A row has broken out on the eve of Israeli President Shimon Peres’ visit to Washington next week over a move by President Obama to allow US aid to reach the Palestinian Authority even if it is run by a government which includes members of Hamas.

Sources within the Israeli government have described the clause, in the US administration’s emergency spending request to Congress, as an extremely negative development which will give a lead to other western governments and encourage them to transfer funds to Hamas-controlled agencies.

True to his campaign promise to reach out diplomatically to Iran, US president Barack Obama issued a public appeal to the Iranian leadership on the occasion of the Iranian holiday of Nowruz.

President Obama’s overture to Tehran marks the beginning of the US effort to engage with Iran, a strategy viewed with skepticism by Israel. The President’s public call for rapprochement comes days after senior administration officials were urged by Israel’s chief of staff not to shelve the military option against Iran.

President-elect Barack Obama has won praise from Jewish and pro-Israel groups for his foreign policy and security team.

Among the nominations announced on Monday, of particular interest was that of New York Senator Hillary Clinton as Secretary of State.

The historic election of Democrat Barack Obama as US President has been warmly welcomed by Israeli leaders across the political spectrum.

Prime Minister Ehud Olmert described Mr Obama's sweeping victory as "historic and impressive" adding: "America has again proven itself an example to world democracies."

Palestinian leaders are hoping Barack Obama's campaign emphasis on change will translate in office into a shift away from what they view as reflexive American support for Israel.

"I don't know if there is going to be pressure on Israel but he may have a different approach, one of engaging the Israelis, of persuading them," former Palestinian Authority Foreign Minister Ziyad Abu Amer said.

As the presidential campaign enters its final phase, Democrat contender Barack Obama is consolidating his lead with American Jewish voters in polls and reaching a 3:1 margin over his Republican rival John McCain.