Iran is to give $50m to the Palestinian Authority to help fill gaps left by cuts in financial assistance from western countries.

The donation is intended to help make up the shortfall left by the cut-off in aid by the United States and the European Union.

Israel has also frozen the transfer of about $50m a month in tax and customs receipts to the Hamas-led administration.

Washington and the EU suspended aid to the Authority because Hamas refused to accede to a demand that it recognise Israel, renounce violence and abide by interim peace agreements.

The Palestinian economy which has been crippled by the conflict with Israel is now dependent on foreign aid.

US and Israeli officials are concerned that Tehran will gain influence over the Hamas-led government and make it harder to reach a Middle East peace settlement.