After more than three hours of talks in Jerusalem with Crown Prince Hassan of Jordan, the Prime Minister, Benjamin Netanyahu, insisted that Yasser Arafat must first convince him that he was fighting the men of violence.
Israel, he said, was allowing food and medical supplies to enter the Palestinian territories, but that was all.
"If they [the Palestinian Authority] begin to fight terrorism, we will review the various steps that were taken in order to make them fight terrorism. If they act, we shall act."
Washington doubts the wisdom of the sanctions. The State Department said on Tuesday that withholding tax revenues collected by Israel on behalf of the Palestinian Authority was "counter-productive".
Similar arguments have been urged on Mr Netanyahu by the European Union, Egypt and Jordan. But the Prime Minister is not budging.
Madeleine Albright, the US Secretary of State called on both Israelis and Palestinians yesterday to do more to advance the peace process and said she is planning to travel to the region by the end of the month.
The Palestinians are feeling the pinch. Under the peace agreement, Israel collects about $500m (pounds 300m) a year in VAT and other taxes for Mr Arafat's exchequer. It is refusing to hand over about $25m. At the same time, more than 100,000 Palestinian day labourers are denied access to jobs in Israel.
Because Israel is keeping back the tax revenues, tens of thousands of Palestinian public employees are not being paid. The Americans argue that this is no way to achieve Mr Netanyahu's aims. "If you want a highly-motivated police force to round up terrorists," one diplomat said yesterday, "you've got to pay them."Reuse content