Israel announced yesterday that it would release tens of millions of dollars of tax money owed to the Palestinians, ending a standoff that the Palestinians say has caused grave damage to their economy.
The move followed pressure from the United States, United Nations and Europe on Israel to free the money. Israel collects the tax funds for the Palestinians and transfers the money each month, in accordance with partial peace agreements from the 1990s.
Israel froze this month's transfer to punish the Palestinians for their efforts to win UN recognition of their independence. The Israeli decision came after the Palestinians were accepted by the UN cultural agency Unesco - part of a broader effort for admission as a full member state at the United Nations.
Israel accuses the Palestinians of trying to bypass peace talks through the campaign. It says that a Palestinian state can be established only through a negotiated peace deal.
Since the Unesco victory, the Palestinian campaign at the UN has stalled because of a deadlock in the security council, which must approve full membership. Palestinian officials have not yet decided how to proceed. The office of the Israeli prime minister, Benjamin Netanyahu, said he decided to release the money because the Palestinians appear to have suspended their "unilateral moves". It said the decision would be "reassessed" if the Palestinians resume these steps.
On Tuesday, however, the Palestinian Authority president, Mahmoud Abbas, reaffirmed that he remains committed to the bid for UN membership, saying recognition was the Palestinians' "legitimate right". The conflicting statements could lead to future disputes over tax and other areas of cooperation.
Israel has also hinted that it would end the payments if Mr Abbas carries out a reconciliation agreement with the rival Hamas militant group. The Palestinians hope to hold elections in May that will end a rift that has left them with rival governments since Hamas seized control of the Gaza Strip in 2007.
The tax money from customs duties and other fees are needed by the Palestinian government, the largest single employer in the Palestinian territories, to pay tens of thousands of workers, as well as security forces, which have won praise for cooperation in halting militant attacks on Israelis.
Palestinian Authority prime minister Salam Fayyad, a US-educated economist, warned that if the funds were not restored, he would be unable to pay salaries and said the Israeli punishment was causing significant economic damage. The Palestinians have also complained that Arab nations have not fulfilled pledges of economic aid.
Donor nations and even Israeli security officials had urged Mr Netanyahu to release the money, saying cash shortfalls destabilise the limited self-rule government in the West Bank.
Palestinian Authority spokesman Ghassan Khatib said there would be no comment until the money has been transferred, adding that the authority had not yet been informed by Israel of the decision. Israeli-Palestinian peace talks have been stalled for three years.
The Palestinians say they will not resume negotiations unless Israel halts settlement construction in the West Bank and east Jerusalem - captured territories where the Palestinians hope to establish a state. Israel says talks should resume without preconditions.
Mr. Abbas met yesterday in Jordan with the head of Israel's parliamentary opposition, Tzipi Livni. She urged him to abandon unilateral moves and return to negotiations, according to a statement from her office.