(Adds comments by U.S. national security adviser)

By Adam Entous

JERUSALEM, March 18 (Reuters) - The United States and Israel on Sunday agreed to keep a ban on financial aid to the new Palestinian government, but in a break with the Jewish state, Washington left room for contacts with non-Hamas ministers.

Israeli Prime Minister Ehud Olmert made clear talks on Palestinian statehood with President Mahmoud Abbas of Fatah were not an option at this time and appealed to the international community to shun the government until it recognises Israel and renounces violence.

Israel has vowed to boycott the new government in its entirety, including non-Hamas ministers.

U.S. National Security Adviser Stephen Hadley said Washington would not deal with the Palestinian government, but the U.S. consulate-general in Jerusalem said some contacts with ministers who are not Hamas members would be permitted on a case-by-case basis.

Hadley told CNN that the new government had not undertaken to recognise Israel, abide by existing agreements and renounce violence and that Washington "would only deal with this government when it accepts those principles."

Palestinians hope the partnership between Abbas's secular Fatah faction and Islamist Hamas will stop factional fighting and ease a crippling aid embargo that has increased poverty.

Abbas appointed Hamas's long-time foe, Mohammad Dahlan, to oversee the divided Palestinian security forces.

At the government's first meeting in the Gaza Strip, officials said their goal was to quickly end infighting that has killed more than 300 Palestinians in the past year.

"We know it is a difficult mission," the new Palestinian information minister, Mustafa al-Barghouthi, said.

Micaela Schweitzer-Bluhm, spokeswoman for the U.S. consulate in Jerusalem, said the year-old U.S. ban on direct aid to the Palestinian government would remain in place until it met the principles demanded by the "Quartet" of Middle East mediators.

"This must continue to be the measure for any (financial) support," she said. "There's no change in our assistance policy. But we remain committed to providing assistance to the Palestinian people and we'll continue to do that through the U.N. and other organisations."

Israel has also vowed not to hand over to the unity government tax revenues it has been withholding.

LIMITED CONTACTS

Olmert said contacts with Abbas would be limited to matters related to "the quality of life of the Palestinian population".

"The new government, as it has been declared and presented, limits our ability to conduct a dialogue with ... (Abbas) and narrows the range of issues which we might have been able to discuss in the coming period," he told his cabinet.

He said the new government's platform contained "very problematic elements", an apparent reference to its call for "resistance" against Israel in "all its forms".

While the unity government gives Abbas authority to negotiate with Israel, Hamas would have an effective veto over any deal that emerges, dampening prospects for peace talks, Israeli officials said.

The change in U.S. contact policy will bring Washington in line with Britain and other European powers that have signalled a willingness to hold talks at least with non-Hamas ministers.

Diplomats said the decision would allow contacts with Fatah members and independents in the new cabinet, including Finance Minister Salam Fayyad, a Western-backed reformer.

But an aide to Abbas said that he rejected making distinctions between ministers because of their political affiliation and that all should be treated equally.

"We will continue our policy of not having contacts with members of foreign terrorist organisations," Schweitzer-Bluhm said. The United States considers Hamas a terrorist group.

But she said Washington would not suspend contacts with "individual Palestinians solely based on their participation in the unity government", so long as they are not Hamas members.

"We will make individual decisions based on our evaluation of the situation," Schweitzer-Bluhm said.

Another official said the United States could consider future contacts with non-Hamas ministers as unofficial in nature, and not directly related to the new government. (Additional reporting by Dan Williams in Jerusalem and Nidal al-Mughrabi in Gaza)

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