JERUSALEM (EJP)---European Commissioner for development and humanitarian aid Louis Michel has blamed Israel Friday for the ’grave’ fiscal crisis in the Palestinian Authority, and called on it to unfreeze money it owes the PA in custom duties collected on its behalf.

’Contrary to what is sometimes said, the cause of this crisis is not the suspension of direct international budgetary aid,’ to the Palestinian government, Michel told a conference in Jerusalem on the humanitarian dimension of the Middle East conflict.

’The principle reason is the suspension of transfers to the Palestinian Authority of tax revenues and custom duties pursued by Israel on behalf of the Authority and which represents a very large part of the latter’s budget,’ he said.

Michel ended Friday a three-day-visit to Israel and the Palestinian territorties.

Israel unfreezed 100 million dollars last December but “this is not enough,” Michel said.

He called the Israeli government to use the Temporary International Mechanism (TIM) set up by the European Union as a means of transferring these funds.

“We hope, we expect the Israeli government to cease this possibility,’ he said.

The EU is the biggest donor of aid to the Palestinians , which reached 350 millions euros in 2006.

The Belgian EU official said humanitarian law in the region were threatened most by attacks on civilians.

“We condemn rocket attacks against Israeli civilian populations and military actions targeting Palestinian population centres,” he said.

He also stated that Israeli restrictions on movement ’annihilated any chance for economic development in the Palestinian territories,’ pointing out that nearly 60 per cent of Palestinians lived under the poverty line of 2 euros a day.

Israel says it has imposed the restrictions to prevent suicide bombers from reaching Israeli cities from the West Bank, and says they have helped to greatly reduce such attacks.

On Thursday, after a meeting with Israeli foreign minister Tzipi Livni, said the EU will maintain its embargo on all but vital humanitarian aid to the Palestinians until Hamas recognises Israel, renounces violence and abides by previous peace agreements.

"As long as these criteria are not fulfilled, there will not be a change in the system, the manner, the process of aid support from the European Union," Michel told reporters in Tel Aviv.

He said he believed there was some willingness on the part of Hamas leaders to meet the three conditions. “I think there are some moves and we must recognize that,” Michel said.

But he insisted there would be no softening of the nEU embargo before the conditions were met. “If we do that, we give a bonus to those who use violence,” he said.