Some $900 million pledged by the United States to the Palestinians will be withdrawn if the expected Palestinian Authority coalition government between Fatah and Hamas does not recognize Israel's right to exist, Western and Israeli diplomats said Wednesday.

During her visit to the region last week Secretary of State Hillary Clinton warned Palestinian Authority President Mahmoud Abbas against forming a coalition with Hamas that will not meet the expectations of the Quartet.

Clinton told Abbas that Congress will not approve funding of a Palestinian government that does not recognize Israel's right to exist and renounce violence. She added that if those requirements are not met the U.S.-funded program under the supervision of General Keith Dayton training PA security forces would be the first to be axed.

Fatah and Hamas are currently engaged in talks intended to reestablish ties between the Palestinian factions that were severed two years ago when Hamas forcibly took over the Gaza Strip, routing Fatah-backed PA security forces.

Clinton discussed the issue of forming a Palestinian coalition with Fatah representatives, who told her that the new government would consist of non-affiliated officials whose chief task will be to prepare the Palestinian territories for new general elections.

She reportedly told the officials she believed holding new elections was secondary to building the bureaucracy of the Palestinian Authority. The Obama administration is adamant in maintaining the previous U.S. presidential administration's position of boycotting Hamas. Two weeks ago Clinton said lifting the boycott would damage attempts to reach peace in the region.

French Foreign Minister Bernard Kouchner recently supported an initiative aimed at easing sanctions against Hamas. Qatari Prime Minister Hamad bin Jassim bin Jabir al-Thani is also trying to promote dialogue between the West, Arab states and Hamas.

Two weeks ago Clinton met with a number of Arab foreign ministers at the conference held at Sharm el-Sheikh aimed at raising donations for the rehabilitation of the Gaza Strip, whose infrastructure was badly damaged during Israel's operation there earlier this year. Talks between the U.S. diplomat and her Arab counterparts focused on means of distributing money to Palestinians in Gaza.

During negotiations Clinton insisted that the money be placed solely under the Palestinian Authority's supervision and strongly rejected offers by Arab states that they assume responsibility for distribution of the funds. In total, a record $4.4 billion was raised at Sharm, with Saudi Arabia making the largest single donation of $1 billion. The donations greatly exceeded the PA's expectations of raising $2.5 billion total. Egyptian Foreign Minister Ahmed Aboul Gheit said the total figure comes to $5.2 billion.