Israel's decision to freeze money transfers to the Palestinian Authority (PA) spurred an Iranian call for Arab and Muslim countries to step into the financial vacuum and prop up the newly elected Hamas-led government.
As Iran's Supreme Leader Ayatollah Ali Khamenei encouraged Hamas to stick to its refusal to recognize Israel, Hamas prime ministerial nominee Ismail Haniyeh set about forming the first Palestinian government led by Islamic militants.
Mr. Haniyeh, who is reportedly trying to form a coalition within the next five weeks even though Hamas controls 74 of the 132-seat parliament, said that Palestinians had "lots of alternatives" to financial aid from Israel, Reuters reported Monday. That was highlighted by the visit to Iran of exiled Hamas political leader Khaled Mashaal.
Also Monday, the Muslim Brotherhood, which has associated groups in 86 countries, said it was launching a donation campaign for the new PA. And some Arab foreign ministers were to meet in Algiers to discuss sending the PA $50 million monthly.
But while Israel has stepped up efforts to isolate Hamas politically and economically, it's being careful to avoid triggering a humanitarian crisis. That, experts say, could erode international sympathy for Israel's boycott of the new government and bolster hostile outside influence from the Muslim Brotherhood or Iran.
"There's a careful balance between isolating Hamas and worsening the situation of the Palestinians," says Gerald Steinberg, a political science professor at Bar Ilan University, near Tel Aviv. "If the Palestinian economic situation gets even worse, that will create more pressure on Israel, and create friction between Israel and foreign governments.''
The stoppage of $50 million in monthly customs payments to the Palestinians has the potential to bankrupt the self-rule authority within months. It could also further impoverish an economy blighted by five years of fighting, say observers. And yet, Acting Israeli Prime Minister Ehud Olmert stopped short of sanctions that would have moved closer to an economic disengagement from the Palestinians.
That policy acknowledges sentiment for new progress toward a unilateral separation from the Palestinians, while recognizing that economic ties can't be severed overnight. Israel has already said that it won't turn off the electricity and water supply to the Palestinians, even as Mr. Olmert warned that the new Palestinian government is "becoming a terrorist authority."
"This is a lot of very harsh sounding words that have very little bite," says Gershon Baskin, cochairman of the Israel Palestinian Center for Research and Information. "But there is a sense what the government of Israel plans to do once there is a cabinet. It's a flashing red light to the Palestinians and [Palestinian President Mahmoud] Abbas regarding the formation of the government."
Olmert passed on a recommendation from the Israeli military to bar Palestinian laborers from entering Israel and to isolate Gaza from the West Bank. With an economy several times as large as the Palestinians', Israel has several levers with which it can impose sanctions.
Crossing points between Palestinian towns and Israel control the flow of $1 billion in exports to Israel and $2 billion in Israeli goods sold to Palestinians. The $50 million in suspended customs payments helps pay half the salaries of the 140,000 government employees, experts say.
The rise of Hamas highlights more than ever that Israelis and Palestinians need a divorce, says Guy Bechor, a Middle East expert at the Herzliya Interdisciplinary Institute outside Tel Aviv. Israel should accelerate preparations to declare an international border with Gaza, complete the separation barrier in the West Bank, and dismantle settlements, he says.
Israeli officials say they want to find a way to press the Palestinian government while allowing humanitarian aid to reach its citizens, but the position has been criticized as impractical. "The thought of separating the Hamas regime from the Palestinian people, and starving government institutions while humanitarian money flows directly to the people isn't realistic," wrote the left-wing Haaretz newspaper in an editorial. "The Palestinians democratically chose their leadership, and every such separation is arrogant and impossible.''
At the same time, Israel has not yet determined how Hamas's rise will affect its relationship with Mr. Abbas, who urged Hamas to back negotiations with Israel.
Many Israelis blame Abbas for inviting Hamas to run in the elections, and failing to confront armed groups. But Abbas is still seen by many as the only politician who can press Hamas to abandon violence in favor of peace talks.
• Wire material was used in this article.
Ismail Haniyeh was expected to be confirmed Monday night as prime minister of the Palestinian Authority.
• Known also as Abu al-Abd
• Born in 1963 in the Shati refugee camp, Gaza
• Served as a top aide to Hamas founder Sheikh Ahmed Yassin, who was assassinated by Israel in 2004
• Expelled from Israel in 1992
• Escaped an Israeli assassination attempt in June 2003
Source: Associated Press