Leaders of the European Union endorsed on Friday a plan to channel aid payments to the Palestinian health, social services and facilities sectors such as heating and sanitations, while maintaining the blockade of funding to the Hamas-led Palestinian government.

Reuters reported that a final statement from the EU summit said the 25-member bloc "stands ready to contribute a substantial amount to the international mechanism," which would channel aid to the Palestinians but would also bypass the Hamas government.

According to EU officials, the EU wants the “funding mechanism” ready and up running by the end of June.

Israeli online daily Haaretz reported that the EU statement said the plan had been drawn up in consultation with the United States, Russia and the United Nations, who agreed with the EU in May that a mechanism had to be found to keep the Palestinian economy afloat after most international aid was cut off after Hamas won the majority of Legislative Council seats in January 2006 elections.

EU External Relations Commissioner, Benita Ferrero-Waldner, said that the decision was made after consulting “EU partners”, and that EU countries have tried to find a solution “with which everybody can live”.

Yet, the EU statement did not mention the payment of salaries to the Palestinian government workers, but referred to “social allowances” that would entail payments to some public employees.

Also, the EU urged Israel to transfer the month Tax revenue it collects on behalf of the Palestinians; the monthly amount exceed 50 million US Dollars.

After Hamas won the January elections, Israel blocked those funds while the EU, the U.S. and other donors also froze hundreds of millions of dollars and Euros in direct aid to the Palestinian government.

165,000 government employees, including teachers, health workers and security personnel, have not been paid in three months as a result of the aid blockage.

Meanwhile, the EU drafted a statement urning Israel to resume peace talks with the Palestinian President, Mahmoud Abbas, and urged Abbas to disarm the Palestinian factions.

The EU also condemned the Israeli military violence against the Palestinian civilians and urged Israel to halt  "any action that threatens the viability of an agreed two-state solution and from acts that are contrary to international law."

The statement refers in particular to the annexation Wall Israel is constructing in the occupied West Bank. The Wall that snakes deep into the West Bank allows Israel to keep large settlement blocs and ensures their expansion.

Referring to Olmert’s Convergence Plan, and his intention to unilaterally draw Israel’s borders by 2010 without negotiating with the Palestinians, the EU said that it “will not recognize any change to the pre-1967 border other than those agreed through negotiations by both sides".

The 1967 border refers to the Palestinian territories Israel occupied after the 1967 war, these borders include East Jerusalem.