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NEW YORK — The Senate has passed legislation renewing the Middle East Peace Facilitation Act for 45 days, which allows the United States to continue funding the Palestinian Authority in Gaza.

Had the act expired June 30 as scheduled, American diplomats would have been prohibited from having any dialogue with Palestinian leaders.

The Senate approved the temporary extension by a voice vote last Friday.

The House of Representatives was expected to follow suit by the end of the week before it recessed for the Independence Day holiday. President Clinton was expected to sign the bill into law before the month's end.

The United States has pledged $500 million to the Palestinians. More than $100 million already has been delivered.

The issue has sparked debate among proponents and opponents of the Israeli government's peace policies. Supporters of Israeli Prime Minister Yitzhak Rabin have argued, as has Rabin's government, that even though the PLO has not fully complied with its agreements with Israel, it has made progress.

Further, they argue, killing funding to the authority would debilitate the peace negotiations.

Opponents, however, believe that the PLO has not gone far enough and should not receive U.S. funding as long as it has not fully complied with its agreements.

Most observers agree that when the debate is renewed this summer, a new version of the Middle East Peace Facilitation Act (MEPFA) is likely to take shape. The only question is what form it will take.

Already, Sen. Alfonse D'Amato (R-N.Y.) has introduced legislation to replace the current law. His proposal would cut off all direct funding to the Palestinian Authority.

The measure would allow humanitarian aid to the Palestinians through other channels, but only under tight conditions.

The American Israel Public Affairs Committee, the pro-Israel lobby that has backed continued funding for the Palestinian Authority, rejects the D'Amato proposal.

"We are not supportive of legislation that would, in effect, cut off funding regardless of any improvement in behavior and performance," said AIPAC president Steven Grossman.

"We believe MEPFA is working," he said. "Let's renew it, acknowledge that improvements have been made, that improvements need to continue, that there's a long way to go."

Morton Klein, president of the Zionist Organization of America and a leading proponent of cutting aid to the Palestinians unless they strictly comply with their agreements, has applauded D'Amato's measure.

He has also been working with Rep. Eliot Engel (D-N.Y.), who is planning to introduce his own measure in the House of Representatives.

"The purpose of the bills is to say to the PLO: If you're serious about living in peace with Israel, you'll get money," Klein said. "This is to ensure the integrity of the peace process, to ensure the Arabs are acting in a serious and responsible way."

Like D'Amato's bill, Engel's measure would tighten the conditions for continued receipt of American aid to PLO compliance with the accords signed with Israel.

But it lacks some of the harshest of D'Amato's provisions, including a ban against the Palestinian Authority receiving any funds and the requirement that all American money be used strictly for humanitarian projects.

"We say the money can be used for democracy building and counterterrorism activities," said a member of Engel's staff, speaking on condition of anonymity.

The Engel measure also would parcel aid into quarterly payments, requiring that the Clinton administration certify the Palestinians in compliance every three months.

"We feel we have to follow along more closely what's taking place," said the staffer.