By Wafa Amr

RAMALLAH, West Bank, April 19 (Reuters) - Palestinian Finance Minister Salam Fayyad said on Thursday progress was being made on easing U.S. banking restrictions that have crippled the cashed-strapped Palestinian Authority.

Fayyad also said talks with European and U.S. officials had advanced on receiving foreign aid directly to a Palestinian account that would bypass the banking restrictions.

Fayyad said he would use the money to cover the expenditure of the Palestinian Authority, including salaries of government workers.

"We are making progress in receiving aid directly to an account that will be exempt from banking restrictions and would be able to manage our funds in a transparent way," Fayyad told Reuters.

Fayyad, speaking by telephone from Jordan at the end of a tour of Europe and the United States, said the banking restrictions were not being lifted yet.

"But I believe the banking restrictions problem is on its way to resolution," he said.

The United States held out the possibility on Wednesday of easing the flow of money to the Palestine Liberation Organisation (PLO), but said it had no plans to lift sanctions against the Hamas-led Palestinian government.

There was no immediate comment from Washington on Fayyad's remarks.

A senior aide to Palestinian President Mahmoud Abbas said Fayyad has proposed to the United States a mechanism that would allow the flow of Arab and foreign aid directly to a PLO fund.

The fund is directly controlled by Fayyad, who has good relations with the U.S. government and other Western powers.

The Abbas aide said: "We expect the U.S. to announce its approval to issue a licence for banks to deal with that particular PLO account ... to help him run the financial affairs of the Palestinian Authority."

"We do not expect the U.S. banking restrictions to be lifted immediately but we are getting there," the aide said. "The money will start to flow."

The PLO, which has signed interim peace deals with Israel and is led by moderate Abbas, has not been under U.S. restrictions since Hamas came to power in March 2006, but banks have been wary of conducting transactions fearing legal and regulatory problems.

Due to the restrictions on bank transactions, donors have been forced to send funds to Abbas's office.

Abbas has used a large portion of those funds to make partial payment to Palestinian workers who have not received their full wages from the government in over a year.

Israeli officials are pressing Washington to keep the banking sanctions in place to pressure Hamas.

Hamas established a unity government with the secular Fatah faction last month but did not meet Quartet demands to recognise Israel, renounce violence and accept past interim peace deals.

Allowing Fayyad to receive funds to pay salaries would mark a change in U.S. policy.

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