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Interview: Israeli embargo impoverishes Palestinians - UNRWA

By Alistair Lyon, Special Correspondent

JERUSALEM, March 23 (Reuters) - Conditions for Palestinians in the occupied West Bank and Gaza Strip will worsen further unless Israel lifts an economic embargo and lets people and goods move more freely, a senior U.N. official said on Friday.

Karen Koning AbuZayd, head of the U.N. Relief and Works Agency for Palestine Refugees (UNRWA), told Reuters donors had poured in more money last year than ever before "but that's because we've made everybody aid-dependant".

"Everybody is just in bad shape now with the whole economy going down so badly. They just don't have any opportunities," she said at her office in Jerusalem, citing high unemployment and shortfalls in wage payments over the past year.

"We're handing out food to most of the refugees in Gaza and a good proportion of those in the West Bank, and the (U.N.) World Food Programme is feeding the non-refugees."

Israel says its curbs, which include withholding most Palestinian tax revenue since Hamas Islamists came to power after 2006 elections, are a response to attacks on Israelis.

Some foreign donors who halted direct aid to the Hamas-led government over its refusal to recognise Israel, renounce violence and accept existing agreements have eased a diplomatic boycott since Hamas formed a unity cabinet with President Mahmoud Abbas's more moderate Fatah faction on March 17.

"Israel is still saying no to paying the tax bill and giving the Palestinians the money that's theirs," AbuZayd said.

She noted some recent improvement in allowing businessmen in and out of the Gaza Strip but said "things really won't work" unless Israel relaxed restrictions on the Karni and Erez crossings into Gaza and on the Rafah border terminal with Egypt.

AID FLOWS, ECONOMY CRUMBLES

Despite the direct aid embargo, the United Nations says about $1.2 billion in foreign aid reached the Palestinians last year, up from $1 billion in 2005. Nonetheless, the Palestinian economy contracted nearly 10 percent and poverty rates rose.

AbuZayd said she hoped next week's Arab summit would produce an agreed peace proposal which the international community could use to encourage renewed Israeli-Palestinian negotiations.

"One of our messages...is to encourage people from each side to see the other as a partner and to get active at the negotiating table," she said. "We say that from a humanitarian point of view because we just see things getting worse."

UNRWA's 27,000 staff provide education, health care, social services and emergency aid to over 4.3 million refugees in the Gaza Strip, the West Bank, Jordan, Lebanon and Syria.

AbuZayd, a U.S. national, said discussions were under way on the sensitive matter of how UNRWA could sustain the expanding refugee population with no political solution in sight.

"It's an issue and it's something we are now having to talk seriously about with our donors, because it is 58 years and every year there are more refugees, which means we need more money, more schools, more teachers and so on," she said.

Like refugees elsewhere in the world, Palestinian refugees and their descendants retain their status "until they can go home, go somewhere else or settle where they are", she said.

UNRWA, set up to care for refugees after the 1948 war which displaced hundreds of thousands of Palestinians, has appealed for a record $246 million in emergency aid this year.