Despite U.S. concerns, the European Union on Friday hailed Palestinian President Mahmoud Abbas' move to form a national unity government to replace one led by Hamas, whose strident anti- Israel views have dried up international aid.

CountryWatch: Palestine

The EU held off, though, on resuming direct aid as long as the Hamas-led government stays in office. Instead, it extended by three months its participation in a World Bank-led program that lets it to make aid payments to Palestinians, bypassing the Hamas-led government.

International aid to the Palestinians has dried up since Hamas, which does not recognize Israel and refuses to renounce violence, took power after its January election victory.

But the deal for a unity government struck Monday "creates a new situation," said Finnish Foreign Minister Erkki Tuomioja, whose country holds the rotating EU presidency. "It allows us to break the deadlock."

The Bush administration has expressed concern the Palestinian national unity government now in formation may not be ready to renounce terrorism or accept Israel's right to exist.

The EU hopes to get Washington to put its faith in a Palestinian unity government at a meeting in New York next week of senior officials from the U.S., the U.N., Russia and the EU — the Quartet that drafted a "road map" to Mideast peace plan.

"We don't think that anything qualitatively has changed with respect to the Palestinian Authority and that we would expect that the Quartet principles apply and that everybody would live up to those principles," State Department spokesman Sean McCormack said Thursday.

Tuomioja said a broad-based government comprising members of Abbas' Fatah party and Hamas would enable the European Union "to re-engage directly with the Palestinian administration."

Hamas government spokesman Ghazi Hamad said he welcomed the EU optimism.

"Now there is a good chance to establish normal relations between the government and the EU," he said in Gaza. "Our government program is a good basis for cooperation."

The EU's optimism hinges on Abbas' ability to craft a broader-based government including Hamas members and representatives of his more moderate Fatah movement, hoping this will generate progress in resolving the Israeli-Palestinian conflict and prompt the EU and other donors to restore direct aid.

The joint government, which is expected to take several weeks to form, is to be based on a document that calls for a Palestinian state alongside Israel — effectively recognizing the Jewish state. The EU said it would carefully study the new government's program to see if it is committed to peace with Israel and to the stricken "road map" peace plan drafted by the Quartet.

But EU foreign ministers did not demand outright that the incoming Palestinian government formally recognize Israel, renounce violence and accept existing peace accords with Israel — three conditions that are key to reviving the Mideast peace process.

EU officials said getting Hamas to formally recognize Israel was less important than ensuring that a more moderate unity government works for peace.

"We want to be firm on the principles but should be flexible about the form," said EU External Relations Commissioner Benita Ferrero-Waldner.

Since July, the EU has been making emergency aid payments to the Palestinians, including $114.5 million for hospital supplies, fuel to run power generators and "social allowances" to 625,000 Palestinians and public service workers whose salaries the government cannot pay.

Another $15.3 million has gone to support Abbas' office. For their part, the 25 EU governments have contributed another $98 million.

The emergence of a national unity government would open the way for EU diplomats — now barred from contact with Hamas because it is on the EU's list of terrorist organizations — to speak with Hamas members in the unity government.

Hamas, which has controlled the Palestinian government since March, caved in to intense international pressure this week and agreed to share power with Abbas' moderate Fatah Party.

While refusing to give up its calls for Israel's destruction, Hamas has said it will support Abbas' efforts to seek peace. The joint government, which is expected to take several weeks to form, is to be based on a document that calls for a Palestinian state alongside Israel — effectively recognizing the Jewish state.

The cutoff of aid has caused widespread hardship in the Gaza Strip and West Bank.