Palestinian President Mahmoud Abbas swore in an emergency government on Sunday in a move that could bolster him in his power struggle with Islamist rivals by unlocking foreign aid in the West Bank.

But in the Gaza Strip, where Hamas Islamists routed Abbas's secular Fatah forces last week, 1.5 million people faced the prospect of greater hardship and isolation, with Israel cutting back fuel supplies and local suppliers saying the coastal enclave may run out of fuel for cars and stoves within two days.

In the West Bank, Abbas named a 13-member cabinet, presented as comprising independent technocrats, that includes a tough-talking ex-guerrilla chief as interior minister.

Security of the citizen is the priority, said Salam Fayyad, the U.S.-trained economist whom Abbas named prime minister in place of Ismail Haniyeh of Hamas.

Abbas signed decrees bypassing constitutional limits on his powers to establish the emergency government and keep it in place without the approval of the Palestinian parliament, which since last year has had a substantial Hamas majority.

Abbas also issued bans on Hamas's armed institutions. Fayyad froze government accounts to prevent Hamas gaining access.

Hamas denounced the naming of the new cabinet as a coup.

Analysts and officials said Hamas had some reason to argue that Abbas was implementing a long prepared, U.S.-backed plan to strip it of power, albeit that the loss of Gaza was a shock.

Abbas adviser and former U.S. consul Edward Abington said Washington had encouraged the president to kick out Hamas for a year, urging him to form an emergency government.

He did not want to get into a confrontation, said Abington. But in the end, he said, it was forced on him.

Today is a new era, a turning point for ending the siege and rebuilding the Palestinian Authority, Abbas spokesman Nabil Abu Rdainah said, referring to the year-old sanctions regime.

The U.S. consul-general who handles relations with the Palestinians has said Washington will lift a ban on direct financial aid to the new emergency government, clearing the way for the European Union and Israel to follow suit.

Western powers imposed the aid embargo after Hamas came to power in March 2006 because the Islamists failed to recognise Israel, renounce violence and accept interim peace deals. Hamas secured alternative support from Israel's arch-foe Iran.

ISRAEL POSITIVE

Israeli Prime Minister Ehud Olmert, in the United States for talks at the White House, said Abbas's move was a breakthrough for peace efforts. This opens opportunities, he said.

The new government cannot be expected to do much in Gaza, now a Hamas fiefdom. But it will try to avert clashes in the West Bank, 45 km (30 miles) away, where Fatah holds sway under Israeli occupation and where Hamas has threatened reprisals.

Hamas has made conciliatory overtures, however. It still refers to Abbas as president, and says it does not want a Hamas mini-state in its 40 km (25 miles) strip of coast.

Haniyeh, who still considers himself prime minister, said again that he could ensure security. He said he hoped BBC correspondent Alan Johnston, believed kidnapped three months ago by al Qaeda-inspired radicals, could be freed soon.

Cut off from the world by Israel in response to attacks by Hamas and other militants, Gaza has been prey to fierce clan and political violence. Gunmen ransacked the offices of the Palestinian Journalists Union on Sunday, stealing equipment.

The U.N. aid chief in Gaza urged rapid delivery of supplies: The situation is very grave, John Ging said.

In misery and poverty you find the seeds of violence.

Police in the enclave, anxious to keep their state salaries, said they had a dilemma: Who is my prime minister? asked one officer, giving his name only as Majed. Hamas wants me to go to work. Fatah says if you do you are fired ... What should I do?

European Union officials said they would continue to make subsistence payments to public employees and pensioners in Gaza.

A feared, wider Palestinian civil war has not come but in a perplexing incident for Israel and Lebanon, two Katyusha rockets hit a northern Israeli town from Lebanon and officials on both sides of the border blamed Palestinian fighters. The motive was unclear. Some 400,000 Palestinians are refugees in Lebanon.

The area saw much of last summer's fighting between Israel and Hezbollah but the Lebanese guerrillas denied responsibility. Israel made clear it wanted no escalation into a new conflict.

(Additional reporting by Adam Entous in Jerusalem, Nidal al-Mughrabi in Gaza and Mohammed Assadi in Ramallah)

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