Israel's decision to withhold at least $US100 million in tax transfers to the Palestinian Authority and fast-track new settlement development had put the final nail in the coffin of the peace process, Palestinian officials said.
While Israel's actions are widely seen as punishment for UNESCO's acceptance of Palestine as a full member on Monday, the Israeli government sees it very differently.
''We are, quite frankly, really p---ed off,'' an Israeli government official said, speaking on condition of anonymity.
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Other recent events had severely strained relations, the official said, including the Palestinian President Mahmoud Abbas's failure to condemn rocket strikes that killed one Israeli this week, his refusal to recognise Israel as a Jewish state and his decision to eschew peace talks and instead go to a UN organisation for recognition.
Late on Tuesday, the Prime Minister, Benjamin Netanyahu, ''directed that the construction of apartments in Jerusalem, in the Etzion Bloc and in Maale Adumim, be accelerated''.
''These are thousands of residential units, in areas that will, under any future agreement, remain part of Israel,'' the government statement said.
Hanan Ashrawi, a member of the Palestine Liberation Organisation Executive Committee, described the development as ''an obituary for the peace process,'' Bloomberg reported.
A senior Palestinian government spokesman, Ghassan Khatib, said the land on which the settlement expansions will be built is in no way confirmed as land that would be Israel's. ''These are occupied territories according to international law and the settlements that are built on them are illegal under international law,'' he said. Dr Khatib said the Palestinian Authority's decision to seek full membership of UNESCO was a ''legal move, done openly and with support from the majority of member countries''.
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