The Defense Ministry's Seam Line Administration has posted signs at access roads from the West Bank into Israel warning that non-Israelis may not use these crossings. However, the signs explicitly define "Israelis" not only as citizens or residents of the state, but also as tourists or anyone entitled to immigrate to Israel under the Law of Return - that is, Jews, or people with certain Jewish relatives.

"The IDF was forced to change its deployment because of the exploitation of the crossings by terrorist elements to carry out terrorist acts inside Israel," the Israel Defense Forces spokesman said. The spokesman also stressed that transporting Palestinians via an "Israeli-only" crossing is against the law, and will be punished accordingly.

The order was signed by Major General Yair Naveh, the commander of the IDF forces in the West Bank, on December 15. It authorized the Civil Administration to determine which crossings could be used by non-Israelis, and also to determine "the arrangements that will apply at these crossing points." In addition, it defined who is an Israeli, using
the same language that is now posted on the signs at the various crossings.

On January 3, Brigadier General Kamil Abu Rokun, the head of the Civil Administration, signed the list of 11 crossings that Palestinians would be allowed to use, and stated that the order would take effect a month from that date. Eight of these 11 crossings are not on the Green Line, but either within the West Bank or inside territory annexed to Jerusalem in 1967.

The order does contain one exception: Palestinians employed by
international organizations - a few hundred people - will be able to enter Israel via two routes that are otherwise reserved for Israelis. One of them is the Tunnel Road, which connects the Gush Etzion settlements to Jerusalem from the south, and the other is via the Hizma Checkpoint, which is used by the settlements north and east of Jerusalem.

Haaretz has learned that international organizations based in East Jerusalem had protested to the Civil Administration that their Palestinian workers, who travel with their foreign colleagues into Israel, would have to pass through separate border crossings. Following the protest, Palestinian laborers have been permitted to enter Jerusalem via the Tunnel Road and Hizma Checkpoint (east of Pisgat Ze'ev), which are reserved for Israelis only.

A Civil Administration spokesman said the border crossing issue "is being examined and a final decision has not been made yet. Meanwhile the laborers are permitted to use those two crossings, to enable them to continue working regularly."

Pressed by its own strongly pro-Zionist Congress, the administration has effectively ruled out providing direct aid to a Palestinian Authority (PA) in which the Islamist party plays a leading role, unless it amends its Covenant to recognise Israel's right to exist and renounce violence.

At the same time, the administration has strenuously denied a New York Times report earlier this week that it was working with the government of Israeli Acting Prime Minister Ehud Olmert to destabilise a Hamas-led government through diplomatic isolation and economic strangulation in hopes of forcing new elections that would bring more moderate forces to power.

In the administration's clearest statement to date, Secretary of State Condoleezza Rice said Wednesday that the administration intended to maintain support for humanitarian and related projects administered through non-governmental organisations (NGOs) and multilateral agencies in the Palestinian authorities, at least for the time being.

But precisely how much and what kind of assistance Washington will be willing to provide under what conditions -- and what it will encourage its European and Middle Arab allies to do -- remains unclear just two days before the new Legislative Council and with its 16-seat Hamas majority is sworn in.

For the administration, which has staked its foreign policy legacy on the democratic transformation of the Middle East world, the stakes could not be much higher.

By its own account, the Jan. 25 elections won by Hamas were the freest and fairest to have taken place in the Palestinian territories, if not the entire Arab world. To punish and try to bring down the winner would expose Washington to charges of rank hypocrisy -- a view that is already widely held throughout the Arab world, according to recent survey data.

It would also risk further radicalising the region, particularly those Islamist groups that, like Hamas, have demonstrated their popular support in recent elections from Iraq to Morocco.

Some two dozen Arab and humanitarian aid organisations, including the Arab American Institute, the American Task Force for Palestine, and American Near East Refugee Aid, are sending a letter to Secretary Rice Friday that says, "U.S. disengagement as a punishment for the results of a democratic election it actively supported could cause a breakdown in civil society. This vacuum could lead to civil war or increased interference from regional players."

Marina Ottaway, an analyst at the Carnegie Endowment for International Peace (CEIP) here, believes that, "The greatest consequence of an uncompromising U.S. position on Hamas could be a change in the internal balance of power between hard-liners and reformists inside the growing number of Islamist organisations that have renounced violence."

"The hard U.S. response to the victory of Hamas -- particularly the decision to penalise the entire Palestinian Authority by suspending aid to it -- could well tilt the balance back in favour of the hard-liners," she warned.

That point was echoed as well by Robert Malley, a top Middle East adviser to former President Bill Clinton (1993-2001) and current head of the Middle East and North Africa programme of the Brussels-based International Crisis Group (ICG).

"If the attitude of the U.S. and the international community is to say 'we're going to punish the Palestinians,' it will send a devastating message to the rest of the region," he told a recent Congressional forum. "You want to get radical forces into the political process. Now, we're just at the beginning of that experiment. Let's give it a chance."

