Outlining the draft 2005 budget, Fayyad said late on Thursday that the Palestinian Authority (PA) had issued a tender to six firms affiliated with the World Bank and would soon select an auditor.

He said he wanted to ensure that accountability was his ministry's top priority in helping to fight corruption.

"We are building our own capacity to audit, but decided to hire the services of internationally reputable firms until we are convinced we have built our own capacity sufficiently."

UN-US supervision

International auditing firms hired by the United Nations and the US began supervising Palestinian Authority spending in 2003.

Fayyad said the PA was determined to crack down on corruption that has long tainted its reputation.

"We will be legally pursuing, with determination, any violations and we will seek punishment of offenders"

Salam Fayyad, finance minister

"A key priority will be to deal with the lingering perception of corruption," he said.

"To this end we will be legally pursuing, with determination, any violations over public funds, and we will seek punishment of offenders in a decisive fashion."

Concern about graft and waste under late President Yasir Arafat had led foreign donors to withhold funding pledged to the aid-dependent Palestinian Authority.

Brighter economic prospects

Mahmud Abbas succeeded Arafat as president in January and along with Israeli Prime Minister Ariel Sharon declared a
ceasefire a month later. Since then, economic prospects have brightened alongside those for peace.

Fayyad, a former International Monetary Fund official, is credited with initiating a major financial reform process that
has won praise from the international community.

Fayyad presented the long-delayed $2.2 billion draft budget for 2005 to parliament on Wednesday after receiving pledges of $1.2 billion in aid from international donors at a London meeting earlier this month.

"Our own revenues are projected at $1.1 billion, leaving a deficit of $1.1 billion to be funded by external assistance," Fayyad said.

Social safety net

For the first time, he said, this year's budget includes an appropriation of $240 million to fund a social safety net, to address the needs of the most vulnerable in society. Palestinian statistics show that about half the Palestinians live below the poverty line.

Unemployed Palestinians protest

Fayyad estimated the Palestinian Authority would require an annual $1.5 billion in foreign aid for the next two years to help rebuild an economy shattered by more than four years of fighting with Israel.

He said economic improvement hinged on Israel's removal of roadblocks in the West Bank and Gaza and allowing the freedom of movement of goods and people.

The World Bank said in a recent report that reviving the Palestinian economy was critical to peacemaking in the region.