In Time, Tony Karon argues that refusing aid to the Palestinian Authority in hopes that it will cause enough misery to force Hamas to recognize Israel is not a good policy, because any recognition Hamas makes under these cricumstances would be meaningless and it's cruel to the Palestinian people.
I agree with part of that statement. Getting Hamas to verbally recognize Israel is pointless unless the group actually abandons terrorism as well. But, I don't think withholding aid from the Palestinian government is merely about making Palestinians miserable so that they will reject Hamas. The decision to withhold aid arises because Hamas is considered a terrorist group by the United States and Europe, and there are policies in place against funding terrorist groups.