ATHENS (Reuters) - Pakistan's Prime Minister Shaukat Aziz on Monday urged the international community to respect the Palestinian people's choice for militant group Hamas to lead their government.

Branded by the United States and the European Union as a terrorist group, Hamas, which defeated the long-dominant Fatah movement in an election in January, has seen international aid money dry up since it took up office in March.

Hamas is sworn to Israel's destruction and has said any negotiations with the Jewish state would be pointless.

"The electoral choice of the Palestinian people must also be respected and efforts should be made to carry the peace process forward," Aziz told a conference in the Greek capital.

He said it was necessary to create "a Palestinian homeland so that both the Palestinians and the Israelis can live peacefully in their own countries with secure borders".

Muslim nation Pakistan has been a strong supporter of the U.S.-led "war on terror", sending more than 80,000 troops to patrol its porous border with Afghanistan in an attempt to root out al Qaeda militants.

Local, regional and international banks have stopped dealing with the Hamas government, fearing U.S. sanctions while Israel has blocked around $55 million a month in tax revenues it collects on the Palestinians' behalf.

Hamas now not only has virtually no income but has inherited government coffers it says were already $1.3 billion in debt. The financial crunch has left hospitals short of medicine and 165,000 government employees unpaid since March.

The EU on Monday vowed to set up a new aid mechanism for the Palestinians as soon as June, bypassing the Hamas-led government.