Saudi Arabia was also expected to transfer another $50 million to the Palestinian Authority soon, the Arab League said.

Nabil Shaath, an aide to Mahmoud Abbas, the Palestinian president, said the Arab aid money bypassed the Hamas government and was transferred directly to Abbas on Monday.

The Palestinian president will control how the funds are spent, he said.

The EU, the US and other donors froze hundreds of millions of dollars in direct aid to the Palestinian government after Hamas won elections in January, demanding that the group recognise Israel and cease all support of terrorism.

Since March, Arab states have collected more than $100 in aid for the Palestinians, but the money could not be transferred because international banks refused to allow the Arab League to transfer funds electronically to Palestinian territories, fearing sanctions from the US, which labels Hamas a terror group.

Hope rekindled

Speaking to reporters after a meeting with Amr Moussa, the Arab League secretary-general, Shaath said the organisation had transferred half of the $100 million and Saudi Arabia planned to transfer the other half later in the day.

"This is a glimpse of hope ... and a step toward squeezing-out of the siege," Shaath said.

Moussa said the Hamas-led government had had knowledge of the transfer. "The transfer was in complete co-ordination with the Palestinian government," he said

Shaath and Moussa did not specify how the funds were transferred to the Palestinian Authority on Monday, or where the money had come from.

The Hamas government, nearly bankrupted by the sanctions, has resorted to bringing cash into the occupied territories in suitcases to try to stay afloat.