The EU plan provides aid for the Palestinian people but bypasses the Hamas-led government which has refused to renounce violence and acknowledge Israel's right to exist.

"Mindful of the needs of the Palestinian people, the Quartet endorsed a European Union proposal for a temporary international mechanism, limited in scope and duration, which operates with full transparency and accountability," a statement from the group of Middle East mediators said on Saturday.

Emma Udwin, EU spokeswoman, said the EU was considering an initial allocation of about $126 million to the fund.

She said on Friday that the EU wanted to have the funding mechanism working by early July.

Benita Ferrero-Waldner, the external relations commissioner, said: "We Europeans are determined to play our part in preventing a humanitarian crisis in the Palestinian territories."

She will head to Middle East on Monday to present the plan.

Social allowances

There was no mention in the statement of payment of salaries to Palestinian government workers - which is opposed by Israel - but it did refer to "social allowances" by which EU would entail payments to health workers and other needy families.

"Nobody is paying wages, forget wages," EU spokeswoman Udwin said.

"There is a big difference between wage and allowance."

The fund will be managed by the World Bank and the EU, working with the office of Mahmoud Abbas, Palestinian president, whose Fatah movement is the main political rival of Hamas.

Plan 'not adequate'

Abbas though has criticised the funding plan approved by the Quartet during a visit to Egypt as it did not involve the Hamas-led government.

"The mechanism is, I believe, not adequate because the funds must go through the government," he said. 

"Though we consider this a step forward, it is not enough at all because it cancels the role of the government and cancels the role of the Palestinian Authority." 

The EU will focus on securing
essential fuel supplies

The EU, the US and other donors also froze hundreds of millions of dollars in direct aid to the Palestinian government after the win by Hamas, which the EU and US have branded as a terrorist organisation.

The aid freeze has meant that about 165,000 government employees, including teachers, health workers and security personnel, have not been paid in three months.

In its statement, the EU urged other donors, including Arab states, to "consider early and substantial contributions".

The mechanism will have three parts: one managed by the World Bank will focus on maintaining health services including "basic allowances" for doctors and nurses; the second will aim to secure essential utilities such as fuel supplies; the third will create a "social safety net" making direct bank transfers to the accounts of needy families.

"All three of these elements will operate with strict controls and in full accountability and transparency," Udwin said.