The Palestinian leadership is maneuvering to appoint technocrats to the planned national unity government to ensure that international funding continues, despite a ban on funneling money to Hamas as a recognized terrorist organization.

Meeting in Cairo on Wednesday, the two sides signed an agreement ending a four-year rift between the West Bank Fatah government and the Gaza Strip’s Hamas, an Islamic group sworn to the destruction of Israel. The Egyptian-brokered agreement for will reform the Palestine Liberation Organization (PLO), create an interim government in the West Bank and Gaza Strip and prepare for elections next year.

Western donor nations contribute the bulk of the $1.4 billion in annual aid to the Palestinian Authority, which since 2007 has been under the control of Fatah. But the aid, which constitutes nearly a half of its entire budget, may be in jeopardy with Hamas in the government.

Palestinian Authority (PA) spokesman Ghassan Khatib said the national unity agreement was formulated in a way to avoid any ban because the cabinet will be contain “independent, non-partisan ministers” rather than political figures belonging to any of the political factions.

"This doesn't apply on this new Palestinian government, because this new interim government will … not include members whom are affiliated neither to Fatah nor to Hamas,” Khatib told The Media Line. “It will carry the same political platform of the PLO and the President and the current government. So these fears do not apply for this interim government."

Israel, which has worked hard to see the world recognize Hamas as a terrorist organization for carrying out suicide bombings and rocket attacks from Gaza into Israel, is adamant that the inclusion of Hamas renders the new Palestinian government ineligible for international support. Earlier this week, Finance Minister Yuval Steinitz said he was freezing the transfer of some $88 million in tax money to the PA.

The PA, which counts on getting as much as $1.4 billion in 2011, through Israeli tax transfer said it would not be able to meet salaries and other expenses as a result.

Israeli Prime Minister Binyamin Netanyahu, who was to meet with his British counterpart David Cameron on Wednesday, warned that including Hamas in any Palestinian government would kill prospects for peace negotiations.

"The agreement between the PA and Hamas is a hard blow to the peace process," Netanyahu was quoted as saying Tuesday. “How is it possible to achieve peace with a government, half of which calls for the destruction of the State of Israel and even praises Osama bin Laden?"

U.S. Secretary of State Hillary Clinton reportedly telephoned PA President Mahmoud ‘Abbas to assure him the American aid would continue. Later, the State Department balked on making any clear statement on the possibility, with spokesman Mark Toner saying they were waiting to see the details of the reconciliation agreement.

“Both U.S. assistance and other assistance to the Palestinian Authority has been important in helping them build the kind of democratic institutions that lead to an eventual statehood,” Toner told reporters.

While the Obama administration took up a wait-and-see approach, Republican legislators said funding to the PA was at risk if Hamas joined a unity government. Foreign Relations Committee Chairwoman Ileana Ros-Lehtinen, a Florida Republican, warned the Palestinians that they could lose aid as soon as the deal was announced.

The Appropriations Subcommittee chairwoman, Texas Republican Kay Granger and ranking Democrat Nita Lowey of New York sent ‘Abbas a letter reminding him that U.S. law “prohibits aid to Hamas, Hamas-controlled areas, and any power-sharing government that includes Hamas” unless they accept the conditions set by the Quartet, which include recognizing Israel’s right to exist, renouncing violence and abiding by previous diplomatic agreements with Israel.

Hamas has rejected these conditions, but according to the agreement it appears to have agreed to the bulk of them, including a willingness to leave the peace negotiations in the hands of ‘Abbas as head of the PLO.

“Hamas has come to the political platform of Fatah regarding the Arab-Israeli conflict in general and Palestinian conflict in particular,” Ayman Shaheen, a political scientist at Al Azhar University in Gaza. “Hamas actually conceded or gave many political concessions regarding the political process and the political reconciliation toward Israel.”

According to Shaheen, there was little difference between the agreement signed now and the one initially offered by Fatah back in October last year. Hamas was likely motivated to bend its principles out of concern about the impact of Arab Spring unrest, which is threatening the rule of Syrian President Bashar Al-Assad, a key Hamas backer.

“The change in the region, in Egypt and in Syria and other Arab states, affected and had an impact on Hamas’ mentality and Hamas’ political stand,” Shaheen said.

Nevertheless, Shaheen said, the announcement of a unity agreement, which had been in the works for years, had taken him and others by surprise.

“People here are waiting to see something practical develop on the ground. If they will see something practical, particularly in Gaza, they will believe that reconciliation is going on. If things remain as they were before then people will not believe it or any hope of such reconciliation.”

In the streets, Palestinians were mostly optimistic. Palestinians have staged only small demonstrations amid the turmoil sweeping the Middle East and these weren’t calling for overthrowing any regimes, but rather for a national reconciliation.

“If they will be together it will be better for the Palestinian people,” Fayek Nashashibi, a prominent Palestinian businessman, told The Media Line. “We want the Palestinians to be united together. I know it will be difficult, but it will be good to show the whole world that there is one Palestinian people, not two.”

But in east Jerusalem, a Palestinian man speaking at an informal parliament of vegetable merchants, dishing out opinion and drawing a crowd of onlookers who appeared to agree with his dismissal of the whole reconciliation deal.

“This is all a bluff. There is no way in the world that the radical, Islamist ideology of Hamas could ever jell with Fatah’s secular pragmatism,” the man, who declined to identity himself, said to the nods of the passersby. “Reconciliation will never work.”

But Elias Dades, a restaurateur, didn’t agree.

“I was surprised, but with time I think it will be good,” Dades said. “There are changes in the Arab world and that is why I am thinking that what they are doing now is for the best.”