The 20 million kronor ($2.9 million dollars) will be paid to the Palestine Liberation Organization to help pay employees in the education and health services sectors among others.
“The humanitarian and political situation in the Palestinian territories is very serious. The Palestinian Authority is in risk of collapse, along with essential social services such as health care and education,” Development Aid Minister Gunilla Carlsson said in a statement.
The militant movement Hamas’ takeover of Gaza in a deadly showdown with its Fatah rivals in mid-June prompted Israel to seal off the territory from the outside world, stoking fears of a humanitarian crisis.
The European Union, of which Sweden is a member, is the biggest donor to the Palestinians but it stopped sending funds to their government after Hamas swept to power early last year. The EU considers Hamas a terrorist organisation.
Neverthless Brussels has continued to send hundreds of millions of euros to the Palestinian territories through a so-called Temporary International Mechanism (TIM).
It has been used to provide some allowances to thousands of unpaid workers and supply electricity and fuel, without any money reaching Hamas.
But Palestinian leader Mahmud Abbas appointed an emergency cabinet earlier this month led by Western-backed independent Salam Fayyad after Hamas seized the Gaza Strip, providing an opening for EU funding to resume.
Sweden said its aid would be channeled through the PLO’s Mirror Single Treasury Account, an account opened by Fayyad when he was finance minister and which the EU continues to use because he is not a member of Hamas.