RAMALLAH, West Bank, May 6 (Reuters) - Palestinian Finance Minister Salam Fayyad said he made partial payments to Palestinian workers for the first time on Sunday, seeking to sidestep a year-old Western embargo of the Hamas-led government.

The union that represents government workers has brushed aside the partial payments as insufficient and has threatened to call an open-ended strike to demand full salaries plus back pay.

In addition to the money from Fayyad, government workers received "allowances" from a European Union aid programme. Together, the payments totalled about half normal wages.

"Until the financial horizon becomes clear, we're going to pay around half salaries to everyone. We started today," Fayyad told Reuters.

It was not immediately clear how his payments were made.

A senior Palestinian bank executive said Fayyad used an account he controls at the Palestine Liberation Organisation (PLO) to make the partial payments, though that could not be immediately confirmed.

Fayyad had asked the Bush administration to give a green light to donor nations and banks to use the PLO account, allowing him to bypass a ban on bank transfers to the Palestinian unity government.

The Bush administration has yet to publicly issue any formal decision on the PLO account.

The PLO, which has signed interim peace deals with Israel and is led by President Mahmoud Abbas, has not been subjected to U.S. financial restrictions imposed when Hamas won elections last year. But the Bush administration said banks were still reluctant to deal with the PLO, prompting Fayyad's request.

Western diplomat said Abbas's office may have transferred donor funds to the PLO account to allow Fayyad to make the partial payments. It is unclear whether the PLO account received any money from donors directly.

A large part of Sunday's partial payments came from the EU-led Temporary International Mechanism (TIM), which paid "allowances" totalling about $370 each to all eligible Palestinian government workers and pensioners.

A senior EU official said the mechanism's payments totalled about $28.57 million, equivalent to about a quarter of the Palestinian Authority's monthly wage bill of $115 million.

Government workers have gone without full wages since Hamas Islamists came to power in March 2006. Some payments have been made in the past through Abbas's office but only sporadically.

Palestinian officials said coordinating payments from Fayyad and the EU could ensure more regular payments to workers, and help ease political pressure on Fayyad and the unity government which Hamas formed in March with Abbas's secular Fatah faction.

Despite the power-sharing deal, tensions between Hamas and Fatah remain high and the year-old ban on direct Western aid to the Palestinian Authority remains in place.

AlertNet news is provided by