WASHINGTON (AP) – The Bush administration on Monday lifted its economic and political embargo against the Palestinian Arab government, Secretary of State Rice announced.

The move follows the expulsion of the militant Hamas movement from the Palestinian Authority, and is meant to strengthen Western-backed President Abbas by resuming direct American aid.

Ms. Rice said she had informed new Palestinian Prime Minister Fayyad of the decision in a phone call.

“I told him the United States would resume full assistance to the Palestinian government and normal government-to-government contacts,” she told reporters at the State Department. “I told the prime minister that we want to work with his government and support his efforts to enforce the rule of law and to ensure a better life for the Palestinian people.”

“We intend to lift our financial restrictions on the Palestinian government, which has accepted previous agreements with Israel and rejects the path of violence. This will enable the American people and American financial institutions to resume normal economic and commercial ties with the Palestinaian government,” Ms. Rice said.

She said the administration will ask Congress to rework a previous $86 million aid request. That money had been intended to help shore up Abbas’ security forces but could now be put to other uses.

Separately, Ms. Rice said that America would contribute an additional $40 million to the United Nations to help Palestinians, particularly in the Gaza Strip, which is now controlled by Hamas.

“Through its actions, Hamas sought to divide the Palestinan nation, we reject that,” Ms. Rice said. “It is the position of the United States that there is one Palestinian people and there should be one Palestinian state.”

“We are not going to countenance that somehow the Palestinians are divisible,” she said “We are not going to abandon the Palestinians living in Gaza.”

Hamas seized control of Gaza last week after a series of battles with Abbas’ Fatah movement. The violence left Gaza increasingly isolated, a situation that worsened Sunday when an Israeli fuel company cut off deliveries to gas stations in the impoverished coastal strip.

Its violent takeover of the Gaza Strip split the Palestinian government in two: the Hamas leadership headed by deposed Prime Minister Haniyeh in Gaza and the new Cabinet now led by Mr. Fayyad, an American-educated economist, in the West Bank.

Earlier Monday, President Bush spoke with Mr. Abbas to express full American support for his decision to dissolve the government, swear in an emergency Cabinet and outlaw the militia forces of Hamas, the White House said.

In the call, Mr. Bush noted that he plans to meet Tuesday with Israeli Prime Minister Olmert, and that he would share their thoughts on how to continue, White House press secretary Tony Snow said.

“What’s important is, you have to have a partner who is committed to peace, and we believe that President Abbas is,” Mr. Snow said. “And therefore we are committed to working with this new emergency government.”
“We have said that Hamas is a terrorist organization,” Mr. Snow said. “I think it’s pretty clear what our stance has been.”

The move essentially resets American policy to the days before Hamas swept legislative elections in early 2006 and upended American and international peacemaking. America, Israel and the European Union regard Hamas as a terrorist organization.

Since those elections, Hamas has continued to flex its muscles.

Meanwhile, in a major boost to Mr. Abbas, European Union foreign policy chief Javier Solana announced in Luxembourg on Monday that the 27-nation bloc would resume direct financial aid to the Palestinian Authority now that Hamas is no longer part of the government.

Hamas, which does not recognize Israel’s right to exist, now runs Gaza. Mr. Abbas and his secular Fatah Party now run the West Bank. The larger West Bank is home to more than 1.5 million Palestinians.

Some in America and in Europe have advocated a policy dubbed “West Bank first” in which the West Bank would stand as an example of what a future Palestinian state could be. Critics on the other side say that leaves Palestinians living in the Gaza Strip without assistance. Europeans oppose this idea, and still others worry it would leave the Gaza Strip open to funding and influence from Iran and Syria.

Five years ago, Mr. Bush called for a separate, independent Palestine alongside Israel. He was the first American president to back that notion so fully and publicly. But his administration has taken heavy criticism for letting the peace process drift while conditions worsened for the impoverished Palestinians.

In New York on Sunday, Mr. Olmert said his country would be a “genuine partner” of a new Palestinian government and promised to consider releasing the hundreds of millions of dollars in frozen tax funds.