Donors agree to move ahead on Palestinian plan

BRUSSELS (Reuters) - Donor nations agreed on Wednesday to move ahead with an aid mechanism to prevent the collapse of essential services to Palestinians, but still differ its scope, making a June start date uncertain, diplomats said.

Major Western donors, led by the United States, froze direct aid to the Palestinian government after Hamas Islamists won January elections and refused to recognise Israel, renounce violence or embrace interim Israeli-Palestinian peace deals.

However, deteriorating conditions in the Palestinian territories and worries about unrest prompted the Quartet of Mid-East peace brokers to agree to set up a temporary mechanism to channel aid while bypassing Hamas, which Washington and Brussels list as a terrorist organisation.

The EU's executive Commission, charged with putting together the mechanism, put forward proposals this week that included providing tens of millions of dollars monthly to maintain public services like health and education, as well as welfare payments to doctors, nurses and teachers.

EU states discussed the proposals on Tuesday and while they failed to narrow differences on the scope of the mechanism, gave the Commission a mandate to come up with detailed plan in the next two weeks, a diplomat from an EU member state said.

The discussion broadened on Wednesday to encompass the Quartet -- the United States, Russia, the EU and the United Nations -- other donor states including Japan, as well as the World Bank and International Monetary Fund.

"There was a concurrence on the fact something needs to be done; that this is a commitment by the Quartet that extends to other donors who have agreed they are interested to participate," EU Quartet representative Marc Otte told Reuters.

MONEY NEEDED

However, some EU states like France, favour funds for education as well as health and even the police. Others, like Britain, want funding limited to health, at least initially.

"The UK is keen to see a simple, realistic mechanism that can be agreed as soon as possible," said a British spokeswoman.

A diplomat from another EU state said differences were narrowing and added: "I think the view is getting broader."

A U.S. spokesman declined comment, but a European diplomat said Washington sought a "very, very simple" plan and added: "That's obviously going to have an impact on where we end up."

Otte said he believed the mechanism would definitely cover heath as well as essentials like water, electricity and basic education, but it was now necessary to find the resources.

"We still have no clarity on what governments will come up with and obviously the final shape of the concept will depend on how much we can count on."

The Commission wants the mechanism up and running by the end of June. Otte said it was too early to say if this was possible.

"It depends a lot on the donors. I think it's reasonable, if we keep to the calendar, to have at least an agreement by then, and hopefully the commitments, but as for the first delivery of money, I can't give a date."

He said the World Bank had agreed in principle to be the executive agent for the mechanism, but needed to know its scope and if money flows would be regular enough to meet objectives.

The Bank has been seeking assurance that participants will not face sanctions, given Washington and Brussels list Hamas as a terrorist organisation. Otte said the Bank was traditionally cautious, but added: "I don't think this would be a problem."

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