Norway, the first country to recognize the Palestinians' new government, is ready to resume direct aid to that administration as soon as conditions permit, Foreign Minister Jonas Gahr Stoere said Thursday.

Stoere appeared with Palestinian Finance Minister Salam Fayad at a news conference in Oslo after a meeting to discuss aid and expectations of the Palestinian coalition government that was formed on March 17.

Norway is ready to resume budget support through the Palestinian ministry of finance when the time is right, Stoere said, adding that he was impressed by the progress the new coalition had made since taking office.

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A year ago, the emergence of a government led by Hamas, which is committed to Israel's destruction, led the EU, the U.S. and others including Norway to withhold direct aid to the Palestinian Authority, leading to an economic crisis.

Fayad is an independent lawmaker who is part of a coalition that includes Hamas and the more moderate Fatah party. He said $1.3 million was needed in aid this year alone.

"We have a very acute financial situation, with about one-quarter of the resources needed to function at a minimum, Fayad said. There is misery everywhere. Poverty is widespread," he said.

Fayad, who came to Norway after meeting European Union officials in Brussels on Wednesday, said it was critical that banking restrictions be lifted on the Palestinian administration so his treasury could begin managing finds openly, efficiently and with transparency.

"We are not in the position to manage the funds of the treasury," he said. "When banking restrictions are removed, Palestine will be ready for business."

Stoere said Norway had budgeted $100 million in aid to the Palestinians last year, and was prepared to maintain that level of support.

Norway secretly brokered the now-frayed Oslo peace agreement between Israel and Palestinians in 1993, and is co-chair of the group of donor countries for the Palestinians. It immediately recognized the new coalition.

"We are normalizing relations. That means engaging with the Palestinians - that doesn't always mean agreeing," Stoere said.

Stoere said Norway expected the new government to recognize the right of Israel to exist, to address security concerns and to contribute to the release of captive Israeli soldier Gilad Shalit and kidnapped BBC journalist Alan Johnston.

Fayad said he hoped a prisoner exchange could be completed soon, but noted Israel had rejected a Palestinian list of names for the swap.

On Wednesday, Fayad won a cautious endorsement from EU External Relations Commissioner Benita Ferrero-Waldner, who promised technical assistance to enable his ministry to receive aid once the Palestinian Authority met crucial political conditions.

Ferrero-Waldner praised his personal commitment to peace but made clear the EU's engagement would be selective, gradual and dependent on the government's words and actions.

"I've made very clear that possible financial engagement would not mean resuming direct financial assistance overnight," she said, pledging that a temporary aid system created to bypass the Hamas-led government would remain for as long as necessary.

The Finance Ministry would take months to meet international standards for absorbing aid, and "the EU will also need time to come to a decision then on this political issue", she said.

The EU, the Palestinians' biggest donor, increased aid from 500 million to 700 million euros last year, paying subsistence allowances to 150,000 families and keeping essential services going through the Temporary International Mechanism.

The Quartet of Middle East peace brokers - the United States, Russia, the United Nations and the European Union - suspended direct aid to the PA after the Hamas formed a government last year.

While Fayad presented the PA as a single team committed to the same platform, the Commissioner made clear the EU would work with non-Hamas members such as PA Foreign Minister Ziad Abu Amr and Information Minister Mustafa Barghouti.

"The Commission is standing by its commitments to support the national unity government depending on how it supports the Quartet principles," she said.

Fayad said the PA was operating on a quarter of the funds it needs to provide essential services to the population.

Even once a properly functioning finance ministry was restored, economic recovery would require the lifting of Israeli restrictions on trade, movement and access tightened as part of a security crackdown against the Hamas government, he said.