Israel Resumes Transfer of Taxes to Palestinians

By STEVEN ERLANGER

JERUSALEM, July 1 — The Israeli government agreed today to restore full financial ties with the Palestinian Authority now that it has ousted Hamas.

Israel will resume monthly transfers of taxes to the Palestinian Authority, as well as return, in installments, the $600 million or so withheld from the Palestinians since early 2006.

The decision marks an end to an Israeli policy of fiscal isolation of the Palestinians that began with the installation of a Hamas-run Palestinian Authority in March 2006, after Hamas won a legislative majority that January, beating the Fatah faction. The policy, together with a Western ban on aid to the Hamas government, was designed to undermine Hamas and bring the government down, officials conceded at the time.

Now, with Hamas having taken over the Gaza Strip, the Palestinian president, Mahmoud Abbas of Fatah, has fired a Hamas-dominated “unity” government and installed an emergency cabinet led by an independent economist close to Fatah, Salam Fayyad.

Mr. Fayyad, educated in Texas and a former economist with the World Bank and the International Monetary Fund, is prime minister, finance minister and foreign minister. As finance minister, he will be receiving direct transfers from the Israeli treasury and from the West. It remains to be seen whether the European Union, which has been paying part of the salaries of up to 80,000 Palestinians through direct transfers to their bank accounts, will now revert to channeling its money — $900 million in 2006 — solely through Mr. Fayyad.

Mr. Fayyad has said that he intends as prime minister of the new government to pay Palestinian civil servants in Gaza as well, even though Hamas hold effective power there.

Israeli government officials said today that they could have no objection if Mr. Fayyad did that. “Whether he pays Gaza salaries is not our business,” said Miri Eisin, spokeswoman for Prime Minister Ehud Olmert. “This is a Palestinian government that has already outlawed all armed groups outside the official security services, and we want to cooperate with them to give a clear-cut chance for Palestinians to be ruled in a different and effective way.”

Some of the money will inevitably go to support Hamas members and groups, but Ms. Eisin said Israel was trying to ensure that it will not be passed to any “nongovernmental groups linked to terrorism.” Israel, the United States and the European Union classify Hamas as a terrorist organization and have legal bans on contact with it.

Israel collects taxes and import duties for all goods coming into Israel and the Palestinian territories under a customs agreement. It is then supposed to pass the part belonging to the Palestinians — roughly $45 million to $50 million a month after deductions for Israeli-supplied water and electricity — to the Palestinian Authority.

But since March 2006, Israel has provided only $100 million to Mr. Abbas for health and human services, leaving about $600 million untransferred. That money will now be paid in five or six installments to Mr. Fayyad, although some $200 million of it is subject to legal appeals by private Israeli companies like Dor Alon, which sells gasoline and fuel oil to the Palestinian Authority, to settle unpaid debts.

The Israelis will also now, beginning with July, pay the taxes owed monthly, so there will be no further withholding. The Israelis are also holding regular meetings with senior officials of the new Palestinian government and those close to Mr. Abbas on more extensive security cooperation, partly to ensure that the Hamas rout of Fatah will not be duplicated over time in the West Bank.

Many Israelis and their newspapers, however, remained focused on the case of Moshe Katsav, the Israeli president who resigned today following allegations of rape and sexual misconduct. The Israeli attorney general, Menachem Mazuz, has agreed to a plea bargain that will spare Mr. Katsav rape charges and any jail time at all, even though the accusations against him, if proven in court, would bring a jail term of up to 20 years.

Mr. Mazuz is said by officials to have been concerned by the impact on the state of a rape trial and jail term for Mr. Katsav. He said that some charges were too old given the statute of limitations and that rape might be difficult to prove conclusively. But many Israelis are outraged, and some 20,000 people demonstrated in Tel Aviv on Saturday night against the plea bargain.

The Israeli Supreme Court agreed today to hear a petition that seeks to overthrow the plea bargain. . Mr. Katsav insists he is innocent, but he will have to plead guilty under the deal to lesser counts of indecent acts, sexual harassment and obstruction of justice and pay compensation to two of his four accusers, all women who worked for him.

Shimon Peres has been elected the new president, a largely ceremonial post, and will take over in mid-July.