Israel Freezes Transfer of Funds to Palestinians

Israel has frozen this month's transfer of $45 million in tax rebates and customs payments to the Palestinian Authority while it reviews its options following the Hamas victory in last week's parliamentary election, an Israeli government official said Wednesday.

"The transfers will be on hold" while the issue is being reviewed, said Mark Regev, the Israeli Foreign Ministry spokesman. "The expectation is that automatic transfers will not continue."

"There is a concern on our side that the moneys transferred will come back to haunt us in the form of suicide bombings," he added.

Palestinian officials said Israel's payment for January is already several days overdue and that they may not be able to pay the salaries of 137,000 government workers if Israel does not send the money.

Unemployment in the Palestinian areas runs high, and many Palestinian families depend on a government salary. A failure to pay the January salaries could pose the most difficult test yet for Hamas, which has resisted international demands to recognize Israel, disarm and renounce violence.

In all, the Palestinian Authority needs some $116 million every month to cover the payroll. It has repeatedly borrowed from banks and received additional support from donor countries. However, the Palestinian Cabinet secretary, Samir Hleileh, said it appears unlikely the banks would lend to the government in times of uncertainty.

The United States and the European Union also have said millions of dollars in aid — the lifeline of the Palestinian economy — could be in jeopardy unless Hamas changes its policies toward Israel.

Western donors funnel about $900 million to the Palestinians each year, most of it designated for reconstruction projects in the impoverished Gaza Strip and West Bank.

Osama Hamdan, a senior member of Hamas' exiled leadership, said Tuesday his group is already looking for new sources of funding, especially from the Muslim world.

However, Hamas will likely find it difficult to persuade Muslim nations to make up the shortfall, and the threat of no money remains the international community's best weapon to get Hamas to moderate its violent ideology.

Israel's monthly tax transfer to the Palestinians totals an average of about $45 million. The funds are from customs and other duties collected by the Israelis on behalf of the Palestinians, so the amount fluctuates each month, depending on the level of economic activity in the Palestinian territories.