"The investigation has found no conclusive evidence of support of armed attacks or unlawful activities financed by the European Commissions contributions to the (Palestinian Authority) budget," the European Anti-Fraud Office (OLAF) said on Thursday.

But it did not rule out that some of the assets of the PA (Palestinian Authority) "may have been used by some individuals "for other than the intended purposes".

"This is primarily due to the fact that the internal and external audit capacity in the PA remains underdeveloped," it added.

It said that despite significant progress made by the PA since 2002 through the introduction of a single treasury account for the consolidation of revenues, "risks of misuse of the PA budget and other resources cannot yet be excluded".

Swiss accounts

OLAF investigators for example determined that the PA leadership had transferred $238 million (177 million euros) to Swiss bank accounts between 1997 and early 2000, without informing its international donors.

"It is clear, however, that this cannot concern EU funds as the European Commission only made its first disbursement in the framework of the Special Cash Facility in November 2000," the office said.

OLAF had opened its inquiry in February 2003 following concern by European MPs and Israeli charges that some Palestinian groups were diverting EU funds to finance armed attacks.