The UK is to increase support to the Palestinian Authority, the secretary of state for international development Douglas Alexander announced today.
The move makes the UK one of the first countries to resume direct financial assistance to the Palestinian Authority.
Strictly controlled funding worth £3 million will be used to pay off the authority's debts to the private sector.
Mr Alexander said: "The recent conflict in Gaza has compounded the hardships faced by the millions of ordinary Palestinians in trying to live normal lives. People in Gaza need humanitarian supplies, but they also need to be able to go to work and earn money to put food on the table.
"Helping the Palestinian Authority to pay its debts increases Palestinian companies' ability to continue trading, and so to invest and employ more people. This will boost the economy, and demonstrates our clear support for the new government."
The reinstatement of aid follows Hamas' takeover of Gaza last month, after which president Mahmous Abbas formed a new emergency government.
Israel has been withholding customs revenues worth £30 million owed to the Palestinian Authority since the election of Hamas in 2006.
It has also increased restrictions on the move of goods and people with the effect that the Palestinian economy slumped ten per cent in 2006 and the Palestinian Authority is now bankrupt.
With the Authority unable to pay salaries and debts of £225 million for goods and services, firms across Gaza and the West Bank have gone unpaid.
Mr Alexander said £3 million from the UK would reinvigorate the private sector.
All funds will be channelled through the Palestinian Ministry of Finance and an international accounting firm will ensure money is only used for its proper purpose.
The UK is one of the first countries to resume direct financial assistance to the Palestinian Authority and Mr Alexander called on other countries to follow suit.
He explained the new government needs international help to support the Palestinian people.
Mr Alexander added: "The UK is working with President Abbas and Prime Minister Fayyad as they seek to make the Palestinian Authority more responsive to the urgent needs of all Palestinians.
"But ultimately the only way to guarantee the long term welfare of the people is for all sides to give up violence and work towards a two state solution."
The UK and EU did not stop giving aid to the Palestinian people after the election of Hamas, but channelled this indirectly through NGOs and UN organisations.
The international community refuses to recognises Hamas, which itself does not recognise the three principles of the Middle East Quartet, namely to renounce violence, recognise the state of Israel and accept past agreements.
Foreign Secretary David Miliband was forced to acknowledge the role of Hamas leaders in securing the release of kidnapped BBC correspondent Alan Johnston last month.