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By Sue Pleming

WASHINGTON, April 17 (Reuters) - U.S. Secretary of State Condoleezza Rice met Palestinian Finance Minister Salam Fayyad in his "private capacity" on Tuesday, the State Department said, in a sign of U.S. flexibility in dealing with non-Hamas ministers of the unity government.

State Department spokesman Kurtis Cooper said Rice had dropped in on a meeting the pro-Western finance minister was having with David Welch, the State Department's point person on Israeli-Palestinian issues.

"He (Fayyad) was there in his private capacity," said Cooper, and not as a member of the unity government.

"They discussed some of the issues that Fayyad is undertaking," he added, refusing to disclose further details of the discussions at the State Department.

Fayyad began a tour last week to drum up aid for the Palestinian Authority. He has said the unity government needs $1.35 billion in international aid this year to avert a crisis and that banking restrictions on the authority remain the biggest hindrance to his ministry carrying out its role.

The United States and other members of the so-called Quartet of Middle East peace makers have imposed an aid embargo on any Hamas government until it recognizes Israel, renounces violence and signs on to past Israeli-Palestinian agreements.

The United States and Israel have also ruled out dealing with a Palestinian government that includes Hamas, which they consider a terrorist group. But the Bush administration has said it will meet non-Hamas members in their personal capacity if needed.

Last month, Welch met Fayyad before Rice visited Ramallah and the finance minister has also met senior U.S. Embassy officials in Israel.

Washington is working hard to support Palestinian President Mahmoud Abbas, a moderate who formed a unity administration with Hamas. Last week the U.S. Congress removed any obstacles holding up the Bush administration's plan to pump $60 million into bolstering Abbas's presidential guard and for other security expenses.

Rice has taken a more active role in recent months in trying to break the deadlock between the Israelis and the Palestinians and officials say she plans to visit the region at least once a month to try and push the peace process forward.

Fayyad has been in Washington in recent days to attend the spring sessions of the World Bank and the International Monetary Fund.

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