(Adds Palestinian officials, paragraph 2)

By Adam Entous

JERUSALEM, June 15 (Reuters) - The United States, Israel and European states are prepared to ease a ban on aid to the Palestinian government that President Mahmoud Abbas is forming in the West Bank after sacking Hamas, officials said on Friday.

Palestinian officials said they were informed by the Bush administration that it would lift aid restrictions, first imposed on the Palestinian Authority when Hamas came to power in March 2006, once Abbas's emergency government was in place in the occupied West Bank.

Western and Israeli officials said the goal would be to strengthen Abbas, his secular Fatah faction and other "moderates" in the West Bank, while isolating Hamas Islamists who seized control of the Gaza Strip in fierce fighting.

Abbas ordered the Hamas-led government disbanded on Thursday after the Islamist group's bloody takeover of the Gaza Strip. Hamas said Abbas's order amounted to a coup and that Prime Minister Ismail Haniyeh, a Hamas leader, remained in power.

Senior Israeli and Western officials said Prime Minister Ehud Olmert and U.S. President George W. Bush would discuss at a meeting next week a series of "gestures" they planned to make, including the release to Abbas of a portion of the Palestinian Authority's tax revenues being withheld by Israel.

An official in Olmert's office said Abbas's dismissal of the Hamas-led government cleared the way for Olmert to "cooperate with the moderates, headed by Abu Mazen (Abbas), in both the security and the financial spheres".

Israeli officials estimated that $300 million to $400 million in Palestinian tax revenues could be transferred, short of the $700 million sought by Abbas. Israeli officials say the rest of the money has been frozen by court order.

European diplomats said some European Union member states were prepared to steer funds to Abbas in coordination with Washington, though it was unclear how much and how soon. "Abu Mazen has strongly requested that we support him fully," one EU diplomat said, adding that the request was viewed favourably.

An economic and diplomatic embargo of the Hamas administration in Gaza would remain in place and would be tightened in some areas, particularly along the Egyptian border.

Officials said the U.S. strategy was based on the premise that strengthening Abbas, and reviving the peace process through him in the West Bank, would serve to marginalise Hamas and increase Fatah's chances of winning any future elections.

Western donors led by the United States cut off direct financial aid to the Palestinian Authority in March 2006 after Hamas defeated Abbas's Fatah faction in parliamentary elections.

Coupled with Israel's withholding of tax revenues that it collects on the Palestinians' behalf -- the Authority's main domestic source of funding -- the sanctions have pushed the Hamas-led government to the brink of financial collapse.

BUILDING UP ABBAS

A senior Israeli official involved in the funding issue said Israel would go along with U.S. efforts to "throw full-fledged support behind (Abbas) and build him up in the West Bank".

In addition to handing over tax funds to Abbas, Washington wants Israel to remove several checkpoints and roadblocks that restrict travel within the West Bank.

David Makovsky of the Washington Institute for Near East Policy said resuming aid would show Palestinians "there's a real contrast between the way Hamas rules in Gaza and Abbas's rules in the West Bank. Let them see that moderation pays".

But some Israeli officials said they were sceptical about a new peace push while Gaza was in Hamas's hands. "There won't be any political progress in the West Bank alone. The Palestinians see themselves as one nation," the senior Israeli official said.

Israeli and Western officials said they could turn on the financial taps rapidly because Washington has given a green light for donors to send funds to a Palestine Liberation Organisation account controlled by Salam Fayyad, who was appointed prime minister in the emergency government.

A senior Western diplomat said the biggest question was whether Abbas's emergency government would send money to the Gaza Strip to pay for salaries and other expenses. (Additional reporting by Wafa Amr in Ramallah)

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