Ghazi Hamad, a government spokesman, said: "We will not accept such a blackmail.

"Hamas was elected democratically and the Palestinian people are punished for their choice.

"The EU will not only punish the government, but all the Palestinian people - the poor, the students, the workers," he said.

His comments came after a spokeswoman for the EU external relations commissioner confirmed in Brussels that aid payments had been suspended "for the time being".

The EU sends about $600 million a year to the cash-strapped Palestinian Authority, making it the largest donor.

Financial crisis

The Palestinian Authority is already facing financial crisis, with Ismail Haniya, the prime minister, declaring earlier this week that the government coffers were empty.

The foreign relations committee at the US Congress has backtracked from imposing severe restrictions on US aid to the Palestinian Authority.
However, the committee approved a draft law giving the US president a free hand to decide on limited assistance, which Washington set at $300 million for this year.
Western diplomats said George Bush's plan is expected to ignore the new Palestinian government headed by Hamas and deliver the aid to the Palestinian people via UN agencies and non-government organisations.