The Bush Administration has lifted its economic and political embargo against the newly-formed western-backed government of Palestinian President Mahmoud Abbas.
Secretary of State Condoleezza Rice said she conveyed Washington's strong support in a phone call to new Palestinian Prime Minister Salam Fayyad.
"I congratulated him on his new post and I told him the United States would resume full assistance to the Palestinian government, and normal government to government contacts."
President Abbas swore in the prime minister and a new Palestinian cabinet Sunday. This follows his dismissal of Hamas member Ismail Haniyeh from his post as prime minister after Hamas seized control of Gaza last week in fighting between Hamas and Mr. Abbas's Fatah faction, which controls the West Bank.
Speaking to reports in Washington, Rice added that in a further show of support, the US government is also lifting restrictions concerning private economic ties with the Palestinian government.
"We intend to lift our financial restrictions on the Palestinian government, which has accepted previous agreements with Israel and rejects the path of violence. This will enable the American people and American financial institutions to resume normal economic and commercial ties with the Palestinian government."
She said the Bush administration would work with Congress to restructure 86-million dollars in assistance already promised to President Abbas's Palestinian Authority.
The US government will also contribute an additional 40-million dollars to the United Nations to help Palestinians, particularly those living in the Gaza Strip. The US State Department considers Hamas, the militant group that controls Gaza, a terrorist group.
"Through its actions, Hamas sought to divide the Palestinian nation. We reject that. It is the position of the United States that there is one Palestinian people and there should be one Palestinian state."
Meanwhile, the White House says President Bush assured Mr. Abbas of US support for his new government in a phone call.
The US moves come as the European Union also announced plans to restart direct aid to the new Palestinian government in the West Bank.
Israeli Prime Minister Ehud Olmert indicated his country is ready to work toward peace with the new Palestinian government. Israeli officials say Mr. Olmert also promised to consider releasing hundreds of millions of dollars of Palestinian tax revenues frozen when a Hamas-led government took power last year.
Mr. Olmert met Sunday with UN Secretary-General Ban Ki-moon in New York. He is scheduled to meet Tuesday with President Bush at the White House.