JERUSALEM - The United States made its first contact with the new Hamas- Fatah coalition Tuesday, ending a yearlong diplomatic boycott of the Palestinian government.

US Secretary of State Condoleezza Rice, right, waves as she arrives accompanied by Palestinian Finance Minister Salam Fayyad at the Palestinian Authority headquarters for a meeting with Palestinian President Mahmoud Abbas in the West Bank town of Ramallah in this file photo taken Monday, Nov. 14, 2005. [AP]

The meeting between a US diplomat and the Palestinian finance minister signaled a break in policy between Israel and its closest ally, and could mark a significant step toward ending a painful aid cutoff to the Palestinian government.

Jacob Walles, the US consul in Jerusalem, set the precedent with a six-mile drive to the West Bank city of Ramallah, where he met Palestinian Finance Minister Salam Fayyad, an internationally respected economist and political independent. It was the first official US meeting with a Palestinian Cabinet minister in a year.

"This meeting was part of my contacts with the international community," Fayyad told The Associated Press. Fayyad, a former World Bank official, has been leading Palestinian efforts to end international sanctions, imposed a year ago when Hamas won an election and set up a government. The US, European Union and Israel label Hamas a terror group and ban contact with it.

Hamas still holds the most seats in the Palestinian Cabinet, including the post of prime minister. But the addition of prominent figures like Fayyad to the team has brought into question the concept of boycotting the whole Cabinet, as Israel is doing.

In Washington, State Department spokesman Sean McCormack said the meeting is in accordance with US policy. "We weren't going to cut off contacts with those individuals with whom we had previously had contact," he said. "I know the Israeli government has a different view in this regard."

Israel itself often sent officials to meet Fayyad when he served as finance minister in a Fatah-led Cabinet. Israel and the West have maintained constant contact with President Mahmoud Abbas of Fatah - a moderate elected separately from the Hamas-dominated parliament.

But Israel has been adamant about imposing a total ban on the new unity government. Israeli Prime Minister Ehud Olmert even ruled out peace talks with Abbas, saying contacts would be limited to humanitarian issues, and Israel has been urging the US and Europe to keep up the diplomatic and aid ban.

The response has been lukewarm. US officials said they would meet individually with non-Hamas officials, and Tuesday's meeting between Walles and Fayyad signaled the diplomatic boycott has ended.

No details about the talks were immediately available.

However, in recent days Palestinian officials said Fayyad would be seeking to persuade US officials to stop pressuring banks to refrain from transferring money to the Palestinian government. Foreign banks, especially from Arab countries, stopped such transfers after Hamas' election victory last year, fearing they would run afoul of US anti-terrorism laws.

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