U.S. Wary Of Palestinian Unity Gov't

September 13, 2006 / 10:41 AM / CBS/AP

U.S. and Israeli diplomats warned on Wednesday that Palestinian leaders cannot assume their proposed unity government will gain international acceptance unless they renounce terrorism and accept Israel's right to exist.

Secretary of State Condoleezza Rice and Israeli Foreign Minister Tzipi Livni responded cautiously to Palestinian efforts to resolve an eight-month political standoff that has frozen foreign aid vital to the Palestinians.

"We will see what the outcome is here," Rice said, referring to efforts by the radical Hamas group and the moderate Fatah Party to form a coalition Palestinian government.

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On Iran, Rice was skeptical about Tehran's suggestion it temporarily might suspend uranium enrichment as a condition for beginning talks about its nuclear program with the U.S. and Europe.

"They canceled the meeting for tomorrow and that should tell us something," Rice said. A session had been scheduled between the European Union's foreign policy chief and Iran's top nuclear negotiator.

Rice said the U.N. General Assembly meeting next week would be a "natural time to assess where we are" regarding possible penalties if Iran does not suspend its nuclear activity.

In other developments:

Palestinian Cabinet ministers handed in their portfolios on Wednesday, a government official said, in a step toward formation of a unity coalition with the moderate Fatah Party.

Israeli Defense Minister Amir Peretz, responding to Lebanese guerrillas' prisoner exchange demands, acknowledged on Wednesday that a Lebanese militant held in a deadly 1979 raid was at the center of talks to free two Israeli soldiers. Israel has refused in previous swaps to free Samir Kantar, convicted of killing a man and his young daughter in an attack on their house.

Israel's parliament on Wednesday granted Israeli President Moshe Katsav's request to temporarily step down from his largely-ceremonial position for one day in light of a police investigation into accusations he sexually harassed former employees. Katsav did not want to preside over the swearing-in of the new chief justice of the Supreme Court.

A Jewish-American businessman who has donated money to Prime Minister Ehud Olmert bought a home owned by the Olmert family for 30 percent more than its market value in the mid-1990s, the Haaretz daily reported Wednesday. The questionable purchase would mark the third Jerusalem real estate scandal involving the prime minister in recent months.

Focusing on the Mideast, Rice said the moderate Palestinian president, Mahmoud Abbas, "is someone with whom we can work and with whom we are working." But, she added, a Palestinian coalition must recognize Israel, renounce violence and accept previous agreements between Palestinians and the Israelis.

Those internally accepted principles are the "very essential elements" of a solution, Rice said. "It's hard to have a partner for peace if you don't accept the right of the other partner to exist."

Rice and Livni indicated their governments could continue to deal with Abbas as part of a coalition, but it is not clear whether that arrangement would prove more workable than the current impasse.

The U.S., Israel and the EU consider Hamas a terrorist organization; the U.S. and Israel have sworn off any dealings with Hamas.

Livni offered assurances that Israel wants to make headway on the stalled plan to make peace with an eventual independent Palestinian state, despite the disarray in the Palestinian territories since Hamas won parliamentary elections in January.

"Stagnation is not the Israeli government policy," she said.

Livni said it was Abbas' responsibility to make progress.

"Now is a moment in time in which Mahmoud Abbas has to decide whether the Palestinian Authority will operate on his terms or on the terrorists' terms," she said.

President Bush is expected to meet with Abbas when the leaders attend the U.N. session in New York.

Livni saw Bush and other administration officials Wednesday as attention in the Middle East shifted to Palestinian humanitarian and political crises following Israel's summer war with Hezbollah militants in Lebanon.

The president joined Livni's meeting with the White House national security adviser, Stephen Hadley. Bush reiterated his strong support for Israel's security and discussed with Livni "the threat posed by the Iranian and Syrian regimes," said Hadley's spokesman, Frederick Jones.

Livni is the most senior Israeli to visit Washington since a month of battles against Hezbollah ended in August with a U.N.-brokered cease-fire but without a decisive victory for Israel.

The U.S., Israel's closest ally, was its firmest defender during the cross-border war. U.S. allies and U.N. Secretary-General Kofi Annan wanted a cease-fire much earlier in the fighting that killed 159 Israelis and at least 854 Lebanese, most of them civilians.

The Palestinian aid cutoff and Israel's refusal to transfer taxes it collects on behalf of the Palestinian Authority have to a severe financial crisis in Palestinian towns and left the government unable to pay full salaries to its 165,000 workers for the past six months.

Palestinians agreed on Monday to form a national unity government to revive peace talks and end their international isolation.

The Palestinian Authority is effectively broke, with a monthly deficit in the tens of millions of dollars. Palestinians are the biggest per capita recipients of foreign aid in the world. In 2005, the first year the authority was not headed by Yasser Arafat, overseas donors contributed about $1 billion of the authority's approximately $1.9 billion budget.

U.S. direct aid was a small part of that — $70 million last year. Separately, the U.S. spent $225 million for humanitarian projects through the U.S. Agency for International Development last year, and gave $88 million for refugee assistance.