The Paz energy company has struck a deal to refine fuels for the Palestinian Authority at its refinery in Ashdod, TheMarker has learned.

The agreement was only finalized in the past few days.

The Palestinian Authority will import crude straight to the Ashdod refinery, which Paz just bought last week for NIS 3.5 billion.

Paz will refine the crude oil and deliver the products and distillates to the Palestinian Authority.

The Palestinian Authority means to import oil mainly from the Gulf states, which are expected to give it attractive prices.

Paz, which belongs to Zadik Bino, yesterday confirmed that negotiations with the Palestinians were taking place.

In essence Paz is taking over where Dor-Alon (TASE: DRAL) left off. On the eve of Yom Kippur, Dor-Alon admitted in an announcement to the Tel Aviv Stock Exchange that the Palestinian Authority will cease buying gasoline and gas from it from the start of 2007.

Dor-Alon had refused to sweeten the terms of sale to the Palestinians, it explained. But the Palestinian withdrawal is a blow to the Israeli company, as the PA had been responsible for about 40% of its income.

Dor-Alon had been supplying the Palestinians with fuel since 1994. Two years ago the parties extended their agreement by five years and at present, Dor-Alon is the sole supplier of fuels to the Palestinian Authority.

Each month the Palestinian Authority buys 50 million liters of gasoline and diesel from Israel.

Paz refused to comment for this report.