Israel announced Sunday it was halting tax and customs duties payments to the Palestinians in a move coming days after the reconciliation between the rival Fatah and Hamas groups, dpa reported.
Finance Minister Juval Steinitz told Israeli army radio that for the time being, a payment due this week of 300 million shekels (89 million dollars) was being held back, pending clarification that the money would not end up in the hands of militants.
"They must now clarify whether there is a joint treasury of Fatah and Hamas," Steinitz said.
"Naturally Israel cannot transfer any money to the treasury of Hamas, a terrorist organisation," he added.
Under existing agreements with the Palestinian Autonomy Authority, Israel is obligated to transfer tax and customs proceeds which it collects on behalf of the Palestinians.
By Steinitz' account these amount to three to 3.5 billion shekels per year.
On Wednesday, the mainstream Fatah and the radical Islamic Hamas announced their reconciliation and agreed to holding new elections to overcome their split since a power struggle in 2007.
Israel said it would negotiate with a new Palestinian government only if Hamas recognises the Jewish state and the existing agreements and commits to end violence against Israel. So far Hamas - which rules the Gaza Strip - has refused these demands.
Prime Minister Benjamin Netanyahu said Sunday that the Fatah-Hamas agreement was a cause for concern not only for every Israeli, but also for "all those in the world who are striving to see peace reached between us."
In comments at the weekly cabinet session, Netanyahu added that "peace is only possible with those who want to live next to us in peace and not with those who want to destroy us."