Israel is prepared to transfer withheld tax revenues to the Palestinians through a mechanism that guarantees none of the money will go to the Hamas-led government or militants, Israeli officials said yesterday.

The officials, speaking on condition of anonymity, said the United States and European Union have been discussing the issue and that Israel would be ready to release funds once a mechanism with sufficient safeguards was agreed upon and put in place.

Israel has long resisted European calls to transfer Palestinian tax revenues, now totalling some $700 million, to stave off collapse of the Palestinian Authority and bolster President Mahmoud Abbas, whose Fatah faction has been locked in a power struggle with dominant Hamas Islamists.

But Israel finds itself increasingly isolated on the money issue. The US joined the EU, UN and Russia in a statement on Wednesday encouraging Israel to consider freeing up the funds through a special EU mechanism.

The Temporary International Mechanism provides direct payments to the Palestinian Authority's non-security work force, bypassing the Hamas-led government.

Under US pressure, Israel released $100 million in tax to Abbas earlier this year. But Israeli officials later complained that the Palestinians violated agreements on how the money was to be spent, casting doubt on future transfers.

Olmert will meet with Abbas next week.

Nabil Abu Rdeneh, a top aide to Abbas, said next week's summit, scheduled for June 7, "is expected in the Palestinian territories." Officials would not say where, but in the past they have mentioned the West Bank oasis of Jericho as the likely venue.

While the two leaders have held a series of meetings over the past year, the Palestinians haven't hosted any of the gatherings. Olmert's spokeswoman, Miri Eisin, said a West Bank meeting is "a possibility".

Source: China Daily/ Agencies