US Secretary of State Hillary Clinton spoke this evening with Prime Minister Ehud Olmert and thanked him for his decision to transfer NIS 175 million ($43 million) in cash to the Gaza Strip.

Olmert's office said Clinton praised the decision, despite the domestic opposition he faced, and said move would strengthen Palestinian moderates. Both Defense Minister Ehud Barak and Foreign Minister Tzipi Livni contested the move, announced by the prime minister on Thursday afternoon.

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The funds, to be transferred immediately, are intended to be pay the salaries of Palestinian Authority workers in the Gaza Strip. However, since the region is controlled by Hamas, political and security forces believe that it is likely the funds will end up in the hands of Hamas or other terror organizations.

The Palestinian Authority has bank accounts in Israel, whose contents are generated from taxes. Employees – identified by name, identity number and bank account – are paid from these sums.

Due to the situation in Gaza, PA workers have not been able to cash their salaries in Gaza and, thus, requested a transfer of funds in cash, from Israel.

Livni and Barak, during a three-way meeting with Olmert, expressed their disapproval for his decision. The two noted that while the Israel-PLO Economic Agreement, signed in Paris in 1994, requires Israel to transfer tax-generated funds to the PA, it is not the appropriate time to transfer money to workers in Gaza because of the likelihood of a Hamas appropriation.

"This is (the PA's) money and they have the right to decide how to spend it. The money belongs to (Palestinian Prime Minister Salam) Fayyad and his employees in Gaza," read a statement from the Prime Minister's Office.

"The Palestinians have also appealed to the United States and they have international backing for their request, because it is anchored in accords," the statement continued. A senior political source in the PMO told Ynet: "Because the funds are transferred to people on a name basis, and only to Fatah employees in Gaza, this actually promotes Israel's policy of strengthening (Fatah) sources relative to Hamas sources."

"We’re doing what Israel must do based on agreements and working to strengthen moderates," he added.

Two months ago, Barak garnered criticism for transferring NIS 100 million (about $25 million) from West Bank banks to Gaza banks, at Fayyad's request, due to the fact that banks were closing in the Gaza Strip. The funds went to pay the salaries of some 70,000 PA workers.

Fayyad said at the time that the funds transferred were insufficient, because "it's a very small sum that does not cover the salaries." He said that a sum of NIS 100 million was necessary every month in order to cover PA salaries.

Clinton, Kouchner discuss Hamas

Earlier in the day Clinton met with French counterpart Bernard Kouchner in Washington, and discussed recent developments in the Middle East. Kouchner presented a decidedly less stringent position than Clinton's regarding the conditions under which his country would talk to Hamas.

Speaking at a press conference held after the meeting, Kouchner said he would sit down with Hamas when they themselves sat down with the PLO, accepted the peace process and acknowledged the accords between Israel and the Palestinian Authority and the terms of the Arab peace initiative.

Kouchner's statements follow a similar stance voiced by Quartet envoy, former UK Prime Minister Tony Blair, who emphasized the necessity of Palestinian unity as the basis for any genuine peace process with Israel.

Clinton however reiterated Washington's far less lenient stance, saying the US would not talk with, or recognize, Hamas until it renounced violence, recognized Israel and agreed to adhere to previous accords.

The secretary is in no rush to conduct her first visit to the Middle East, and today announced she will soon embark on a ten-day trip to Japan, Indonesia, South Korea and China. Her main goal will be to reach a series of understandings with Beijing, including its position on the Iranian nuclear threat, as well as discussions surrounding the threat of North Korea.