Israel suspends tax payment over détente

Israel has suspended an $88m (£53m) tax payment owed to the Palestinians in retaliation for a landmark reconciliation deal between Fatah and Hamas, the rival Palestinian factions.

Yuval Steinitz, the Finance Minister, said he would not discharge the routine payment until he was convinced that the money was not going into the pockets of Hamas, the militant group that governs Gaza and whose charter calls for the destruction of the Jewish state.

"The burden of proof is upon them to clarify if there is a common treasury for Hamas and Fatah," Mr Steinitz told Army Radio. "Is it certain that none of the money will be transferred to a terror organisation, for the purchase of missiles and the financing of rockets?" Since Mahmoud Abbas, the President of the Palestinian Authority (PA), agreed to end a four-year schism last week with the Islamist Hamas, Israel has warned that the pact will lead to a Hamas takeover of the Fatah-controlled West Bank.

The Palestinians accused Israel of starting a war by its actions and vowed that the long-awaited unity deal would not be derailed. Palestinian leaders will meet today in Cairo to attend a three-day summit, culminating in a signing ceremony that will lead to the formation of an interim government within six weeks and general elections within the year.

Despite Palestinian jubilation at the surprise reconciliation, achieved in secret talks in Egypt, Israel has strongly criticised the deal, promising to snub any government that includes a terrorist element.

Avigdor Lieberman, Israel's ultra-nationalist Foreign Minister, warned last week that Israel had a "vast arsenal of measures" at its disposal to put pressure on the Fatah-dominated PA, including the lifting of VIP status for Mr Abbas and Prime Minister Salam Fayyad.

But the PA was defiant. "Threats... will not deter us ," Mr Fayyad said. Saeb Erekat, a senior Palestinian official, called Israel's action an act of aggression. "Israel has started a war even before the formation of the government," he said.

Prime Minister Benjamin Netanyahu reiterated his opposition to the deal yesterday, saying it should be a reason for concern for "all those in the world who aspire to see peace between us and our Palestinian neighbours".

The Palestinians said the interim government would be made up of independent figures with no allegiance to Hamas or Fatah and would not be responsible for handling foreign policy issues.

Israel collects customs and other levies on behalf of the Palestinians under interim peace accords from the 1990s. The revenues, which come to between $1bn and $1.4bn annually, account for 70 per cent of the Palestinian budget.