By Matt Spetalnick WASHINGTON, June 18 (Reuters) - The United States lifted its crippling aid embargo on the Palestinian government on Monday to bolster moderate President Mahmoud Abbas while isolating Hamas Islamists controlling the Gaza Strip. The resumption of direct U.S. assistance came on the eve of White House talks between President George W. Bush and Israeli Prime Minister Ehud Olmert, who has said he will cooperate with Abbas' emergency Cabinet formed after Hamas' takeover of Gaza last week. Amid an outpouring of international support, Abbas told Bush in a telephone call on Monday that the time had arrived to restart serious peace talks with Israel, and the U.S. leader promised his support. Hours later, Secretary of State Condoleezza Rice announced that the United States would "resume full assistance to the Palestinian government and normal government-to-government contacts." At a news conference, Rice said the United States would contribute $40 million to help ease the suffering of Palestinians. "We will not leave one and a half million Palestinians at the mercy of terrorist organizations," she said. The United States, Israel and EU regard Hamas as a terrorist organization. Rice insisted the United States would not abandon Palestinians living in Gaza, but stopped short of endorsing a move by Abbas' government to reassert control there. "We're going to support the course that they (the Palestinian officials) develop and that they outline," she said, stressing that it is a "fast moving situation" and Palestinian leaders first must focus on forming a government and obtaining needed financial resources. CORRUPTION CHARGES Abbas' Fatah party has been accused in the past of corruption. Rice said his new government must continue to implement reforms, but she was confident the new prime minister, Salam Fayyad, who has a reputation for integrity, would institute reliable controls and ensure the aid is used for the good of the Palestinian people. The United States and the European Union froze direct aid to the Palestinian Authority in early 2006 after Hamas won a parliamentary election and refused demands to renounce violence and recognize Israel's right to exist. Bush on Monday lent crucial support to Abbas, who disbanded the Hamas-led unity government and created an emergency Cabinet dominated by his mainstream Fatah movement. The effective split between the West Bank and Gaza is widely seen as a blow to Palestinian aspirations for an independent state encompassing both territories. Washington wants to accelerate contacts between Olmert and Abbas while shunning Hamas economically and diplomatically in Gaza. In his phone call with Bush, Abbas said he "wanted to resume the political process and open political channels," White House spokesman Tony Snow said, confirming an account from an Abbas aide. But he said no timetable for negotiations with Israel had been discussed. Asked whether Bush told Abbas it was time to resume talks with Israel, Snow said: "President Abbas made it clear that it is, and the president said that we will support it." Rice said the Middle East was confronted with a fundamental choice "between violent extremism on the one hand, and tolerance and responsibility on the other." She added: "Now, responsible Palestinians are making their choice, and it is the duty of the international community to support those Palestinians who wish to build a better life and a future of peace." (Additional reporting by Carol Giacomo and Paul Eckert)
