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The United States has rejected a proposal by the European Commission to use Palestinian Authority Chairman Mahmoud Abbas as the interface for transferring foreign aid to the PA while bypassing the Hamas government, according to a Western diplomat involved in talks with the U.S. on this issue.

According to the diplomat, the U.S. has also blocked separate aid transfer proposals by Britain, France and the Arab League, in the belief that an aid cutoff will prompt Palestinians to rebel against the Hamas government. Yet even as it blocks humanitarian aid to the PA, Washington supports aid to Force 17, a PA security force that reports to Abbas, the diplomat said.

The European Commission proposal, a copy of which was obtained by Haaretz, calls for transferring aid earmarked for specific purposes, such as health and education, via Abbas. According to the document, the World Bank has already begun informally examining whether existing fund transfer mechanisms are sufficient for this purpose, or whether a new apparatus should be set up.

It would not be difficult to ensure that funds earmarked for health are not diverted to Hamas, the document argued, because they will be distributed to known health care professionals and hospitals. A similar system could also be used to fund the PA education system, but donor states would have to monitor any changes in the curriculum, it added.

According to the document, one of the goals of setting up this system would be for Israel to utilize it as well. Israel is currently refusing to transfer the taxes that it collects on the PA's behalf, for fear that the money will fall into Hamas' hands. But the commission hopes that Israel would resume the transfers if it were assured that the money was being spent directly on humanitarian needs.

If the current freeze on aid continues, the document warned, there will be a sharp rise in unemployment and poverty in the territories within two to three months, and perhaps a consequent breakdown in law and order as well.

A separate document by a collection of human rights organizations, which was published yesterday, warned that the health situation in the territories is deteriorating rapidly.

Some 10 percent of children under five are suffering from inadequate nutrition, this report said, and there has been a 30 percent rise in the mortality rate among children in this age group.