Palestinian security forces confiscated the money and President Mahmoud Abbas ordered an investigation of the Hamas official, a step that will further heighten tensions.
The money was discovered as Sami Abu Zuhri, a Hamas spokesman, passed through security at the Palestinian-controlled Rafah crossing between Egypt and Gaza, according to Julio De La Guardia, a spokesperson for an observer group that monitors the crossing. Abu Zuhri carried the cash — 500 euro bills — in a white pouch strapped to his body, De La Guardia said.
He said travelers must declare all sums more than $2,000 and explain its origin. "(Abu Zuhri) did not declare that money, he tried to smuggle it," De La Guardia said.
The Hamas spokesperson was returning to Gaza from Qatar, whose government pledged $50 million to the Palestinian Authority but wasn't able to transfer the cash because of Western economic sanctions on the militantly anti-Israel Hamas government.
Abu Zuhri told the Arab satellite TV station Al-Jazeera that the money was donated by private people he met during a tour of Arab nations.
Dozens of Hamas gunmen blocked the crossing after the money was confiscated. Abu Zuhri was escorted out of the terminal by another Hamas official. "We are upset to be dealt with this way at a time when the Palestinian people are suffering from siege and starvation," Abu Zuhri told Al-Jazeera.
Abbas sent the confiscated money to the Palestinian attorney general, with the request to open an investigation against Abu Zuhri, said Saeb Erekat, an Abbas adviser.
Moussa Abu Marzouk, deputy head of Hamas' political bureau based in Damascus, Syria, said the confiscated money should be returned. "This money is part of the money supporting the Palestinian people which the (Palestinian) Authority cannot confiscate," Abu Marzouk told The Associated Press.
The Hamas government has been broke since the West and Israel dried up hundreds of millions of dollars in aid because of Hamas' refusal to disarm and recognize Israel.
The cutoffs have rendered Hamas unable to pay two months of back wages to government employees who provide for one-third of people in the already impoverished West Bank and Gaza Strip.
Earlier Friday, two policemen and a Hamas gunman were wounded in the gunfight near the Palestinian parliament building and the police headquarters.
Abbas, elected in 2005, has been assuming new powers in an effort to strengthen his international and domestic standing since Hamas' surprise election victory over the long-ruling Fatah in a January vote.
But fighting between the two sides has been spreading, raising the specter of civil war.
The gunfight was sparked by gunmen who opened fire from a car on the Fatah-dominated police headquarters, said Khaled Abu Hilal, spokesman for the Hamas-controlled Interior Ministry. The police, loyal to Abbas, apparently thought nearby Hamas forces were responsible and fired at them.
Palestinian police accused the Hamas-led force of igniting the gunfight.
Haniyeh brushed off Abbas' order to remove the militia from the streets. "I assure you that we don't intend to take any step back. The force will stay and will be integrated into the police force, and will be active within this system," Haniyeh said during a sermon in a Gaza City mosque. "If necessary, we will increase the size of the force."
Abbas rules out using force to disband the Hamas militia, said an aide, Tayeb Abdel Rahim.
Abbas is trying to persuade the world to deal with him directly, and to funnel vitally needed foreign aid through his office. The sanctions, and Israel's withholding of some $50 million in monthly tax revenues, have crippled the government, which has been unable to pay salaries to its 165,000 employees in the past two months.
Israeli Prime Minister Ehud Olmert denied the sanctions had caused a humanitarian crisis in the Gaza Strip, saying the reports were based on Palestinian propaganda. However, he said Israel was prepared to directly send medicines and other supplies to Palestinian hospitals.
"We wouldn't allow one baby to suffer one night because of a lack of dialysis," Olmert was quoted as saying in an interview published Friday in The New York Times. "We will pay, if necessary,out of our own pockets."
Olmert restated his position that Abbas must disarm militants, including Hamas, before Israel would sit with him at the negotiating table.
Even before the January election put Hamas in power, Abbas avoided confronting Hamas and other militant groups, hoping to tame them through negotiations. Now he clearly fears an all-out civil war, though activists on all sides insist their weapons should be directed against Israel, not each other.
The swelling Hamas-Fatah friction, including deadly drive-by ambushes against two Hamas gunmen in Gaza earlier in the week, came alongside new efforts to explore a possible revival of Mideast peace contacts.
Abbas was to hold talks Sunday with Israeli Foreign Minister Tzipi Livni, the first high-level meeting since Hamas came to power.
The Associated Press contributed to this report.