A government statement on Wednesday says it is a one-off arrangement meant to ease the Palestinian Authority's economic woes. It said it is handing over last month's tax take of about $100 million.
Israel's monthly tax transfers to the Palestinians - the result of taxes and customs duties that Israel collects on behalf of the Palestinians - are a key element in the Palestinian government budget. The Palestinian government is struggling to pay the salaries of its tens of thousands of workers.
Meanwhile, the governor of Israel's central bank, widely credited with steering the nation's economy safely through years of world financial turmoil, announced his resignation on Tuesday.
In a brief statement, the Bank of Israel said governor Stanley Fischer informed Prime Minister Benjamin Netanyahu that he will step down on June 30. It gave no explanation for the departure and said he would give a news conference on Wednesday to formally announce the decision.
Fischer, an internationally respected economist, served as deputy director of the International Monetary Fund and held top posts the World Bank and Citigroup Inc. before taking over Israel's central bank in 2005. His monetary policies and Israel's tight control of its banks are seen responsible for the nation's stability despite the worldwide economic crisis that hit during his reign. Israel's economy continues to grow, and unemployment is roughly 6.5 percent, relatively low in world terms. His departure comes two years before the end of his second five-year term. Israeli media speculated that his resignation was due to personal reasons, not a disagreement with the government.
In a statement, Netanyahu praised Fischer and thanked him for his service. "Professor Stanley Fischer played a major role in the economic growth of the state of Israel and in the achievements of the Israeli economy," he said. "His experience, his wisdom and his international connections opened a door to the economies of the world and assisted the Israeli economy in reaching many achievements during a period of global economic crisis."
In Israel, Fischer has been credited with moving early to cut interest rates and intervening in the currency market to protect the local export sector. With the economy improving in 2009, Israel began raising interest rates, making it the first nation to take such a step toward post-recession stabilization. He was also instrumental in promoting Israel's successful bid for acceptance into the Organization for Economic Cooperation and Development, a grouping of 30 of the world's richest nations.
Fischer pushed for a bill outlining a new governing structure for the central bank that promotes transparency and stability. He maintained large sums of foreign currency reserves, now standing at some $75 billion, and wielded significant influence over fiscal policy that has led to Israel's high growth rate and low unemployment. "Because of his status, everyone was afraid of him and his criticism, and he is responsible for Israel's government carrying out a largely responsible policy these past eight years," said Plocker, the economic editor at the Yediot Ahronot daily.
"He was willing to use interest rates as a tool. Previous governors saw interest rates only as a way to battle inflation. He also used them to prevent unemployment and recession," Plocker said. "No man is irreplaceable, but his departure is a huge loss to the Israeli economy," he said.
Fischer faced some criticism from those who said his low interest rate policy contributed to a surge in Israel's housing prices. Plocker countered that the effect was negligible, and a lack of supply was the main cause of the housing crisis.