(Adds Qatar promise to send funds, paragraph 10)

By Alastair Macdonald

RAMALLAH, West Bank, May 1 (Reuters) - Palestinian officials expect to start receiving a major new injection of aid from Saudi Arabia to ease a year-old embargo imposed by Israel and Western powers, Finance Minister Salam Fayyad said on Tuesday.

A package of $250 million of Saudi money -- equivalent to some six weeks of the Palestinian Authority's basic funding needs -- will start arriving soon, Fayyad told Reuters as he lamented delay in resolving technical snags to other aid flows and Israel's refusal to hand over Palestinian taxes it collects.

"I expect they will be disbursing an additional sum, in the amount of $250 million," Fayyad said in an interview, confirming that Arab League states were up to date with monthly payments of $55 million, of which $7.7 million is from Saudi Arabia.

He is trying to persuade government employees, who are owed months of back pay, to accept an offer of half salaries for the time being but union leaders plan further strikes in protest.

Fayyad, a former World Bank economist, was appointed in March among several technocrats and members of the secular Fatah faction brought in to a unity coalition by Prime Minister Ismail Haniyeh, partly in response to the embargo imposed after the election of Haniyeh's Hamas Islamist movement early last year.

Previously finance minister under the late Yasser Arafat, of Fatah, Fayyad visited Washington, Europe and Arab states last month in a bid to persuade aid donors to ease sanctions.

While the Western powers and Israel still refuse to help Hamas as long as it does not renounce violence or recognise Israel, Fayyad won a pledge from the United States to help ease technical difficulties for those donors still making payments.

A key element of this was an assurance from Washington to banks that they would not be penalised for making transfers to an account run by the Palestinian Liberation Organisation, run by Palestinian President Mahmoud Abbas of Fatah.

Fayyad says this will help him keep better track of funds coming in following a year of piecemeal payments, including bags of cash, as Western donors boycotted the Hamas-run Palestinian Authority and other revenues went to various organisations.

DELAY

In Gaza, Haniyeh said Qatar had transferred $22 million to an Arab League account to help pay Palestinian teachers' salaries. It was unclear how the money would be distributed.

Fayyad said that the issue of channelling funds into the PLO account was still unresolved.

"There have been delays. We hope to resolve it," he said of his efforts to end the "fragmentation" of flows into the West Bank and Gaza.

"I thought we would have done it much sooner than this."

Israeli officials had expressed concern during Fayyad's tour that the United States and European Union -- which is sending aid to stave off humanitarian disaster -- might be easing the embargo on Hamas. Fayyad declined to discuss the nature or cause of the delays in setting up payments into the PLO account.

Speaking of "social and economic devastation" over the past year, which has seen brewing violence between rival Palestinian factions among mounting poverty, Fayyad said the government's ultimate goal was an end to the embargo but his immediate concern was simply to manage finances better.

"I'm not pessimistic. We're making progress," he said in his office in the brand new Finance Ministry building in Ramallah.

But he warned that sustainable finances depended on Israel turning over tax revenues it collects on the Authority's behalf and which account for two thirds of its potential income.

He spoke of a "complete breakdown" in the Palestinian administration if the financial crisis did not ease. He said it took him six months in 2002, during his last spell as minister, to negotiate an end to a previous Israeli withholding of taxes:

"I'm not sure anyone has that kind of time. Six months is a very long period of time. It us, under the current conditions, especially so," he said. "Time is not on our side. Time is not on anyone's side, including Israel's." (Additional reporting by Wafa Amr in Ramallah and Nidal al-Mughrabi in Gaza)

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