The Israeli step was the second response to the vote last week at the U.N. General Assembly, which granted the Palestinians the status of a "non-member observer state." On Friday, Israel said it would build 3,000 homes in West Bank settlements and in East Jerusalem, and would advance controversial settlement plans near the city in an area deemed critical for the territorial contiguity of a future Palestinian state.
Israeli Finance Minister Yuval Steinitz announced that he was halting the transfer of tax and customs revenues collected by Israel for the Palestinian Authority. A spokeswoman for Steinitz said that a monthly tax transfer of about $120 million due to be made this week would not be carried out because of "the unilateral step taken by the Palestinians." The funds would be diverted to meet a debt of some $200 million to the Israel Electric Corp., the spokeswoman said.
Still, the mood at the presidential compound in Ramallah was euphoric. A flag-waving crowd of thousands erupted when Abbas declared: "We now have a state."
"The world has said loudly: 'Yes to the State of Palestine. . . . No to aggression, settlement and occupation,' " he added. "The message was clear: We are not alone. The world is with us, history is with us, and the future is for us."
The gathering, organized by the Palestinian Authority, was meant to be a ringing show of support for Abbas, who had been sidelined politically during the recent Israeli offensive in the Gaza Strip against the Islamist group Hamas. Hamas emerged from the conflict with enhanced stature among Palestinians.
Members of Abbas' Fatah party were bused in from across the West Bank to the welcome rally, and Palestinian Authority employees, including police officers, as well as schoolchildren, were given time off to attend.
"The resistance won a victory in Gaza, and this is a diplomatic victory," said Khulud Hanaesha, who arrived from Nablus and works at the Palestinian Football Association.
At the weekly meeting of the Israeli Cabinet, Prime Minister Benjamin Netanyahu said that the U.N. bid was "gross violation" of the Palestinians' agreements with Israel. Netanyahu said his government "rejects the General Assembly decision."
A Cabinet statement asserted that "there is nothing in the aforesaid resolution that changes the status of the areas under dispute" with Israel, or "that grants any rights or detracts whatsoever from the State of Israel's, or the Jewish people's rights in the Land of Israel."
Neither was the resolution a basis for negotiations, the statement said.
Palestinian officials say the U.N. vote means that the West Bank, Gaza Strip and East Jerusalem, all of which were captured by Israel in 1967, are now internationally recognized as an occupied state, and not contested territory.
News of the tax transfer freeze prompted outrage among Palestinian leaders. Saeb Erekat, the chief Palestinian negotiator, told Israel Radio that the Israeli government's decision amounted to "financial piracy."
The transfers make up two-thirds of the domestic revenue of the Palestinian Authority, which has been hit hard by a drop in funding from foreign donor nations and has been struggling to pay the salaries of its employees.
The tax revenue includes customs duties Israel collects on behalf of the Palestinian Authority for imports coming through Israeli ports, value-added taxes levied on large Palestinian purchases of Israeli goods and excise taxes on fuel sold to the Palestinians. The funds are transferred under an economic agreement that followed the 1993 Oslo accord between Israel and the Palestinians.
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