By Andrew Quinn and Susan Cornwell
WASHINGTON (Reuters) - The Obama administration is lobbying Congress to unblock $200 million in aid for the Palestinian Authority that was frozen due to its bid for U.N. recognition of statehood over U.S. and Israeli objections.
State Department spokeswoman Victoria Nuland said Monday the administration was in "intensive" discussions with key lawmakers who had put holds on the money, a financial lifeline for the fledgling Palestinian government-in-waiting.
"We still have some money in the pipeline but the concern is that if we don't get this going with the Congress in short order there could be an effect on the ground," Nuland told a news briefing.
"There have been some concerns in some parts of Congress and we are trying to work through those," she said.
Lawmakers in both the Senate and the House of Representatives have moved in recent weeks to freeze the flow of aid to the Palestinians that had been appropriated for fiscal year 2011.
Representative Kay Granger, the Republican chairwoman of the House subcommittee that oversees foreign aid, placed her hold in August "until the issue of statehood is resolved" at the United Nations, her spokesman, Matt Leffingwell, said.
"My boss is watching what is happening at the U.N., and constantly reevaluating," he said.
FUNDING THE FUTURE
Palestinian President Mahmoud Abbas last month submitted a formal application to the U.N. Security Council for recognition of Palestinian statehood, ignoring a U.S. threat to veto the measure if it is put to vote.
The United States and Israel both say that Palestinian statehood can come through resuming direct peace negotiations that collapsed a year ago after Israeli Prime Minister Netanyahu refused to extend a limited moratorium on building Jewish settlements in the West Bank.
Abbas has said he will only return to talks with a new settlement freeze, complicating efforts by the "Quartet" of Middle East peace mediators -- the United States, the European Union, the United Nations and Russia -- to get both sides back to the negotiating table quickly.
Nuland said the Obama administration viewed U.S. aid as crucial to preparing Abbas' Palestinian Authority for its eventual role as the government of a Palestinian state.
"We think it is money that is not only in the interest of the Palestinians, it is in U.S. interest and it is also in Israeli interest and we would like to see it go forward," Nuland told a news briefing.
The Palestinian Authority was already in serious financial straits, highlighting the risks of Abbas' campaign to press ahead with the statehood agenda.
Last month, both the International Monetary Fund and the World Bank said financial problems threatened the state-building program that Palestinian Prime Minister Salman Fayyad has overseen for the past two years.
The authority, which now exercises limited self-governance in parts of the Israeli-occupied West Bank, has repeatedly failed to pay salaries to its 150,000 employees on time and in full and remains reliant on foreign aid to fill a deficit projected at $900 million this year.
While Arab countries have made good on some pledges to increase aid and the European Union remains a major donor, a sharp drop in future U.S. funding could spell trouble.
In the U.S. House and Senate, appropriators from both parties already have signaled they may block both economic and security aid for fiscal 2012 if the Palestinians forge ahead with their statehood bid, although these bills have not yet been put to a vote of either chamber.
(Editing by Anthony Boadle)