Arab governments hope to increase aid to the Palestinians, including channeling more money to the newly formed Palestinian unity government led by the militant group Hamas, according to a document prepared for this week's summit of Arab leaders.

The proposal, expected to be endorsed by Arab leaders later this week, comes as U.S. Secretary of State Condoleezza Rice is in the region seeking a common footing with Arab allies on how to revive the stalled Middle East peace process.

Arab diplomats said the aid increase would be aimed at coaxing the militant Hamas movement toward more compromise and would give it equal billing with Western-backed moderates in the Palestinian coalition government.

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According to a draft resolution obtained by The Associated Press, Arabs would add some $150 million more in funding each year to the annual $750 million economic and financial package they have pledged to the Palestinians each year since 2001.

Only part of the $750 million has actually gone to the Palestinians any year, however, because many Arab governments have balked at their pledges.
The leaders are also expected to renew a pledge made at last year's summit to provide some $55 million monthly to the Palestinian government.

That money has so far been sent to the office of Palestinian Authority Chairman Mahmoud Abbas, and not to the Hamas-led government. Arab diplomats taking part in Sunday discussions, speaking on condition of anonymity because of the issue's sensitivity, said the Arab leaders will decide whether the money should go to the government.

Speaking to reporters Sunday, Saudi Foreign Minister Saudi al-Faisal confirmed the summit would extend the aid to the Palestinians but did not say whether the money would go directly to the government.

Hamas, branded a terrorist group by the U.S. and European Union, joined the more moderate Fatah party in a coalition government last week. Palestinian officials have expressed hope that the alliance would lead to an end of international sanctions imposed against the previous Hamas government.

The diplomats said any Arab aid to the government would be channeled through the minister of finance, Salam Fayyad, an internationally respected economist and political independent.

Fayyad, a former World Bank official, is leading Palestinian efforts to end international sanctions imposed a year ago when the Islamic militants of Hamas won an election and set up a government.

The top U.S. diplomat in Jerusalem, Jacob Walles, met Fayyad last week - the United States' first contact with the new Hamas-Fatah coalition and the end of a yearlong diplomatic boycott of the Palestinian government.

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.

Overall, international aid to the Palestinians grew from about $1 billion in 2005 to more than $1.2 billion in 2006, according to the United Nations.

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

Despite the aid, the Palestinian economy suffered greatly, according to George al-Abed, head of the Palestinian Monetary Fund. The emergency aid helped Palestinians survive, just barely, he said.

Palestinian officials have cited a flight of investors, loss of trust in the economy and weakening of government institutions as the main problems. Also, with aid restricted to averting a humanitarian crisis, development projects have largely been put on hold.

"Relying on aid makes the Palestinian economy even worse - it makes it lose it dynamism," said Majdi al-Khaldi, an adviser to the Palestinian Authority chairman.

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