Rice Meets Palestinian Unity Government Official
Finance Minister Hopes to Ease Funding Block

By Glenn Kessler
Washington Post Staff Writer
Wednesday, April 18, 2007

Secretary of State Condoleezza Rice held an unannounced half-hour meeting yesterday at the State Department with Palestinian Finance Minister Salam Fayyad, her first encounter with an official in the unity government shunned by Israel. The move comes as U.S. officials seek regulatory ways to sidestep a ban on aid to the Palestinian government.

Both indicate a greater willingness by the Bush administration to part with Israel on how to deal with a cabinet headed by a member of the militant group Hamas. Israeli officials have insisted that any person who joins the unity government is tainted by the association with Hamas, even an internationally respected financial expert like Fayyad.

A senior State Department official, speaking on the condition of anonymity because of diplomatic sensitivities, said that Rice personally likes Fayyad and that she arranged for the meeting in part to "sharpen the distinctions" between those members of the Palestinian government who support peace with Israel and those who back Hamas. "If we shun them all, how will we make that clear?" he asked.

Fayyad was meeting with Assistant Secretary of State C. David Welch yesterday morning in Welch's office when Rice joined the session, Fayyad said during an appearance at the Palestine Center. Since joining the Palestinian government last month, Fayyad had previously met only with the U.S. consul general in Jerusalem. Rice avoided members of the government during her last trip to the Middle East.

Fayyad bemoaned the fact that, despite his long ties to the United States -- his three children were born in the United States when he worked for the International Monetary Fund -- the Palestinian political situation has slipped so much that a "simple handshake" generates headlines.

"For that to become news is depressing," Fayyad said.

The aid changes are also potentially significant. Since Hamas won Palestinian legislative elections in 2006, the Treasury Department has effectively blocked donor funds from reaching the Palestinian government. Banks around the globe are abiding by the U.S. regulation because they fear being viewed as dealing with terrorists and thereby cut off from the U.S. banking system.

Instead, donors have turned to providing direct aid, bypassing the government, an arrangement that has fragmented a system built by Fayyad in a previous stint as finance minister.

Fayyad separately controls accounts held by the Palestine Liberation Organization, and U.S. officials are examining regulatory ways to make clear that donor funds from Arab and European countries could flow directly to those accounts without violating the U.S. ban.

There are no plans for U.S. funds to go to Fayyad's accounts.

"It is not a policy question as much as a regulatory issue," the State Department official said, noting that Treasury has permitted funds to go directly to the office controlled by Palestinian Authority President Mahmoud Abbas, who rejects violence and wants a peace deal. "Salam would like a further public signal" that donor monies can go to his PLO accounts, the official said. "It should be doable."

Referring to the banking restrictions, Fayyad said that "we are discussing this issue with the U.S. authorities to settle this matter." He declined to discuss details.

Fayyad had proudly introduced financial controls on Palestinian funds when he was minister from 2002 to 2005. But he said that, with great sadness, he must now try to reintroduce the controls, which he said had crumbled in the face of the international embargo.

International humanitarian donations increased substantially after Hamas won the elections, but they were fragmented and beyond the control of the government. Fayyad argued that international donors had insisted on a functioning finance ministry as key to building up Palestinian institutions in preparation for statehood, only to abandon the concept.

Fayyad said he has found sympathy for this argument both in Europe and the United States. The European Union has provided funds that have helped pay salaries under a program known as the "temporary international mechanism," and Fayyad said he had received assurances that the TIM could be phased out to give him greater control over the funds.

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