The European Union should do more to encourage the Palestinian unity government, the EU external relations commissioner said Monday, while stopping short of signaling any plans to resume direct aid.

"I am encouraged," Benita Ferrero-Waldner said after talks with Palestinian Foreign Minister Ziad Abu Amr in Brussels before a regular meeting of EU foreign ministers, who are due to see their Arab League counterparts in the afternoon.

"I can see they are trying to progress, they are doing practical steps," said Ferrero-Waldner. "There are also some political movements ... I think we have to move on."

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Asked if she meant resumption of direct aid cut off when a Hamas administration came to power last year and refused to recognize Israel, renounce violence or accept existing interim peace deals, she avoided a direct reply.

However she said: "We have to honor this movement. We have to see that something is there in order to avoid a civil war."

The EU could do this, she said, "by changing the way we are acting" and urging Israel to release Palestinian customs revenues it has been withholding and Arab countries to provide funds they have promised.

Despite the freeze on direct aid, the EU remains the biggest foreign aid donor to the Palestinians. Since the formation of a new Palestinian government in March it has eased its boycott, talking to non-Hamas ministers and considering ways of resuming some direct aid to the Palestinian Finance Ministry.

But the 27-nation bloc has refused to deal with Hamas or its ministers until the government "reflects" conditions set by the international community.

Palestinian Finance Minister Salam Fayyad has been counting on using a Palestine Liberation Organization account he controls to receive $55 million that Arab League states have promised to pay each month to cover about half the salaries of governmental employees.

Last week senior U.S. officials said Washington had decided to offer fresh assurances that giving money through this account would not violate U.S. financial sanctions and these would come through an exchange of letters with the European Union.

One U.S. official said the U.S.-EU letters, if they are sent, would make clear money transferred to the PLO account cannot be transferred to the Hamas-led government, thereby keeping the ban on direct aid to the government in place.

However, last week, a spokeswoman for Ferrero-Waldner denied an exchange of letters was planned. She said any decision to make a direct payment to the account would require assent of EU ministers and it was not on their agenda on Monday.

In their meeting with Arab League states EU ministers will seek to bolster an Arab peace initiative aimed at resolving the Israeli-Palestinian conflict, diplomats said.

Israel and the United States have both shown interest in the peace plan which offers Israel normal relations with all Arab states in return for withdrawal to its pre-1967 borders and an agreed solution to the Palestinian refugee issue.