Moreover, according to Malley, who encouraged Washington and other donors to set realistic conditions on aid, such as an indefinite ceasefire similar to one Hamas has largely observed unilaterally over the past year and the appointment of moderates to head key ministries, cutting off aid to the PA risks driving it into the arms of more powerful adversaries.

"Hamas' ideal is not to become dependent on Iran," he said. "But that may change if it has no option. They will turn to whoever gives them money."

The PA, which is already on the brink of bankruptcy, relies for over half of its two-billion-dollar annual budget on foreign aid, of which Washington last year provided nearly 250 million dollars and this year earmarked 150 million dollars -- almost all of it to support development projects overseen by NGOs and private contractors.

In addition to foreign aid, it also relies on some 50 million dollars a month in customs duties and taxes that are collected by Israel on its behalf. In recent days, Olmert has suggested that his government will suspend those transfers when the new assembly is seated this weekend. Withholding that money could plunge the PA into an immediate fiscal crisis, even before a new government is put together.

His Washington-based supporters, including Washington's former top envoy to Israeli-Palestinian negotiations under both Clinton and Bush's father, Dennis Ross, are also urging a hard line.

The House of Representatives this week voted 418-1 for a non-binding resolution, opposing all U.S. assistance for the PA as long as any party calling for the destruction of Israel controlled its parliament. The same resolution, which is directed specifically against Hamas' charter, was approved two weeks ago by the Senate.

Other legislation backed by the American Israel Public Affairs Committee (AIPAC), one of Capitol Hill's most powerful lobbies, and currently working their way through Congress, would be much tougher.

One measure introduced after deny all aid to the PA unless the president certified that all of its branches had been completely purged of individuals tied to terrorism and that it disarmed and arrested suspected terrorists, and halted all anti-Israeli rhetoric in Palestinian media. Yet another would require Hamas to amend its covenant to delete all statements hostile to Israel in order for the PA to receive U.S. assistance.

Those conditions are highly unrealistic, according to the ICG's Malley and other analysts who fear that approval of such measures will make it far more difficult for the president to encourage Hamas to make positive gestures, such as extending its ceasefire or accepting the 2002 Saudi plan that calls for normalising ties with Israel pending withdrawal to its 1967 borders.

"What the administration needs to do is condition aid in a positive way, and not simply use it as a threat," according to Stephen Cohen, president of the Institute for Middle East Peace and Development.

"Congress needs to decide it its goal is to punish Hamas and the Palestinian peple or to move the new Palestinian government away from violence and toward accommodation with Israel," he said. "Legislation that cuts off economic assistance and imposes impossible conditions for the resumption of aid is counterproductive if the goal is stability and security -- rather than more violence -- for both Israel and the Palestinians."

"In the interests of seeing that these funds not potentially make their way into the coffers of a future Palestinian government (made up of Hamas) ... we have asked for it to be returned and the Palestinian Authority has agreed," McCormack told reporters.

Over the past decade, the United States has given about $1.5 billion in aid to the Palestinians. Most of that was channeled via non-governmental organizations.

If passed, new legislation introduced to Congress a number of weeks ago will enforce a halt of all U.S. funding to organizations and institutions related to the PA.

Israel blocking Hamas members from PLC swearing-in
Israel decided on Friday to block Hamas members of the Palestinian parliament from traveling from the Gaza Strip to the West Bank city of Ramallah for Saturday's swearing-in ceremony, Israel Radio reported. The ceremony will instead be conducted via video conference.

The decision was made during Acting Prime Minister Ehud Olmert's Friday meeting with senior figures from the defense establishment, the Foreign Ministry, the National Security Agency and the intelligence community.

Meanwhile, Defense Minister Shaul Mofaz told the European Union on Friday that Hamas is making a serious effort to get funding from Iran and is asking Tehran for guidance on how to run the Palestinian Authority, Israel Radio reported.

In a meeting with EU foreign policy chief Solana in Jerusalem, Mofaz emphasized the importance of international support of Israel's positions on Hamas and said there should be no negotiations with Hamas unless it recognizes Israel and puts a halt to terrorism.

Olmert approved on Friday the defense establishment's advice to begin taking punitive steps against the PA as of Sunday, the day after the Hamas-led Palestinian parliament takes office. The suggested measures include freezing further transfers of the tax revenues that Israel collects on behalf of the PA and banning the entry of workers from the Gaza Strip into Israel.

The government will decide whether to approve the plan on Sunday.

In Gaza, Hamas' choice for prime minister, Ismail Haniyeh, accused Israel of inflicting collective punishment and said that "our people will not ... kneel before such Israeli measures."

Mofaz: Israel will provide humanitarian assistance
Mofaz told Solana on Friday that Israel would provide the Palestinians with humanitarian assistance, but Israel has rejected Solana's request to hold off on freezing the tax revenues.

Solana asked Foreign Minister Tzipi Livni on Thursday to continue transferring tax monies to the Palestinians and refrain from freezing the funds at least until the new Palestinian government is formed. However, Livni said that once the new Hamas-led parliament is sworn in, the PA will essentially have become "a terrorist entity" even if the new government has not yet been formed.

