. As such, your demands need to be directed to Hamas. Abu Mazen (Abbas) is simply not relevant," added Livni.

Ever since its election victory, Israel and the United States have attempted to isolate Hamas, which has carried out dozens of suicide attacks in Israel and refuses to recognise the Jewish State.

Hamas however has responded with its own diplomatic charm offensive, with Russia confirming that Hamas has been invited to talks in Moscow on Friday.

Hamas's political supremo Khaled Meshaal also reiterated that his group was ready to open talks with any government aside from Israel, including the United States.

While Welch snubbed Hamas during talks in the West Bank on Saturday, he made a point of meeting Abbas, expressing the US "support for him and his leadership in this critical time facing the Palestinian people".

Olmert's office, while insistent that Abbas must crack down on armed factions including Hamas, made clear that Livni's comments were over the top.

"We will not refer to Abu Mazen (Abbas) as irrelevant. This is an inappropriate term," an official in the prime minister's office told AFP, speaking on condition of anonymity.

Livni's remarks echoed Israel's attitude towards Abbas's late predecessor Yasser Arafat who came to be boycotted by the United States.

With Israel facing a general election in less than a month's time, political leaders are keen to negate any suggestion that they are somehow "soft on terrorism".

However the strategic importance of Israel's relationship with the United States means that Abbas can not be so lightly dimissed.

"There is no need at this stage to come out against Abu Mazen, mainly in light of the fact that the rest of the world, including the United States, is not of that view," a senior government official told the Yediot Aharonot daily.

Veteran statesman Shimon Peres, who is number two on the list of election candidates for Olmert's Kadima party, also stressed that Israel "must continue to talk with Abu Mazen, since he is responsible for contacts with Israel and for the Palestinians' foreign policy".

Along with the European Union, the United States has threatened to cut funding to the Palestinian Authority if Hamas does not agree to recognise Israel, renounce its armed struggle and honour passed agreements with Israel.

However, the international envoy to the region, James Wolfensohn, warned the Palestinian Authority "may be facing financial collapse within two weeks" as a result of Israel's withholding of millions of dollars in customs duties.

Evidence that Israel's decision is already hurting came as the private Israeli firm that provides petrol to the West Bank and Gaza announced it was stopping deliveries after a cheque for 22 million dollars bounced.

The European Commission meanwhile announced it was releasing 120 million euros to help the transitional government pay energy bills and salaries.

The announcement was made before a meeting of EU foreign ministers who were not expected to take any clear political stance on Hamas for the time being.

Hamas official Khalil Abu Leilaw welcomed the cash announcement as a "very positive development," adding that "the EU is beginning to adapt to Hamas's victory in the legislative elections".

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