Palestinian economy near collapse - Abbas loyalist

RAMALLAH, West Bank (Reuters) - A close aide to President Mahmoud Abbas said on Saturday the Palestinian economy was close to collapse and urged the Hamas-led government to deal with the crisis.

The comments by chief negotiator Saeb Erekat, a member of Abbas's Fatah, highlighted a growing power struggle between the rival Palestinian groups. Abbas is under pressure from some Fatah leaders to get rid of the elected Hamas administration.

The political tension has been exacerbated by an economic crisis since Western powers cut aid to the Palestinian Authority to push Hamas into recognising Israel's right to exist, renouncing violence and accepting past peace accords.

Erekat said evidence for the scale of the economic problems came from research by his own office, the Negotiations Affairs Department.

"This economy is on the verge of collapse," Erekat told reporters in the West Bank city of Ramallah. "The figures are extremely critical. The government must move to deal with this unprecedented crisis."

Erekat said Gross Domestic Product (GDP) was projected to fall to $2.9 billion in 2006 from $4.04 billion in 2005.

"We are revealing these figures on how the economy is collapsing not to score points but to deal with the crisis," he said.

Hamas, which has been unable to pay full salaries to 165,000 government employees as a result of the Western aid cuts, blamed the previous Fatah-led governments for the crisis.

"(They) destroyed the economy because it was built on the basis of international aid and Israeli goodwill gestures," said Hamas lawmaker Yahya Moussa.

Talks on a coalition government, which might have led to an easing of the international embargo, collapsed because Hamas and Fatah could not agree on the terms.

Abbas, a moderate, wanted an agreement that would have at least implied recognition of Israel. Hamas, whose charter calls for Israel's destruction, said it would never recognise Israel, even implicitly.

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