Britain calls for trust fund to help blockaded Palestinians

The US is resisting a British proposal to avert a collapse of essential Palestinian services by using an independent trust fund to make overdue salary payments to key front-line workers.

The proposal, also backed by the French, is designed to maintain delivery of services such as healthcare despite the international economic blockade of the Hamas-led Palestinian Authority (PA). But it has run into serious US opposition ahead of next week's meeting in New York of the international "Quartet" - Russia, the US, the UN and the EU.

The transatlantic rift over how to handle a deepening economic and social crisis in Gaza and the West Bank came as 36 aid agencies joined forces here yesterday to warn that they were incapable of tackling the crisis in health, education and security left by the international community's refusal to pay salaries for essential services in Gaza.

David Shearer, the head of the UN's Office for Co-Ordination of Humanitarian Affairs, said: "All the international aid agencies put together will not be able to replace the services that the Palestinian Authority provides to the people in the Gaza Strip." A confidential draft of the British proposal to use a trust fund managed by the World Bank, the International Monetary Fund (IMF) or the UN warns that "without sufficient revenues there is a risk that the PA will not be able to deliver basic services. This could have serious consequences for living standards, political stability and, potentially, the humanitarian situation."

A Western diplomat said yesterday that the US wanted to block the proposal because it contained measures for the payment of salaries to some PA employees. While insisting that detailed proposals were for discussion at next week's Quartet meeting a US diplomat confirmed that the Bush administration was against the payment of PA salaries.

US opposition to the plan - which is believed to have Israeli support - will fuel speculation that Washington is bent on "regime change" in the PA.

The British document, seen by The Independent, suggests that the mechanism, modelled on the Holst Trust Fund set up under World Bank management after the Olso accords in 1994, would have the goal of mitigating the decline in Palestinian living standards and avoiding "undermining the institutions of a future viable Palestinian state". The trust fund would "release funds directly into a commercial bank account, outside the PA's control".

The document insists that Hamas renounce violence, recognise Israel, and abide by previous agreements but declares that the proposed trust fund would be a "mechanism to finance basic services that would maximise impact on humanitarian needs whilst avoiding PA structures as far as possible".

It cites an IMF estimate that £24m is needed for basic delivery of services like health and education - including "salaries for key workers and medical supplies" and stipulates that expenditures should be "easy to track and to audit". Acknowledging that management of the fund would require "contact with the PA at a technical level" it says that "direct payment of salaries to key workers would help maintain basic services and put money into the Palestinian economy".

The document cites a series of economic pressures on the PA, including the previous Fatah-led administration's wage bill expansion to "unsustainable" levels, Israel's refusal to pay the £32m a month duties owed to the PA, the planned reduction in aid, and a likely fall in tax revenues as the economy contracts.

A spokesman for the British consulate general said the international community was agreed on the need to "help the Palestinian people" and to "ensure that funds cannot be diverted to Hamas". Mark Regev, spokesman for the Israeli Foreign Ministry, said Israel wanted to minimise the suffering of the Palestinian people. But he added: "Anything that requires working with Hamas, that legitimises Hamas or strengthens the Hamas government is a problem."

The Association of International Development Agencies warned that the economic problems of Gaza - where it says 78 per cent of the population are already living under the poverty line of less than £1.10 per-person per-day - had been exacerbated by closures of cargo crossings.

Save the Children UK said 75 per cent of education and healthcare was provided by the PA. Jan Coffey, the agency's programme manager, said: "We cannot replace these core functions - and we shouldn't."