Senior Israeli officials said Monday they were "concerned" at the prospect that the US may approve funding for a Palestinian Authority government that includes Hamas.

The concern arose after it became known that the Obama administration had asked Congress for minor changes in US law that would allow the continued provision of funds to the PA even if Hamas officials became part of a Palestinian unity government.

The Jerusalem Post has learned from a highly placed source that Israeli officials are very troubled by the possibility of US funds going to a government that includes Hamas.

"Israel would be very concerned about any international funding that reaches Hamas," a senior government official said on condition of anonymity.

Israel believes that a Fatah-Hamas unity government would be harmful first and foremost to the PA's current leadership. Officials also believe that Egypt, which is hosting unity talks between the two Palestinian factions, is making a mistake in trying to achieve a unity government. Such a government won't bring the Fatah-controlled PA to Gaza, but rather Hamas rule to the West Bank, officials say.

The Post reported Sunday that some congressional supporters of Israel were dismayed by the move, quoting Rep. Mark Steven Kirk (R-Illinois) as telling US Secretary of State Hillary Clinton at a House hearing last week that it was akin to agreeing to support a government that "only has a few Nazis in it."

"You're going to lose this battle," Kirk warned the administration in a conversation with the Post Monday. He noted that key Democrats on the House of Representatives Appropriations Committee were also concerned about the changes the administration would like to see.

The Obama administration requested the changes this month as part of an $83.4 billion emergency spending bill that also includes funding for the wars in Iraq and Afghanistan. The bill would provide $840 million for the PA and for rebuilding Gaza post-Operation Cast Lead, but the administration is trying to work out how to deliver the aid to Gaza in light of federal restrictions on dealing with Hamas.

US officials claimed that the new proposal didn't constitute recognition of Hamas or aiding to the group. Under law, any US aid would require that the PA government recognize Israel, renounce violence and agree to abide by past Israeli-Palestinian agreements.

Even if Hamas doesn't meet those criteria, the Obama administration wants to be able to provide aid to a Palestinian unity government, if one is established, as long as the government as a whole - including its Hamas-backed ministers - does.

Last week, speaking to the Appropriations Committee, Clinton indicated that the US would not necessarily cut funding to the Palestinians even if Hamas joined a unity government and failed to meet the three conditions, noting that the US continued to provide funds to Lebanon, whose government included Hizbullah.

"We are doing that because we think, on balance, it is in the interest of the United States," she said.

Clinton said that the US did not want to "bind our hands" in the event that a Hamas-Fatah unity agreement was reached, as long as "the government that they are part of agrees to our principles."

Capitol Hill sources are predicting a tough fight over the provision. In the end, they say, Congress could likely adopt vague language that would provide the administration more wiggle-room in dealing with the Palestinians, but not go as far as the current proposal.

Nita Lowey (D-New York), who chairs the foreign operations appropriations subcommittee, questioned Clinton about the authority she was seeking. Lowey just oversaw the passage of legislation - the 2009 budget - which stipulates that Hamas as a whole would have to embrace the Quartet principles before aid could go to a government it joined. The new formulation, which is part of the 2009 supplemental budget request, would weaken that requirement.

An aide to Lowey told the Post Monday she would continue to hold conversations with the administration and her colleagues over what formulation might be acceptable to "prevent terrorist organizations from [receiving money] while not binding the administration's hands as they try to forge a peace."

The administration has pointed to the benefits of greater flexibility for engaging with the Palestinians and encouraging a unity government to embrace the Quartet principles.

Analysts also say that because a PA unity government is unlikely to be formed - and even more unlikely to include an endorsement of the Quartet principles - the Obama administration sees such latitude as a means of sending the message that it's open to new possibilities without much risk that such new possibilities will materialize.

At the same time, many Washington pro-Israel groups are concerned that the message prioritizes forming a national unity government over the risks represented in including Hamas in any process, and are looking to Congress to keep the current limitation in place. One Jewish official tracking the issue said that for now, though, many of these organizations were taking a low profile because they didn't want to create waves with the Obama administration so early on over an issue that was still hypothetical.

However, Shoshana Bryen of the hawkish Jewish Institute of National Security Affairs had no reservations about stating that "you would be hard-pressed to find anybody who is concerned about the security of Israel who thinks that funding the Palestinian Authority in a way that almost assures money will end up in the hands of Hamas is a good idea."

She warned that the administration's formulation could allow weapons as well as money to get to the terrorist group.

Some more dovish Jewish groups, however, say that the strict limitation on the funding only came into place in the recent budget and that flexibility for the US is important to pursue peace efforts.

"Palestinian reconciliation is one important step that could make ending the Israeli-Palestinian conflict diplomatically more likely - and American Jews and Israelis understand that," the J Street lobby said in a statement Monday. "The president's request attempts to open a small window to such reconciliation. We urge Congress - for Israel and America's sake - to join the president in this effort as well."

Ori Nir of Americans for Peace Now said that "this kind of rational approach toward Palestinian governance and Hamas partaking in it is long overdue."

Another concern raised in Israel is that a perceived US promise to fund a government that includes Hamas would undermine Fatah and legitimize the Islamist terrorist group without requiring that it abandon its goal of destroying Israel and join the peace process.