(Adds European official in paragraph 5-6)

By Adam Entous

TEL AVIV, April 26 (Reuters) - European Union aid will bypass the Hamas-led Palestinian government until it recognises Israel, renounces violence and abides by interim peace deals, the EU's aid commissioner said on Thursday.

"As long as these criteria are not fulfilled, there will not be a change in the system, the manner, the process of aid support from the European Union," commissioner Louis Michel told reporters in Tel Aviv.

Palestinians hoped formation of a unity government between Hamas Islamists and President Mahmoud Abbas's secular Fatah faction would prompt the EU and other major donors to lift a year-old economic embargo of the Palestinian Authority.

Prime Minister Ismail Haniyeh of Hamas warned this week that the group would reassess its strategy in one to two months if economic sanctions on the government were not lifted.

The sanctions have prevented the government from paying salaries in full to its workers since March 2006, when Hamas came to power after beating Fatah in parliamentary elections.

A senior European official, speaking on condition of anonymity, said the aid restrictions reflected concerns that Hamas would exert control over government funds despite the appointment of Salam Fayyad as finance minister. Fayyad has good relations with Western powers and is not a member of Hamas.

"It's a question of chain of command," the official said.

Fayyad hopes to start paying partial salaries soon using an outside account under his direct control.

Israeli officials have been pressing the EU to keep the sanctions in place to keep pressure on Hamas to meet the three conditions set by the Quartet of Middle East mediators -- the EU, the United States, Russia and the United Nations.

The Palestinian unity government's programme contains a promise to "respect" previous Israeli-Palestinian pacts but does not call for recognising Israel and says resistance against the Jewish state in "all its forms" is a legitimate right.

After meeting Israeli Foreign Minister Tzipi Livni, Michel said the humanitarian situation in the Gaza Strip and the occupied West Bank had deteriorated "a lot" since the sanctions were put in place a year ago.

To help cushion the economic shock, the EU has been funnelling aid through its so-called Temporary International Mechanism, which bypasses the Palestinian government.

EU officials said they expected the mechanism to provide up to $34 million a month in "allowances" directly to Palestinian government workers, retirees and other poor people in the West Bank and Gaza.

The EU funds would supplement partial salary payments that Fayyad hopes to start making through a Palestine Liberation Organisation account.

The Bush administration is expected to make it easier for money to flow to the PLO account, part of a shifting U.S. strategy aimed at elevating non-Hamas ministers like Fayyad within the unity government.

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