Israel risks isolation as Hamas-Fatah coalition takes office

· US fails to join boycott over peace conditions
· Europe and UK sound out moderates in new cabinet

Ian Black, Middle East editor, Rory McCarthy in Jerusalem and Ewen MacAskill in Washington
Friday March 16, 2007
The Guardian

Israel seems to be heading for confrontation with Britain and the EU after announcing a total boycott of the new Palestinian national unity government, due to be sworn in tomorrow after months of factional violence and political uncertainty.

"Israel will not deal with this new government and we hope the international community will stand firmly by its own principles and refuse to deal with a government that says no to peace and no to reconciliation," said Mark Regev, the foreign ministry spokesman.

Israel objects to the new government's failure to meet the three conditions laid down by the international community: recognise Israel, renounce violence and accept previous peace agreements. But Britain and the EU appear willing to deal with the unity government on a selective basis, and there are signs that even the US - anxious to appease its conservative Arab allies - may part company with the Israeli prime minister, Ehud Olmert, over the issue. Washington conspicuously failed to announce a boycott of its own, saying it was reserving judgment.

The Hamas leader, Ismail Haniyeh, remains prime minister and his Islamist movement continues to have a major influence. Other key positions have been given to moderate independents in the hope of lifting the international financial boycott and alleviating the deepening economic crisis, especially in Gaza.

Diplomats said yesterday that the US had been close to agreeing to a total boycott but "pulled back from the brink" and agreed to work with the reforming finance minister, Salam Fayyad, a US-educated economist who has worked for the World Bank and International Monetary Fund. Condoleezza Rice, the secretary of state, would like to open discussions with the non-Hamas members, in particular Mr Fayyad, it is understood. "It will be hard for the Americans to support a complete boycott," said one ambassador.

Asked if the White House would deal with Mr Fayyad, including as a channel for US aid funds, the state department spokesman Sean McCormack said: "Any questions about who we will or will not deal with, we are just going to wait."

But a senior British official was pessimistic, saying: "My impression at the moment is that the Americans are unwilling to work with the new government."

Mahmoud Abbas, the Palestinian president and Fatah leader, has been in close contact with the US as well as Saudi Arabia, Egypt and Jordan in recent days. Britain has told Israel it will deal with non-Hamas ministers - the official formulation is "different people in the government" - and other EU governments are likely to follow. France hailed the coalition as a "new page" in relations with the international community but linked future cooperation to Palestinian efforts to halt violence against Israel and secure the release of a captured Israel soldier, Gilad Shalit.

Final positions have yet to be agreed in internal discussions in several key capitals. "There's a huge row going on," said one European diplomat. "The Foreign Office is arguing with Downing Street, the state department with the national security council, and the German chancellery with the German foreign ministry."

Officials in Brussels said the EU might send funds through Mr Fayyad as a first step towards restoring direct assistance. Another possibility is broadening an existing mechanism for delivering purely humanitarian relief to include direct payments to the Palestinian government.

"We will not be taking any decisions before we have been able to judge the programme and actions of the new administration," said Emma Udwin, a spokeswoman for the European commission.

Under the spotlight will be the new government's political programme, which remains vague. Policies include continuing a four-month truce with Israel in Gaza and talk of "respecting" previous peace deals. However there is no explicit recognition of Israel and the platform appears to reaffirm a broad "right of resistance". The policies are broadly based on a Hamas-Fatah agreement reached last year.

Factional fighting, which continued sporadically in Gaza yesterday, has killed more than 130 Palestinians. Restoring security will be the job of the new interior minister, Hani Kawasmeh, a low-key, independent bureaucrat who has inherited the most difficult position in the government.

The hope is that even partial western engagement with the new government will create some sense of momentum before the Arab summit in Riyadh, the Saudi capital, at the end of the month.