In a year of sanctions, international aid to Palestinians grew to more than 1.2 billion dollar

International aid to the Palestinians grew from about $1 billion (EUR0.75 billion) in 2005 to more than $1.2 billion (EUR0.9 billion) in 2006, despite a boycott of the Islamic militant Hamas government, officials said Wednesday.

Much of it was emergency aid from Europe, the United Nations and the Arab world that was funneled to people outside the government to ease a humanitarian crisis largely triggered by the international sanctions.

As the world weighs whether to also shun the new Palestinian government, a coalition of Hamas and the moderate Fatah movement, critics say the sanctions have cost the donors more money while causing long-term damage to the Palestinian economy.

Israel is pushing for a continued boycott, but Foreign Ministry spokesman Mark Regev said Wednesday that "we wholeheartedly support efforts by the international community to upgrade support to the Palestinian people."

Prospects for an international policy change are uncertain, because the Hamas-Fatah coalition stopped short of meeting the conditions for lifting the boycott, including recognizing Israel and renouncing violence.

However, the European Union and the U.S. have signaled they are willing to deal with some of the non-Hamas members of the coalition. On Tuesday, a U.S. diplomat in Jerusalem, Jake Walles, met with incoming Palestinian Finance Minister Salam Fayyad, a respected economist who, in his previous term in the post, was credited with cleaning up the free-wheeling spending of the late Palestinian leader Yasser Arafat.

Norway, a major donor, has already resumed contacts with the Palestinian government.

In the past year, the Palestinians received more than $1.2 billion (EUR0.9 billion), compared to $1 billion (EUR0.75 billion) in 2005, according to the U.N. Office for the Coordination of Humanitarian Affairs, or OCHA.

Mario Mariani, the head of the European emergency aid mechanism, said total European aid came to about EUR700 million ($930 million) in 2006, an increase of more than 30 percent from the year before.

Palestinian officials said it's a rough estimate, because it's not clear how much money came from the Arab world, particularly Iran, or was carried into Gaza in cash-stuffed suitcases by Hamas officials.

The aid was delivered less effectively because in an attempt to bypass the Hamas government it went to multiple recipients, including Abbas' office and Palestinians' personal bank accounts, rather than to the Treasury.

"More money was spent in a less coordinated manner," said Pierre Bessuges, OCHA's deputy director in the Palestinian areas.

The disjointed way of delivering money helped to dismantle the Treasury's single account, which had been praised by the donor countries as the biggest achievement in Palestinian fiscal reform.

"The donor community, particularly the Europeans, first invested billions in the institutional development of the Palestinian Authority, and over the past year, invested in a policy that basically dismantled the past achievements," said Mouin Rabbani, an analyst with the International Crisis Group, a independent think tank.

However, Israeli analyst Gerald Steinberg said he thinks the sanctions have forced Hamas to share power and delivered a clear message to the Palestinians. "Most Palestinians recognize that they are paying a huge price for having the radical leadership of Hamas and in that, I would say, yes, they (the sanctions) are effective," said Steinberg of Bar-Ilan University near Tel Aviv.

Palestinian economists warn that some of the damage inflicted by the sanctions is irreversible, including the flight of investors, loss of trust in the economy and weakening of government institutions. Also, with aid restricted to averting a humanitarian crisis, development projects have largely been put on hold.

"There is no investment, nothing, zilch," said Bassim Khoury, president of the Palestinian Federation of Industries. "You are creating a country that is not sustainable in the future."

The sanctions kicked in last spring, after Hamas took power. Since then, the international community has stopped most development projects and frozen aid to the Palestinian Authority, while Israel has withheld more than $500 million (Ђ376 million) in tax transfers. With the boycott, the Hamas government had trouble paying the salaries of civil servants, whose incomes provide for one quarter of the Palestinians. The government also struggled with providing basic services, such as health care, welfare payments and education.

The international community rallied to the rescue.

The U.N. had initially budgeted $216 million (EUR 162 million) in 2006 on food distribution and ensuring basic services. After the sanctions took hold, the humanitarian appeal for 2006 was increased to $384 million (Ђ289 million). In 2007, the U.N. is seeking $454 million (EUR 341 million) in emergency contributions for the Palestinians, Bessuges said. Only Sudan and Congo are ahead on that list, with $1.2 billion (EUR0.9 billion) and $687 million (Ђ517 million), respectively.

European emergency aid the so-called Temporary International Mechanism, of TIM was crucial to survival.

Set up in June, the fund has paid out EUR312 million ($415 million) through February.

It kept hospitals running, supplied emergency fuel after Israel bombed Gaza's power station last June over the kidnapping of an Israeli soldier, and helped pay salaries of more than 77,000 civil servants. In all, TIM sent money to 150,000 heads of households, including social hardship cases, benefiting about 1 million people, fund officials say.

The Arab world sent hundreds of millions of dollars, and the outgoing Hamas-backed finance minister, Samir Abu Eisha, said some $68 million (EUR 51 million) were brought into Gaza in suitcases of cash by Hamas officials in 2006.

Yet despite the large amounts of money coming in, the Palestinian Gross Domestic Product dropped by 6.6 percent in 2006, according to George al-Abed, head of the Palestinian Monetary Fund.

The emergency aid helped Palestinians survive, just barely, reports AP.

"It was like a drop of water on a hot day," Rafik Wasfi, 39, a nurse at a Health Ministry-run clinic in Gaza City, said of the two TIM payments of 1,500 shekels ($360, EUR 270) he has received.

Wasfi, a father of seven, said he used most of that money to pay back his in-laws who supported the family with groceries.