JERUSALEM, June 24: Israel agreed on Sunday to transfer several hundred million dollars to Palestinian President Mahmoud Abbas's emergency government, a measure designed to undercut Hamas Islamists controlling Gaza.

The money, some of the Palestinian tax revenues withheld by Israel since Hamas won election in 2006, is part of an initial package of benefits to bolster Abbas that Prime Minister Ehud Olmert is likely to announce at a summit in Egypt on Monday.

Israel wants to isolate Hamas economically, diplomatically and militarily in the Gaza Strip, where the Islamist group seized control more than a week ago, while allowing funds to flow to Abbas's emergency administration in the West Bank.

“Is Israel releasing the money for free? No. It is in return for Abbas destroying Hamas and the resistance,” Hamas spokesman Fawzi Barhoum said.

An Israeli government official said Olmert's cabinet approved the transfer of about $350 million, short of the $700 million the Palestinians say Israel is holding. Israel says courts have frozen some of the funds to cover Palestinian debts.

The money slated for release will be given to Abbas's government in stages, the official said, once a mechanism is in place to ensure it does not reach Hamas in Gaza.

“The Israelis should release all our money. These are Palestinian, not Israeli, funds,” Saeb Erekat, a senior Abbas aide, said after the cabinet decision.

It was not immediately clear if the Israeli government also approved proposals to ease travel restrictions for Palestinians in the occupied West Bank, where Abbas's Fatah holds sway.

“We will attempt in a sober and cautious manner to take advantage of the opportunities created as a result of the recent events in the Gaza Strip, in order to build a diplomatic process with the Palestinians,” Olmert told reporters.

Freeing up the tax revenues, he said, would “gradually help the new Palestinian government -- one that is not a Hamas government”.

The cabinet decision also cleared the way for Israel to resume monthly tax revenue transfers of about $50 million.

SECURITY DEMANDS: Since Hamas's violent takeover of Gaza, Olmert has spoken of laying the groundwork for resuming talks with Abbas on Palestinian statehood, but has stopped short of accepting his call for immediate negotiations on a land-for-peace accord.—Reuters