20110428 palestinian fatah alahmed marzuq hamas 18
Palestinian Fatah delegation chief Azzam al-Ahmed (R) shakes hands with Hamas deputy leader Mussa Abu Marzuq after a joint press conference in Cairo on April 27, 2011 as the rival Palestinian groups reached an 'understanding' to set up a transitional unity government and to hold elections, prompting a swift warning from Israel. - 

Kai Ryssdal: There was news of a peace agreement in the Middle East yesterday. It's between the two groups that've been arguing over who's really in charge of the Palestinian Authority. The current ruling party, Fatah, has come to terms with rival Hamas. But the reconciliation could complicate American foreign aid programs.

The U.S. has sent billions of dollars to the Palestinian Authority over the years. But Hamas doesn't recognize Israel's right to exist.

Marketplace's Alisa Roth reports.

Alisa Roth: If the U.S. did stop giving money to the Palestinians, this wouldn't be the first time. It cut aid in 2006, when Hamas won the Palestinian elections.

More recently, though, Congress has been sending money to the Palestinian Authority, just not to Hamas. But some members of Congress and others are calling for an end to the handouts, if Hamas and Fatah get together.

Shibley Telhami is a professor at the University of Maryland. He says that's partly why Hamas and Fatah failed to reconcile sooner.

Shibley Telhami: One reason they've failed is the fear by the Palestinian Authority that they would lose support from the U.S., in particular, economic support from Congress.

But it's still much too early to tell whether the U.S. will cut off funding. Among other things, Fatah and Hamas haven't signed any agreement yet, so nobody knows what such an agreement, or a unity government, would actually look like.

U.S. money has helped strengthen the economy in the West Bank, but at least financially speaking, that funding could be replaced. Henri Barkey is a professor at Lehigh University. He says politically, it's a different story.

Henri Barkey: Certainly the Saudis and the other Gulf Arabs have a lot of money to invest and they can easily supplant the United States financially, but it doesn't give the international cache that the United States. does.

And if the U.S. were to cut off funding, it wouldn't have the same leverage to negotiate with the Palestinians.

The Palestinian Authority is pushing to be recognized as a state at the United Nations General Assembly meeting in September.

In New York, I'm Alisa Roth for Marketplace.