JERUSALEM (Reuters) - Israel has suspended tax transfers to the Palestinians, its finance minister said on Sunday, fearing the money will be used to fund Hamas after President Mahmoud Abbas struck a unity deal with the Islamists.
The Palestinian Authority (PA), led by U.S.-backed Abbas, asked foreign powers to stop Israel from blocking the transfers, which make up 70 percent of its revenues. A senior Palestinian official said Israel, by its action, had "started a war."
Israeli Finance Minister Yuval Steinitz said he had suspended a routine handover of 300 million shekels ($88 million) in customs and other levies that Israel collects on behalf of the Palestinians under interim peace deals.
In an interview on Army Radio, Steinitz said Israel feared the money would go to fund Hamas, an Islamist militant group that runs the Gaza Strip and whose charter calls for the destruction of the Jewish state.
Israel had threatened sanctions last week in response to Abbas's surprise announcement of a unity deal with Hamas that envisages the formation of an interim government and elections later this year.
Palestinian Prime Minister Salam Fayyad said the PA was "in contact with all international influential forces and parties to stop Israel from taking these measures."
"Threats ... will not deter us from concluding our reconciliation process. It is our policy and we must work harder to end our divisions as soon as possible," added Fayyad.
The PA is also heavily dependent on aid from donors including the United States, which has said its future assistance will depend on the shape of a new Palestinian government, expected to be formed under the unity agreement.
Hassan Abu Libdeh, the Palestinian economy minister, told the Maan News Agency the PA would be unable to meet its commitments, including paying the salaries of its employees, if the transfers were blocked. The PA pays salaries to around 150,000 people in the West Bank and Gaza.
In public remarks to the Israeli cabinet, Prime Minister Benjamin Netanyahu reaffirmed his opposition to the unity pact and said the reconciliation should worry "all those throughout the world" who aspire to Middle East peace.
"Peace is possible only with those who want to live in peace with us, and not with those who seek to destroy us," said Netanyahu, who travels to Britain and France later this week for talks with their leaders.
Palestinian leaders have been invited by Egypt to Cairo for a three-day ceremony starting on Monday that will end with the signing of the unity agreement, Palestinian officials said.
Abbas spokesman Nabil Abu Rdainah said it could take up to six weeks to form a new government. He said it would be made up of independents with no connection to Abbas's Fatah movement or Hamas, and foreign states should have no reason to boycott it.
Hamas is shunned by the West over its refusal to recognize Israel, renounce violence and accept the interim peace accords.
U.S.-backed Israeli-Palestinian talks on a permanent peace agreement were revived in September but quickly fizzled after Netanyahu refused to extend a limited building moratorium in Jewish settlements in the West Bank, territory Palestinians want as part of a future state.
Abbas has said he would return to negotiations only if construction in settlements in the West Bank and East Jerusalem, areas Israel captured in a 1967 war, was halted. Netanyahu has said that is an unacceptable precondition for talks.
The tax transfers provide the PA, which exercises limited self-rule in the West Bank, with $1 billion to $1.4 billion annually. Saeb Erekat, a senior Palestinian official, said that by withholding the money, "Israel has started a war even before the formation of the government."
Steinitz noted that Israel had held back tax revenues in the past, during a Palestinian uprising that began in 2000.
Additional reporting by Ali Sawafta and Tom Perry in Ramallah, writing by Dan Williams and Ori Lewis; editing by Mark Trevelyan and Mark Heinrich