The cash, worth more than $800,000 (£427,000), was initially confiscated and the man, Sami Abu Zuhri, detained. After frantic talks, Mr Zuhri was freed and Hamas said the cash would go to the interior ministry, which it controls. The PA has been in financial crisis since Israel and the West cut funds in a bid to make Hamas renounce violence. PA President Mahmoud Abbas asked the attorney general to investigate the border incident, which comes at a time of heightened tension between Hamas and supporters of Mr Abbas. Dozens of Hamas gunmen rushed to the Rafah border crossing, which is guarded by presidential troops, when news of Mr Zuhri's detention spread - raising fears of fresh fighting. Overnight, two police officers were wounded in a gun battle between Palestinian factions in Gaza City. Mr Zuhri is a well-known figure because of his frequent appearances in the Arabic media. "Sami Abu Zuhri did not declare the money. The Palestinian security and customs officials found it and confiscated it," said European Union observer Julio de la Guardia told reporters. Travellers crossing through Rafah must normally declare all sums over $2,000 and explain the origin of the cash. Mr Zuhri was returning to the Gaza Strip from Qatar, which recently pledged to donate $50m to the Palestinian Authority. The money was said to have been stashed under his belt. "I was bringing a sum of money which was donated by our people abroad for the Palestinian people," he told journalists. If bringing support for my people is a crime then I am very proud of this crime," he told Reuters news agency. Hamas has complained that US and European sanctions - imposed because those countries consider Hamas a terrorist organisation - make it impossible for Qatar and other donors to transfer money to the Palestinian government. Fatah officials have demanded a full explanation of the source of the euros, warning of a possible violation of party funding laws, which ban foreign financing. "Raising funds in the name of the Palestinian people is unacceptable if the aim is to finance the activities of a certain party," said Fatah spokesman Jamal Nazzal quoted by Voice of Palestine radio.

Saturday's attack in Sadr City comes as parliament prepares to vote on the country's first full-term government since the US-led invasion in 2003. The cabinet includes members of Iraq's main Shia, Kurd and Sunni parties. Their prolonged failure to agree on a cabinet amid spiralling sectarian violence had brought warnings that Iraq was descending into civil war. At least 36 people were also hurt in the latest attack, the interior ministry said. Police say the bomb was left in an area where day labourers gather to look for work. Past attacks in Iraq have also targeted labourers waiting for employment. The bombing comes a day after the new unity government was announced. It was the result of five months of arduous negotiations, following December's general elections - which was won by the Shia alliance. A deal has yet to be made on filling the new defence and interior ministry posts - seen as vital for curbing insecurity. The interior ministry controls the police, while the defence ministry runs the new Iraqi army. Iraq's PM-designate Nouri Maliki, a Shia, is widely expected to take temporary charge of the interior ministry, while assigning the defence ministry to one of his deputies, a Sunni politician. Mr Maliki said the final choices for the posts would be "well known as independents, honest, not loyal to any militia or the equivalent". The 275-member parliament - the Council of Representatives - meets on Saturday to consider approving the cabinet.

Four Palestinians have been killed and several injured in an Israeli air strike on a car in Gaza City. A senior militant from Islamic Jihad and three members of a family were among the dead, including a child. Islamic Jihad said Mohammed al-Dahdouh was one of its senior engineers involved in weapons manufacture. The Israeli army has struck at militant targets in this way many times before, a BBC correspondent in Gaza says. The strikes form part of their effort to stop militants from firing rockets into Israeli territory. For their part, militants often say their attacks are in retaliation for Israeli military action in both Gaza and the West Bank. In the latest strike, a missile was apparently fired from an unmanned plane into the city centre. The attack tore apart Dahdouh's car and also caught others travelling nearby. A grandmother, mother and her four-year-old son were killed. The Israeli military confirmed an air attack on what it described as a militant target and said Dahdouh was responsible for firing rockets into Israeli towns. The attack came after a day of high tension in Gaza City, which saw the Palestinian intelligence service chief seriously injured in a blast at the organisation's main office, officials said. At least one person was killed in the blast, which staff working for intelligence chief Gen Tareq Abu Rajab called an assassination attempt. Correspondents say the incident is set to stoke rising tensions between the rival Hamas and Fatah factions.