RAMALLAH, West Bank (AFP) -Palestinian president Mahmud Abbas won the lifting of a crippling Western aid freeze amid efforts to isolate Hamas in its Gaza enclave, where fears are mounting of a humanitarian crisis.

The United States and Europe restored direct aid to the Palestinians on Monday in a show of support for Abbas, who set up an emergency government when his Islamist rivals seized power in Gaza after days of brutal bloodletting.

“We will not leave 1.5 million Palestinians at the hands of terrorist organisations,” US Secretary of State Condoleezza Rice said of the impoverished Gaza Strip.

Rice said the United States was lifting its 15-month embargo on direct aid, as the European Union — the biggest donor to the Palestinians — normalised ties with the new government and resumed its own aid flows.

The moves came a day after Abbas swore in a new 12-member cabinet excluding the Islamists after sacking the three-month-old unity government headed by Hamas prime minister Ismail Haniya.

Hamas’s seizure of Gaza after vicious street battles with loyalists of Abbas’s secular Fatah that left more than 110 people dead in barely a week has driven a deep wedge in Palestinian society.

Abbas’s government is based in his West Bank stronghold while Hamas is in control of Gaza, a tiny strip of land whose impoverished people rely on goods from outside but are now sealed off from the rest of the world by Israel.

The Palestinian Authority insisted it remains in full control, “administratively and morally,” of both the Gaza Strip and the West Bank, but the divide has dimmed hopes of the creation of a future independent state.

The EU partially froze ties and suspended direct aid when Hamas swept to power last year after a shock win over Fatah in January 2006 elections. The United States also cut off all aid funnelled directly to the Palestinian government in a bid to prevent Western money ending up in Hamas coffers.

But the boycott deepened the desperate economic plight of Palestinians, particularly in Gaza, one of the most densely populated areas on the planet where 80 percent of the population relies on aid.

Several hundred Palestinians are camping out in miserable conditions at the Erez border crossing with Israel, desperate to flee feared retribution after the deadly showdown and threatened shortages of basic supplies.

“If we can’t get to the West Bank, give us political asylum in an Arab country, in Europe, in the United States. Anywhere,” shouted a desperate civil servant Amr, the gates leading to Israel firmly shut.

In Luxembourg, EU foreign ministers urged Israel to support the fragile government set up in defiance of Hamas which is on a Western blacklist of outlawed “terrorist” groups.

Israeli Prime Minister Ehud Olmert, who is due to meet US President George W. Bush on Tuesday, said the appointment of Fayyad’s government could pave the way for revived peace talks after seven years of stalemate.

The 27-member EU provided about 500 million euros (670 million dollars) in direct aid a year until Hamas took power, while Washington suspended or cancelled 246 million dollars in assistance in April 2006.

The EU, however, continued to send aid to needy Palestinians last year through a financing mechanism bypassing the Hamas-led government.

Israeli Foreign Minister Tzipi Livni said her country would pay hundreds of millions of dollars in taxes and customs revenue to the new Palestinian government soon.

“We believe that time is of the essence,” she told reporters in Luxembourg.

Israel froze the payments following Hamas’s election victory and while it released some money early this year, around 600 million dollars is still owing.

“The money should not go to terrorists… the Israeli assumption is to work with Palestinian moderates,” an Israeli official said.

Rice said the US government would unblock 86 million dollars in aid originally intended to build up Abbas’s security forces and 40 million dollars to the UN Relief and Works Agency for the Palestinians.

US and EU officials were vocal in support of Fayyad, a US-educated economist and former finance minister whom Rice said had a “reputation for integrity”.

“We’re at a critical juncture for the Israeli and Palestinian peoples, one at which the choices are ever more clear,” Rice said.

“We must take hold of this moment to make new progress toward the vision that President Bush laid out five years ago this week: two states, Israel and Palestine, living side by side in peace and security.”

Fayyad on Monday chaired the first meeting of his cabinet, with pledges to work to heal the deep Palestinian rift.

“We are going to work to remedy and put an end to this abnormal situation. We are going to see what gradual steps can be implemented to this end in the Gaza Strip,” information minister Riyad al-Malki said.

But in Gaza, Hamas consolidated its authority, with its militants policing traffic roadblocks and ordering shopkeepers not to raise prices.

Hamas has dismissed the new West Bank-based cabinet as an “illegitimate” lackey of Israel and the United States and vowed to retain power.