BEIRUT, Lebanon (AP) -- The Shiite Muslim group Hezbollah has launched a massive project to rebuild south Beirut, devastated in last year's war with Israel — and it's paying for much of the construction with international donor funds that were meant to strengthen its top rival, the Lebanese government.

Western-backed Prime Minister Fuad Saniora's government has been distributing the funds as compensation to families whose homes were destroyed by Israeli bombardment so they can build anew.
But in south Beirut, long a Hezbollah stronghold, most of the families have promised to give their compensation — about $53,000 each — to the group to redevelop the devastated area in an ambitious plan likely to bolster Hezbollah's standing.
The money going into the government's family compensation program comes mainly from Islamic and Arab nations, chief among them Saudi Arabia — a strong supporter of Saniora and opponent of Hezbollah — which has given $570 million, said Sanaa al-Jack, government spokeswoman for relief and reconstruction projects.
It does not appear money from the United States and the European Union was ending up in the hands of Hezbollah. Al-Jack said the American and EU donations — about $140 million and $110 million promised, respectively — were not earmarked for family compensation but for infrastructure and technical help.
Asked if U.S. money could be going to Hezbollah's rebuilding project, a U.S. Embassy official in Beirut said, ""I would doubt it."" The official, who insisted on anonymity under embassy rules, said U.S. funds were given for specific projects and would be carefully monitored.
The European Union has not yet sent any reconstruction aid, waiting for a damage assessment by officials from the UN, World Bank and Lebanese government, said Christiane Hohmann, a European Commission spokeswoman.
The high-profile campaign to rebuild south Beirut gives Hezbollah a political boost in its yearlong power struggle with Saniora's government. Since the 34-day war between Hezbollah and Israel ended in summer 2006 — leaving swaths of south Beirut and many towns and villages in southern Lebanon in ruins from Israeli bombardment — the two sides have competed to show who can do the most for the Lebanese people.
""If this project succeeds, it will give credit to Hezbollah on a political as well as a popular level,"" Adnan Sayyed Hussein, a professor of international relations at Beirut's Lebanese University, said of the south Beirut reconstruction.
Al-Jack said the Lebanese government was aware that south Beirut families were giving their compensation to Hezbollah but refused to comment further.
A Saudi Foreign Ministry official said his country has ""nothing to do with how the government distributes the money."" The official spoke on condition of anonymity because he was not authorized to talk to the media.
Work in the Beirut district known as Dahiyeh began over the summer. Hezbollah banners at dozens of construction sites across the area proclaim, ""We will build it nicer than it was,"" as thousands of workers lay foundations for new apartment buildings.
The $370 million campaign — Lebanon's biggest construction project since downtown Beirut was rebuilt in the 1990s following the country's 15-year civil war — is being planned and directed by ""Waad,"" a branch of Hezbollah. It aims to transform the district, home to hundreds of thousands of people, mainly Shiite Muslims.
Waad has been contracted by families to rebuild 213 of the district's 300 destroyed buildings, including 3,700 units in apartment buildings as well as shops, offices, warehouses and schools, said Hassan Jishi, Waad's general manager.
It also will improve roads and build parking lots and gardens. The remaining 87 destroyed buildings are being rebuilt by individual owners who decided not to participate with Waad.
Any costs not covered by the families' compensation money will be paid by Hezbollah's main construction arm, which is also renovating hundreds of damaged buildings in Dahiyeh, Jishi said.
""Our building was destroyed because Hezbollah's headquarters were close to us, so for sure they (Hezbollah) will rebuild,"" said Khalil, a 42-year-old father of two who has been renting an apartment elsewhere in Beirut, using money given by Hezbollah.
Immediately after the war, Hezbollah gave every family whose home was destroyed $12,000 to rent an apartment until their homes were rebuilt.