JERUSALEM (Reuters):

Israel agreed yesterday to transfer hundreds of millions of dollars to Palestinian President Mahmoud Abbas's new government, a move Hamas dismissed as "bribery" to fuel tensions with Islamists controlling Gaza.The money, some of the Palestinian tax revenues withheld by Israel since Hamas won election in 2006, is part of an initial package of benefits to bolster Abbas that Prime Minister Ehud Olmert is likely to announce at a summit in Egypt today.

Israel wants to isolate Hamas economically, diplomatically and militarily in the Gaza Strip, where the Islamist group seized control more than a week ago, while allowing funds to flow to Abbas' emergency administration in the West Bank.

Deepening crisis, division

Ismail Haniyeh, Prime Minister of the Hamas-led government who was dismissed by Abbas, called Israel's release of the tax money "financial bribery" and "political blackmail" aimed at "deepening the crisis and divisions" between Fatah and Hamas.

Haniyeh accused Abbas, the Fatah leader, of violating Palestinian law by appointing an emergency administration after his forces were routed in Gaza. In his first major speech since the fighting ended just over a week ago, Haniyeh said Abbas' actions had resulted in the separation of Hamas-ruled Gaza from a Fatah-dominated West Bank.

An Israeli government official said Olmert's Cabinet approved the transfer of about US$350 million, short of the US$700 million the Palestinians say Israel is holding. Israel says courts have frozen some of the funds to cover Palestinian debts.

The money due to be released will be given to Abbas' government in stages, the official said, once a mechanism is in place to ensure it does not reach Hamas in Gaza.