Israel to free some Palestinian tax for hospitals

Sun May 21, 6:06 AM ET

JERUSALEM (Reuters) - The Israeli cabinet authorised on Sunday the release of 50 million shekels ($11.18 million) in frozen Palestinian taxes in a bid to ease a deepening fiscal crisis in the occupied West Bank and Gaza Strip, officials said.

They said the money, part of some $220 million in tax and customs levies withheld from the Palestinians since they voted Islamic militant group Hamas into power in January, would be spent by Israel on medical supplies for Palestinian hospitals.

"The State of Israel feels the duty, above and beyond any formal obligation, to address humanitarian needs," Prime Minister Olmert, who begins his maiden trip to Washington later on Sunday, told cabinet colleagues in broadcast remarks.

Israeli political sources said none of the funds would reach the Palestinian Authority, a key condition of U.S.-led sanctions on the new Hamas government. Israel plans to buy the hospital supplies based on advice of a foreign auditor, they said.

The Palestinians, mired in debt and poverty, cried foul.

"The money belongs to the Palestinian people. This is not an Israeli favor," said Palestinian government spokesman Ghazi Hamad. "It (Israel) uses this as a blackmail for political concessions."

POSSIBLE SCEPTICISM

Olmert, a champion of last year's Israeli withdrawal from Gaza, will present his plan for similar West Bank moves to Bush. But he faces possible scepticism from Washington over Israeli unilateralism that could further boost Hamas hardliners.

Seeking to soften his stance, Olmert reaffirmed his commitment to a two-state solution to the Israeli-Palestinian crisis in a New York Times interview last week. That was also where he floated the partial release of the Palestinian taxes.

Olmert's two top deputies, Vice Premier Shimon Peres and Foreign Minister Tzipi Livni, met on Sunday with Palestinian President Mahmoud Abbas, who has been scrambling to salvage diplomacy since Hamas ousted his more moderate Fatah faction.

Asked about the release of the taxes, Livni told reporters after the meeting: "This was part of the discussion between Mahmoud Abbas and us, about the best way to help the situation in the Palestinian Authority."

(Additional reporting by Mohammed Assadi in Ramallah and Allyn Fisher-Ilan in Sharm e-Sheikh)

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