Israeli Prime Minister Benjamin Netanyahu has ordered a halt to high-level contacts with the Palestinians on non-security related issues, but exempted his chief peace negotiator from the ban, government officials have said.
One Israeli official called Netanyahu's order on Wednesday a response to "the Palestinians" grave violation of their commitments in the framework of the peace talks" - an apparent reference to their signing of 15 international conventions last week.
The edict came a day after US Secretary of State John Kerry suggested that Israel's announcement on April 1 of plans to build about 700 housing units in East Jerusalem was the immediate cause of peace talks plunging into crisis.
Al Jazeera's Stefanie Dekker, reporting from Ramallah in the West Bank, noted that the two sides have not yet halted talks and have continued peace efforts.
"Netanyahu's announcement will not have any impact on the ground, but it certainly shows Israel wants to complicate matters and there is a fear of escalation," she said.
Due to fear that Israel would impose sanctions in the wake of the peace talks' failure, Palestinian President Mahmoud Abbas has appealed to the Arab League to secure $100m in monthly aid to relieve the economic crisis in the Palestinian territories.
Israeli television has reported that Israel had previously withheld Palestinian tax revenues as a form of political protest.
According to previous agreements, Israel collects taxes and customs duties for the PA on goods imported into the Palestinian territories totalling about $100m a month.
Another official said Israeli cabinet members, directors-general of government ministries and other senior
bureaucrats would no longer be allowed to meet their counterparts in the Palestinian Authority, which exercises limited self-rule in the occupied West Bank.
Justice Minister Tzipi Livni, who heads Israel's negotiating team in the troubled US-brokered peace process, and defence and security officials could continue to engage with the Palestinians, the officials said.
Netanyahu promises 'retaliation'
There was no immediate Palestinian comment on Netanyahu's decision and no clear indication of what would be the practical outcome of the move.
Israeli and Palestinian officials have been cooperating for years on civilian issues such as the environment, water and energy.
At the weekly meeting of his cabinet on Sunday, Netanyahu pledged to retaliate for Abbas's signing of the international agreements, including the Geneva Conventions covering the conduct of war and occupation.
Palestinian officials said Abbas signed the conventions in response to Israel's failure to carry out a promised release of several dozen Palestinian prisoners four days earlier. The Palestinians were further angered by the subsequent settlement announcement.
Israel said the tender to build new houses in East Jerusalem had already been issued last year and was resubmitted because there had been no initial takers.