Karin Laub
The Associated Press
July 24, 2009 - 12:00am

RAMALLAH, West Bank — The United States has transferred $200 million to the Palestinian government to help ease a growing budget deficit, U.S. Secretary of State Hillary Rodham Clinton said Friday.

Palestinian Prime Minister Salam Fayyad has been struggling in recent months to keep his government afloat, borrowing hundreds of millions of dollars from commercial banks just to cover the public payroll.

The reasons for the shortfall include Israel's restrictions on the Palestinian economy, the border blockade of the Hamas-ruled Gaza Strip and the failure of some donor countries to make good on their aid pledges, Fayyad said Friday, in a video conference with Clinton.

With Friday's aid transfer, donor countries have given the Palestinian government $606 million in budget support this year, covering only about one-third of the estimated deficit of $1.45 billion for 2009, Fayyad said.

"We have received aid, but not enough to deal with our needs, and we faced sharp economic difficulties throughout the last months," Fayyad told reporters.

Since 2007, donor countries have pledged more than $10 billion to the Palestinians, to help shore up the Western-backed government of Palestinian President Mahmoud Abbas, who lost Gaza in a violent Hamas takeover two years ago. However, the aid has had little impact, largely because Israeli restrictions on Palestinian trade and movement have prevented a recovery of the Palestinian economy.

Earlier this year, the Obama administration pledged $900 million in aid to the Palestinians, and the $200 million in budget support announced Friday are part of that sum. Clinton told Fayyad that the transfer of U.S. aid directly to his budget was an expression of confidence in his fiscal reforms.

"The ability of the United States to provide support directly to the Palestinian Authority is an indication of the bipartisan support for the effort to secure the peace in the Middle East, as well as for the fundamental reforms that the Palestinian Authority has undertaken," she said. "Members of Congress from both sides of the aisle worked closely with us to make this assistance possible."

Clinton was vague about prospects for a resumption of Israeli-Palestinian peace talks, saying only that she believes the Obama administration is making progress in creating the "right environment" for such negotiations in the near future.

Israeli Prime Minister Benjamin Netanyahu has said he is willing to resume negotiations, but not on the terms to which his predecessor had agreed. Palestinian President Mahmoud Abbas, in turn, says he will not get back to negotiations unless Israel first halts settlement construction. The U.S. has also been pushing Israel for a settlement freeze, in line with its obligations under a U.S.-backed peace plan.

However, Israel has balked at halting construction. Earlier this week, Netanyahu publicly dismissed a U.S. request that Israel halt a housing project for Jews in east Jerusalem, the part of the city claimed by the Palestinians as a capital.

Clinton on Friday described the discussions with Israeli officials as "very forthright," but also as "conversations between friends."

Senior administration officials are heading to the region in coming days, including Mideast envoy George Mitchell, National Security Adviser Jim Jones and Defense Secretary Robert Gates. Mitchell has met repeatedly with Israeli Defense Minister Ehud Barak to discuss settlement construction.


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