PALESTINE - June 27 - Aid Cut Could Fuel Conflict.

PA officials warn the US against cutting financial assistance to the West Bank and Gaza Strip, with cabinet minister Ghassan Khatib saying the economic deprivation will only exacerbate an economic crisis that is fuelling the cycle of violence. He adds: "This economic deterioration is the recipe for increasing the frustration and the hatred and consequently the violence". Employment among Palestinians is running at about 38% of the working-age population, and almost half of all Palestinians live below the poverty line. (Khatib comments come after US Pres. Bush said in Canada: "I can assure you, we won't be putting money into a society which is not transparent and [is] corrupt". The US is one of the biggest donors to the PA, although the sums are small when compared with the roughly $3 bn it gives to Israel and the $2 bn to Egypt annually. The US does not give funds directly to Arafat's PA but works through non-governmental organisations and the UN Relief and Works Agency. The US is the UNRWA's single largest donor. In 2002 the US has promised $80m for the agency's general fund of $300m and has promised an extra $30m. As a result, UNRWA officials are concerned by Bush's comments. UNRWA Deputy Commissioner-General Karen Abuzayd said in Gaza City: "We're worried because it looks like a pretty immediate threat. We have the money this year - it's the future that concerns us").