CORRECTED: Israel halts tax payments to Palestinians

(Please read in 25th paragraph … Egyptian Foreign
Minister Ahmed Aboul Gheit said … instead of … Egyptian
intelligence chief Omar Suleiman Aboul Gheit said …)

A corrected repetition follows:

By Adam Entous

JERUSALEM (Reuters) – Israel halted monthly tax payments to
the cash-strapped Palestinian Authority one week after the
election victory of Hamas, but the militant group said it would
turn to the Arab world for financial support.

The customs revenue collected by Israel on behalf of the
Palestinians is the main source of funding for their budget and
is used to pay an estimated 140,000 government workers.

Palestinian Economy Minister Mazen Sonnoqrot decried what
he called Israel’s “illegal decision,” saying it amounted to
“collective punishment.”

The United States and the European Union have also
threatened to cut off future funding if Hamas does not reject
violence and recognize Israel.

Hamas has urged foreign donors to maintain aid but says it
could still find alternative sources of funding in the Arab
world. It dispatched a delegation of its Gaza-based officials
and exiled leaders on a tour of Arab countries to urge them to
keep the money flowing.

“The tour will aim to clarify Hamas’s position based on its
election agenda and to press Arab countries to continue with
financial aid to the Palestinian people,” said Sami Abu Zuhri,
a Hamas leader in Gaza.

PAYMENTS HALTED

Israeli Foreign Ministry spokesman Mark Regev said Israel
did not make its scheduled February 1 payment, estimated by the
Palestinian Authority at $55 million.

Regev said future payments were also suspended pending a
policy review ordered by Prime Minister Ehud Olmert, who took
over after Ariel Sharon was incapacitated by a stroke on Jan 4.

Olmert has called for a boycott of any Palestinian
government that includes Hamas, which is sworn to Israel’s
destruction and has led a campaign of suicide bombings and
attacks against Israel.

Hamas, which has largely held to a year-long ceasefire,
trounced Palestinian President Mahmoud Abbas’s long-dominant
Fatah movement in the Jan 25 parliamentary election.

In Washington, U.S. President George W. Bush demanded that
Hamas “recognize Israel, disarm, reject terrorism and work for
lasting peace” in his State of the Union address.

Hamas leaders said the group would stick to its guns. “Our
resistance is legitimate self-defence in the face of
aggression,” said Zuhri.

An official close to Palestinian President Mahmoud Abbas
denied a report from Egypt that he would demand Hamas formally
recognize Israel for it join the next government.

But the official, who declined to be identified, said the
president would insist the new government commit to
implementing past agreements with Israel.

CASH-CRUNCH

The Palestinian Authority faces a financial crunch if
Israel continues to withhold the tax money.

Unemployment in the Palestinian territories runs high, at
22 percent, and half the Palestinian population lives in
poverty. In Gaza, many Palestinians live on an average of $2 a
day.

“Until the review that is under way is completed, there
will not be automatic transfers,” Regev said.

Israel has long collected customs revenue on behalf of the
Palestinians. It is supposed to hand the money over to the
governing Palestinian Authority on the first of each month.

Israel has withheld tax payments in the past during other
disputes.

“This is our money and Israel is not a donor country,”
Sonnoqrot told Reuters. “Israel should immediately release the
money because it belongs to the Palestinian people.”

He estimated about 1 million Palestinians would be affected
by Israel’s decision, and warned: “This may cause chaos.”

Sonnoqrot said the Palestinians had urged the United
Nations and Western powers to pressure Israel to “release our
money.”

Regev said Israel’s decision to withhold the money was “in
synch” with the international consensus.

But the Quartet of major powers trying to broker Middle
East peace have said donors would continue to aid Abbas’s
caretaker government, at least until Hamas formed a new
administration.

In Cairo, Egyptian Foreign Minister Ahmed Aboul Gheit said
after talks with Israeli Foreign Minister Tzipi Livni: “We ask
Israel to free all Palestinian tax money and we do not support
the punishment of the Palestinian people.”

The decision to cut off funding came as Olmert sent riot
police into the West Bank to remove part of an unauthorized
Jewish settler outposts in a bid to assert control after
assuming the powers of Ariel Sharon.

In scenes of violence reminiscent of Israel’s Gaza pullout
last year, ultranationalists at the Amona outpost barricaded
themselves in houses and on rooftops, throwing stones at police
on horseback who responded with clubs and water cannons.

About 100 protesters and police were injured in the clash.

Olmert has targeted 24 settlement outposts for removal in a
bid to implement a long-standing commitment under a U.S.-backed
peace “road map.” Palestinians fear go-it-alone moves by Israel
would deny them a viable state.

(Additional reporting by Jonathan Saul and Adam Entous in
Jerusalem and Nidal al-Mughrabi in Gaza)