By Dominic Casciani
BBC News Online community affairs reporter
Campaigning website: Charity says work continues
The Charity Commission has dropped an investigation into one of Britain's leading Islamic charities, following claims it was linked to Palestinian militants Hamas.
The charity, known as Interpal, had its accounts frozen last month after the US government accused it of funding Palestinian terrorist activity in the West Bank.
But a spokesman for the Charity Commission said Washington had provided no evidence to substantiate the claim that organisation was associated to political or militant activities.
The affair has caused uproar among British Muslims, who have accused US and Israeli authorities of trying to stop the charity's humanitarian work.
Ibrahim Hewitt, chairman of the charity, said: "We are delighted and now we can get back to the real business of humanitarian aid and relief of the Palestinians."
Interpal, also known as the Palestinians Relief and Development Fund, was one of five Europe-based groups to have their assets frozen by the US Treasury Department a suicide bombing on a Jerusalem bus which left 20 dead in August.
Officials accused Interpal of being "a principal charity utilised to hide the flow of money to Hamas".
The charity, founded in 1994, raised some £4m in 2001.
It says funds raised in the UK are distributed to partner charities in the region.
The charity has also threatened to sue the Board of Deputies of British Jews after its website repeated the allegations.
The organisation has since retracted the comments.
A spokesman for the Charity Commission said it first began investigations into Interpal in April 2003.
It said it found that Interpal had received funds from the Al-Aqsa Foundation - a Dutch organisation whose assets had been frozen under United Nations' sanctions for allegedly supporting terrorist activities.
CHARITIES LINKED TO HAMAS BY WASHINGTON
Commite de Bienfaisance et de Secours aux Palestiniens (CBSP), France.
Association de Secours Palestinien (ASP), Switzerland
Palestinian Association, Austria
Sanabil Association for Relief and Development, Lebanon
Source: US Treasury
But scrutiny of Interpal's records showed the payments were for humanitarian work already undertaken by the charity.
The watchdog said Washington agreed a deadline of 23 September to provide evidence against Interpal. That deadline passed with no evidence being supplied, it said.
"The American authorities were unable to provide evidence to support their allegations so the Commission has unfrozen the charity's bank accounts and closed its inquiry," the statement said.
Mr Hewitt said the affairs raised serious questions about the willingness of governments to accept unsubstantiated allegations of terrorist links to charities.
"We can understand why the Charity Commission took he action it did because these were very serious allegations.
"But what concerned us most was that these allegations were based on media reports which were entirely unsubstantiated.
"That has implications for all charities working in difficult areas of the world if governments can say what they like and disrupt important work simply because they do not like who they are."
Mr Hewitt said the clearing of Interpal meant it could approach its annual fund-raising during the Muslim holy month of Ramadan with "renewed vigour".
But he added: "This is not the first time it has happened to us and I suspect that it won't be the last. Governments have brought down far bigger organisations than Interpal if they have set their mind to it."
The Commission investigated London-based Interpal in 1996 because of similar allegations.
No evidence was found to support them and the inquiry was closed, concluding that, at that time, the charity was a well-run organisation.
Returning to the charity this year, the Charity Commission said it had found Interpal had acted on its 1996 advice and improved various record-keeping procedures.
Simon Gillespie, director of operations at the Charity Commission, said: "As the independent charity regulator it is our duty to look into serious allegations about charities' links to terrorism.
"At the same time, we must have sufficient evidence to warrant an inquiry continuing.
"We have moved swiftly to reach a conclusion on this case because of the possible adverse impact of our actions on the charity's beneficiaries."