By Adam Entous

JERUSALEM, May 24 (Reuters) - EU foreign policy chief Javier Solana called the Palestinian unity government non-functional on Thursday, fuelling doubts it would be able to overcome internal fighting and garner international support.

With support from the European Union, Palestinian President Mahmoud Abbas's secular Fatah faction formed the unity government two months ago with ruling Hamas Islamists.

Solana, speaking to Reuters and another news agency after talks with Abbas and Israeli leaders, said he did not know whether the current unity government had reached its "death".

"But what it is is a non-functioning government," he said.

Solana was non-committal about whether the unity government should stay in power or be replaced, but he said the current situation was untenable.

"It's important that a government takes care of the situation in Gaza ... This one or another," he said.

Factional fighting verging on civil war has killed at least 50 Palestinians this month. A new ceasefire between Hamas and Fatah has taken hold but tensions remain high, particularly over Abbas's call for Gaza militants to halt rocket attacks against southern Israeli towns.

Solana said reconciliation between the rivals was possible but may become increasingly difficult because of the intensity of the fighting.

"Of course, the more situations like this happen, the more difficult it is to come back to the table," he said.

Abbas was counting on the EU to step in with vital assistance after the unity government was formed.

But a crippling ban on direct Western assistance to the Palestinian Authority remains in place after Hamas rejected calls to recognise Israel and renounce violence, preventing the government from paying salaries in full to its workers.

Some Fatah leaders have called for the unity government to be disbanded.

Solana said he envisioned no immediate change in EU aid policy. An EU-led programme provides partial payments directly to government workers rather than to the administration itself.

In a move that could bolster the unity government's prospects, the United States has told the EU that donor funds can be channelled through an account run by Finance Minister Salam Fayyad.

"For the moment we have no change in our policy," Solana said, though he suggested some adjustments were possible later.

"We will analyse any situation that may help a better use of the resources that we have, the money that we give," he said. "We have a good relationship with Salam Fayyad, we know him very well, we have worked with him for many years, and we trust him."

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