Washington ? The Bush administration promised direct financial aid Monday to a new West Bank-based Palestinian government that is amenable to peace with Israel, while offering indirect humanitarian aid for Palestinians in Gaza following the territory’s takeover by the militant Hamas organization.

As the White House confronts a worsening schism among warring Palestinian factions, perhaps the most critical and elusive challenge lies in bringing about the reunification of a Palestinian Authority committed to the president’s long-stated goal of two nations living in peace, a task for which the administration acknowledged it has no “magic wand.”

Five years to the week after President Bush articulated a goal of a “two-state solution” for Israelis and Palestinians, the hostile takeover of Gaza by Hamas, which the White House calls a terrorist organization and which rejects Israel’s right to exist, poses the toughest obstacle yet.

Following a tumultuous weekend in which Palestinian President Mahmoud Abbas moved to establish a new government in the West Bank, the White House acted to bolster Abbas, with Secretary of State Condoleezza Rice announcing the U.S. will release up to $86 million in aid to the Palestinian Authority that had been frozen after Hamas gained control of the Palestinian parliament in elections last year.

Bush also telephoned Abbas to pledge U.S. support for his Fatah party’s new government.

At the same time, Rice announced that the U.S. would steer $40 million in humanitarian aid to Palestinians in Gaza through a United Nations relief agency, in a bid to prevent roughly 1.5 million Palestinians living there from becoming victims of the political turmoil and sinking even further into destitution.

“We are at a critical juncture for the Israeli and Palestinian peoples, one at which the choices are ever more clear,” Rice said Monday. “We must take hold of this moment to make new progress toward the vision that President Bush laid out five years ago this week: Two states, Israel and Palestine, living side by side in peace and security.”

The European Union, traditionally the largest donor to the Palestinian Authority, also announced Monday that the 27-nation bloc would resume direct financial aid to Abbas’ government. The money, hundreds of millions of dollars, will be used to pay civil servants’ salaries, and the new government also wants to pay them in Gaza.

The maneuvering came on the eve of Israeli Prime Minister Ehud Olmert’s visit to the White House today. Olmert announced Monday that Israel would free more than $500 million in tax collections for the government of Abbas that had been frozen after Hamas gained power in last year’s elections.

“We will cooperate with this government,” Olmert said in New York. “We didn’t want these monies to be taken by Hamas in order to be used as part of their terrorist actions.”