Israel will give the Palestinians until the end of the year to prove they are willing to negotiate a final peace deal, and will unilaterally set final borders with them by 2008 if they don't, a close associate of Prime Minister Ehud Olmert's said yesterday.

Justice Minister Haim Ramon was the first Israeli official to set a deadline for the Palestinians' Hamas government to renounce violence and recognize the Jewish state.

The Palestinians' moderate president, Mahmoud Abbas, of the rival Fatah party, has tried to persuade Israel to bypass Hamas and talk peace with him, but Olmert has said he wouldn't negotiate with Abbas if Hamas didn't change its violent ways.

Israel yesterday accepted a decision by major Middle East peace brokers to resume some aid payments to the Palestinians a move that could ease intense economic pressure on the Hamas-led government.

New aid scheme for Palestinians

The Quartet of international mediators the United States, Russia, European Union and the United Nations agreed on Tuesday to create the new mechanism for funnelling funds to the Palestinians and will run it for a three-month trial period.

The Hamas-led government said it appreciated the Quartet's efforts to ease the burden on the Palestinian people but said they could have gone further, and in a statement criticized the fact that its own authority was likely to be bypassed.

"We were hoping that their decision could be more positive in dealing with the Palestinian Government since it is an elected government that represents the Palestinian people."

The move follows fears expressed by some Quartet members that more pressure on the Hamas-led administration could cause the Palestinian Government to collapse, unleashing a deeper humanitarian and security crisis in the West Bank and Gaza.

It was not clear how the mechanism yet to be worked out would function, but it was expected to effectively bypass the Hamas-dominated government and channel funds through the office of President Abbas instead.

Israel said the Quartet's move was acceptable as long as Hamas was sidelined.

Russia, the European Union and the United Nations had all put pressure on the United States, which has taken the toughest stand against Hamas, to agree to ease the boycott.

Once the mechanism is worked out it is expected that many salaries to the Palestinian Authority's 165,000 employees, unpaid since March, will be settled.

The EU's proposal to the Quartet focused on support to the health and education sectors, but did not mention security, which employs around 70,000 people and has been an area of particular concern, with violence on the increase.