Other steps the defense establishment advocates include banning the movement of Palestinians between Gaza and the West Bank; preventing transfers of military equipment to the PA from foreign countries, such as donations of armored personnel carriers and communications gear; and freezing plans to upgrade the crossing points between the territories and Israel as well as plans to build a port and airport in Gaza.

MK Zahava Gal-On (Meretz-Yahad) objected to the restrictive measures Friday, calling them "collective punishment."

According to the plan, Palestinian merchants would continue to be allowed into Israel, and the Erez and Karni crossings between Israel and Gaza would remain open. However, the defense establishment would begin preparations for turning these crossings into full-fledged borders, and removing Gaza from its joint customs envelope with Israel.

In addition, the defense establishment plans to present proposals for further reductions in ties every week. However, Mofaz said that none of these steps should interfere with humanitarian activity by international organizations or with the supply of water, electricity or medical equipment.

A team headed by the prime minister's special adviser, Dov Weissglas, also presented its recommendations on how Israel should respond to Hamas' electoral victory at Thursday's meeting called by Mofaz. Weissglas proposed that Israel issue an ultimatum to PA Chairman Mahmoud Abbas, demanding that he fulfill his promise to disarm the terrorist organizations and that the new PA government abjure violence, recognize Israel, and accept the road map peace plan and all signed Israeli-Palestinian agreements. The ultimatum would expire either after 60 days or upon occurrence of a "Hamas event," such as the establishment of a Hamas-led government that did not accept the three conditions posed by Israel and the international community. Upon expiry of the ultimatum, Israel's measures to cut ties with the PA would become more stringent.

Major General Yosef Mishlav, the coordinator of government activities in the territories, told the meeting that Abbas has the power to insist that whoever he appoints to form the next PA government include these three conditions in the government guidelines.

The heads of the intelligence agencies warned at the meeting of a "honey trap" in which Hamas would present a moderate front to lull the international community, while building up its forces for a violent confrontation with Israel. The defense establishment also warned that the defeated Fatah party was liable to take out its anger in the form of terror attacks against Israelis.

All of these proposals and assessments, as well as an alternative proposal prepared by National Security Council Chairman Giora Eiland, were presented to Olmert at Friday's meeting.

In his speech at the Ramallah-based parliament, Abbas told the new intake of deputies that there was no military solution to the conflict with Israel -- a state whose right to exist Hamas refuses to recognise.

And he also told the Islamist movement, which is expected to head up a new government in the coming days, that they should respect all previous international agreements signed with Israel.

Ismail Haniya, widely expected to become the new prime minister, responded by noting "differences" between Hamas and Abbas's political programmes but vowed to resolve any disputes through dialogue.

The swearing-in of only the second ever Palestinian parliament is set to trigger a series of Israeli sanctions, including a halt to the payment of customs duties owed to the Palestinian Authority and new travel restrictions.

In an early sign of how Israel intends to make life as difficult as possible for the new regime, all Hamas's deputies from the Gaza Strip had to view proceedings in Ramallah via videolink after they were refused permission to travel to the West Bank for the ceremony.

Hamas's sensational election win has also led to threats by the United States and European Union to cut funding after Hamas forms a new government unless the Islamists commit themselves to non-violence, respect Israel's right to exist and recognise previously signed agreements with the Jewish state.

However Abbas said that both Israel and the international community should respect the outcome of the January 25 election.

"The internal change which has come about as a result of the elections with a majority for Hamas should not serve as a pretext for new aggressions against our people," Abbas said.

"The Palestinian people should not be punished for making their democratic choice. The Palestinian leadership, and I personally, reject this blackmail and appeal to the international community to renounce it."

But he also stressed that he would continue working towards a peace agreement with Israel regardless of the apparent electoral endorsement of Hamas's hardline approach.

"The Palestinian Authority presidency and the government remain committed to negotiation as a realistic strategic option," he said.

Abbas said Hamas should respect agreements such as a stalled peace plan known as the roadmap which calls for the creation of a Palestinian state living in peace alongside a secure Israel.

The blueprint was drafted by the "quartet" of the European Union, United States, Russia and the United Nations.

But Abbas also stressed that Israel should accept that peace could only come about through negotiations amid expectations that the next Israeli government will try to unilaterally fix the borders.

"We totally reject (Israel's) unilateral approach and exhort the peace-loving world, namely the quartet and American administration, to make serious, immediate efforts to restart negotiations on the basis of the signed agreements, namely Oslo and the roadmap," Abbas declared.

"At time when they are preparing to hold legislative elections (on March 28), I say to our Israeli neighbours that the route to security lies in just peace.

"There is no military solution to our conflict. Only negotiations between equal partners are able to end the cycle of violence," Abbas said.

Haniya acknowledged the contradiction between Abbas's approach and that of Hamas, which has carried out dozens of suicide attacks since the Palestinian uprising began in 2000 although none in the last year.

"These differences about our positions and political programme will be resolved by dialogue and through coordination, in the interests of the Palestinian people," Haniya told AFP.

While Haniya has yet to be confirmed as prime minister, parliament did choose Hamas MP and university professor Aziz Duweik as the new speaker.