HUMANITARIAN AID

The decision would appear to reflect a view held by U.N. officials that payment of salaries amounts to humanitarian support for the largely impoverished Palestinian population. Humanitarian support was never intended to be cut off.

Local, regional and international banks have stopped dealing with the Palestinian Authority because they fear sanctions by the United States, which classes Hamas as a terrorist group.

Israel is also withholding around $55 million a month in tax receipts that it collects on the Palestinians' behalf, and has frequently closed the main commercial goods terminal on its border with Gaza, citing security concerns.

Western powers have called on Hamas to recognize Israel, renounce violence and abide by existing peace agreements if it wants contacts to resume, but Hamas signaled on Wednesday that it was no closer to accepting those demands.

Hamas has largely abided by a ceasefire for over a year but says talks with the Jewish state would be a waste of time.

Palestinian Prime Minister Ismail Haniyeh, a leader of Hamas, said the conditions "aim to push the Palestinian government to make concessions that harm (Palestinian) rights and red lines and give the (Israeli) occupation legitimacy."

If peacemaking with the Palestinians remains frozen, Israel has pledged to set its own borders by 2010 -- taking in the major Jewish settlements that cover large parts of the occupied West Bank while removing smaller, isolated ones.

Prime Minister Ehud Olmert said on Tuesday he might wait up to six months to see if progress could be made on peace before taking such unilateral steps. Justice Minister Haim Ramon told Army Radio on Wednesday that once Israel decided to go forward alone, "final borders" could be set as soon as the end of 2008.