The scheme aims to release more than $120m of EU funds to support local health services, and cater for the basic needs of poor Palestinians.

But funds will bypass the government, which refuses to recognise Israel.

Many Palestinians have been suffering severe economic hardship following the suspension of international aid.

The EU and US cut off funding after Hamas came to power earlier this year, accusing it of being a terrorist group.

But the aid freeze has prompted fears of a humanitarian crisis.

The US, EU, UN and Russia said in a statement that they endorsed an EU proposal to provide support for local health services, guarantee fuel supplies and provide for the basic needs of poor Palestinians.

But they stressed that the plan was limited in scope and duration.

The Quartet said it hoped that Israel and other international donors would consider participating in the scheme.

'Affront to democracy'

The Hamas-led Palestinian Authority has faced a financial crunch since Western donors cut off funding.

The EU has been the biggest aid donor to the Palestinians, giving some 500 million euros a year.

Under the new plan, the EU was considering an initial 100m euros (£86m), and wanted to have the funding mechanism operating by early July, spokeswoman Emma Udwin said.

But EU leaders have insisted there will be no contact with Hamas unless it renounces violence, recognises Israel and respects existing peace agreements.

The fund for paying the Palestinians will be managed by the World Bank and the EU, working with the office of Palestinian President Mahmoud Abbas, whose Fatah movement is the main political rival of Hamas.

Before the deal was agreed, a Hamas spokesman dismissed the aid scheme as "an affront to democracy" - which would widen the gap between the people and their government.

The Quartet announced the aid fund plan last month, amid a mounting humanitarian crisis in the West Bank and Gaza.

Palestinian hospitals have been struggling to maintain services and families have been selling off their valuables to buy food.

Earlier this month, some Palestinian government workers received some of their salary for the first time in three months.

(BBC)