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The Housing and Construction Ministry has funneled nearly $6.5 million to illegal settlement construction in the West Bank in the past three years, more than half of it to outposts Israel pledged to remove, according to the annual State Comptroller's Report, released yesterday.

State Comptroller Eliezer Goldberg wrote in the second part of his annual report that the Housing Ministry has funneled money to settlement construction that had not received cabinet or Defense Ministry approval - as required by law - and in cases where land ownership was still under dispute. Of the $6.5 million given to illegal West Bank construction, about $4 million went to the outposts, the report said.

The money was sent even as a branch of the Israel Defense Forces was "investing resources to track down and demolish illegal construction" in settlements and outposts, Goldberg wrote.

From January 2000 to June 2003, the Rural Building Administration's Jerusalem district office approved 77 contracts for construction projects in 33 West Bank areas, 18 of them unauthorized outposts, the report said. The administration is considered an arm of the Housing Ministry that enables it to carry out irregular activities, particularly in the territories.

The contracts were for housing units, security paths, approach roads, open public spaces, electricity hook-ups, water supplies and public buildings.

The comptroller hints that there was no due diligence and transparency in the geographical distribution of the ministry's budgets. From the budget it is not clear what monies were sent to the territories.

Minister Effi Eitam said he has decided, in the wake of the report, to set up a system of inspection over the transfer of the budgets. Ministry officials said the report deals with activities between January 2000 and June 2003, and that there had been four ministers during this period.

Eitam said he was determined to ensure the budgets were appropriated according to law, "so no damage would be caused to the settlement enterprise."

Attorney General Menachem Mazuz ordered a freeze last month on government funding for settlement construction in the West Bank and Gaza after reviewing Goldberg's initial findings. Mazuz lifted the freeze after approving a monitoring system to prevent funding of illegal projects, the Justice Ministry said yesterday.

Yariv Oppenheimer of Peace Now welcomed the comptroller's report. "This confirms everything we've been saying for eight years," he said. "We are going to request a police inquiry, and we are filing an immediate police complaint against the housing minister."

Numerous reactions came from Knesset members as well. Labor MK Eitan Cabel called on the prime minister to fire Eitam, saying he was behaving as though the ministry was his personal estate. Eti Livni (Shinui) asked Mazuz to examine the possibility of opening an investigation into the way the ministry distributed public funds.

Meretz MK Haim Oron said the report showed clearly that there was a separate entity alongside Israel - the Yesha state that has no laws and no regulations. He said the government was implicated in the illegal activities of the settlers.

Labor MK Ophir Pines-Paz asked that Eitam be dismissed and the ministry be run instead by an appointed committee. Ilan Leibowitz (Shinui) said that the secret that had been known for years was now officially revealed by the state comptroller - squandering of millions in public funds on the settlements, without any supervision or planning.