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Canada has become the first country after Israel to cut off aid and diplomatic ties with the Palestinian Authority since Hamas, a group that Ottawa considers a terrorist organization, won the legislative election in January.

The decision garnered praise from pro-Israeli organizations, but condemnation from an Arab group spokesman who said it will hurt Canada's ability to press a resolution to the long-standing and bloody dispute in the Middle East.

It comes after weeks of suggestions by the new Conservative government that Hamas would have to change its direction for further assistance to continue.

"This is very much in keeping with what we've consistently said: that we would require an incoming government to, basically, respect existing agreements to follow the road map to recognize Israel as a state and to renounce all violence," Foreign Affairs Minister Peter MacKay said yesterday.

"To date, that has not happened. So, as a result, there will be no direct or indirect funding to the Palestinian Authority."

The announcement will mean the suspension of $7.3-million in aid.

That aid would have helped the Palestinian government replace housing, refurbish and manage an industrial park in Ramallah, and convene an international meeting of justice ministers. In addition, several other projects have come to an end and are not being extended or renewed.

Mr. MacKay said the move to end financial assistance to the Hamas-led government does not mean that the Palestinian people would be neglected.

Canada spends roughly $25-million a year on development initiatives in the West Bank and Gaza and Mr. MacKay said some of those funds will continue to support humanitarian needs in the territory.

"We do intend to continue, to the best degree possible, to directly fund the Palestinian people through humanitarian aid and that is more so under the auspices of CIDA [Canadian International Development Agency]," he told reporters.

Canada's official dealings with the Palestinian Authority have been through the office of president Mahmoud Abbas, whose own political organization, Fatah, lost control of the legislative branch in the January election. Mr. MacKay said that line of communication will continue.

"We consider him to be a positive influence in the Palestinian government," he said.

The United States has unofficially cut funding to the Palestinian Authority since Hamas took office.

Frank Dimant, the Canadian vice-president of B'nai Brith, said the decision means that Canada has stood to its principles by refusing to do business with a terrorist entity whose avowed aim continues to be the destruction of the Jewish State.

But Hussein Amery, the president of the National Council on Canada-Arab Relations, said it would have been much more productive to promote the peace process rather than cutting what is a small amount of money in the Canadian context.

"It's disappointing that Canada has chosen to be the first of the international actors to suspend aid to the Palestinian Authority," Mr. Amery said. "It's also a bit perplexing and concerning that the government can so easily distinguish between humanitarian assistance and development assistances which may or may not benefit the Palestinian Authority."

The housing-project money would have repaired homes damaged by the Israeli army in the Gaza Strip, and the industrial park funds would have helped offset unemployment and promote the establishment of businesses, he said.

"Obviously, these are the kinds of projects that were targeted at benefiting the people as a whole," Mr. Amery said.

"It has jeopardized our position as an honest broker. And we were seen by both Palestinians and Israelis as the last honest broker. So now we're left to wonder who is going to play that role since Canada has clearly marked out its position here, ahead of even the United States."

While communication with Palestinian officials has been suspended, Prime Minster Stephen Harper took time yesterday to call newly elected Israeli Prime Minister Ehud Olmert, who has promised to set Israel's borders with Palestine by 2010 -- with or without Palestinian agreement.

"I spoke earlier today with Ehud Olmert to offer my congratulations on the victory of his Kadima party in yesterday's elections in Israel," Mr. Harper said in a statement.

"Canada and Israel enjoy solid bilateral relations and Mr. Olmert and I agreed to work together at expanding them even more. Canada remains a staunch supporter of peace in the Middle East and we will continue to work with Mr. Olmert and President Mahmoud Abbas to reach that goal."

Both the New Democrats and the Liberals said yesterday that, rather than simply cutting $7.3-million in assistance to the Palestinian Authority, those funds should be redirected to humanitarian assistance in Palestinian territories.

"The government should, right away, commit itself to maintaining the $52-million in help," Stéphane Dion, the Liberal foreign affairs critic, said.

"The social problems [in the territories] are awful and, in fact, Canada should do more not less. So to cut $7-million would be a mistake."