The United States Thursday denied impeding European efforts to set up a mechanism for sending humanitarian aid to the Palestinians. The State Department said the Hamas-led Palestinian government has only itself to blame for the financial crisis in the West Bank and Gaza.

The Bush administration gave its assent some five weeks ago to a European Union proposal to funnel humanitarian aid into the Palestinian areas while by-passing the Hamas-led government.

But talks on the funding mechanism among the members of the international Middle East Quartet have stalled, amid reports the effort has been stymied by tough U.S. banking regulations barring payments to groups, like Hamas, listed by the United States as terrorist organizations.

At a news briefing, State Department spokesman Sean McCormack denied any effort to obstruct creation of the funding mechanism and said the Bush administration is working in good faith with the European Union on the issue.

But at the same time, he said the U.S. financial rules are in place for a good reason, to choke off the financial lifeline of terrorist groups. He said the fundamental cause of the Palestinian financial crisis is Hamas and its refusal to meet international terms for Middle East peace-making:

"Let' be clear about why the Palestinian people find themselves in this position. It's for one reason. It's because the Hamas-led government refuses to turn away from terror. They refuse to recognize Israel's right to exist. They therefore refuse to be a partner for peace, and the international community, rightly so, has come out and said that's unacceptable," he said.

The New York Times reported Thursday that banks in the Arab world and elsewhere that might deliver aid through the new mechanism are leery about running afoul of U.S. banking rules and being penalized by the Treasury Department.

McCormack said if banks are reluctant to participate, it is because they are making their own independent calculations about the risks of doing business in the area. "If various private international institutions choose not to deal with financial institutions in the Palestinian areas, that is their decision. They are making a judgment about reputational risk. And certainly they are well aware of U.S. laws. But those laws and regulations are there for a good reason," he said.

A senior official who spoke to reporters here said despite the problems, he expects an agreement on terms of the funding mechanism in the coming days.

The plan would then be referred back for approval to the Quartet, which includes Russia and the United Nations in addition to the United States and the European Union.

The Quartet partners cut off direct aid to the Palestinian government after Hamas took power in April and spurned calls that it accept the previous government's peace-making commitments.

The United States has since increased humanitarian aid to the Palestinians through the United Nations and other non-governmental groups. But it has resisted aid plans that would pay salaries of some Palestinian civil servants and by extension ease pressure on Hamas to moderate its policies.