Israel is delaying the transfer of taxes it collects on behalf of the Palestinians in retaliation for their application to join the Hague-based International Criminal Court, according to Israeli officials.
The online edition of Haaretz daily, citing an unidentified Israeli official, said on Saturday the move involves $127m in VAT and customs duties on goods for the Palestinian territories that pass through Israel.
"The funds for the month of December were due to pass on Friday, but it was decided to half the transfer as part of the response to the Palestinian move," the Israeli official told Haaretz.
The Palestinians delivered to the UN headquarters in New York on Friday documents on joining the Rome Statute of the ICC and other global treaties, saying they hoped to achieve "justice for all the victims that have been killed by Israel, the occupying power".
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The ICC looks at cases of severe war crimes and crimes against humanity such as genocide.
Saeb Erekat, chief negotiator for the Palestine Liberation Organisation, told Al Jazeera the Israeli retaliation showed that the country was scared over the Palestinian application to join the ICC.
"Israel collects our customs and our taxes for us, so when they withhold these funds, it means that this month people will not be able to pay for their schools, hospitals, medical supplies, milk and bread," he said.
"They [Israelis] are trying to suffocate the whole [Palestinian] nation.
"It shows that when it comes to enforcing collective punishment, they are punishing four million Palestinians, starving them, because they want to act with impunity.
"This shows the legitimacy of what we are doing at the ICC."
Israel has delayed payments to the Palestinians to signal its displeasure in the past, including in 2012 after the Palestinians won a November 29 UN vote recognising Palestine as a non-member state.
It did it again in May 2011 after Palestinian President Mahmoud Abbas announced a reconciliation deal with Hamas aimed at ending years of enmity between the group and his Fatah, and in November 2011, after the Palestinians won admission to UNESCO.
The tax revenues make up two-thirds of the Palestinian Authority's annual budget, excluding foreign aid.
Earlier on Saturday an Israeli official said his country was looking at ways to prosecute senior Palestinian officials for war crimes in the US and elsewhere in response to their ICC membership bid.
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The Israeli official on Saturday said Palestinian leaders "ought to fear legal steps" after their decision to sign onto the Rome Statute.
"Israel is weighing the possibilities for large-scale prosecution in the United States and elsewhere" of Abbas and other senior Palestinians, the official said.
Israel would probably press these cases via non-governmental groups and pro-Israel legal organisations capable of filing lawsuits abroad, a second Israeli official said, explaining how the mechanism might work.
Israel sees the leaders of the Palestinian Authority in the occupied West Bank as partners of Hamas, the Palestinian group which governs the Gaza Strip, because of a unity deal they forged in April, the first official said.
Benjamin Netanyahu, Israeli prime minister, has previously warned that unilateral moves by the Palestinian leadership at the UN would expose its leaders to prosecution over support for Hamas, viewed by Israel as a terrorist organisation.
"[Hamas] ... commits war crimes, shooting at civilians from civilian populated areas," the Israeli official said, alluding to a war in Gaza last summer in which more than 2,100 Palestinians and more than 70 Israelis died.
The US, Israel's main ally, supports an eventual independent Palestinian state, but has argued against unilateral moves like Friday's, saying they could damage the peace process.
The US sends about $400m in economic support aid to the Palestinians every year. Under US law, that aid would be cut off if the Palestinians used their membership in the ICC to press claims against Israel.
Netanyahu said on Sunday that Israel would not permit its soldiers to be hauled in front of the ICC on potential war crimes charges.
"We will not let Israel Defence Forces soldiers and officers be dragged to the International Criminal Court in The Hague," he said at the start of the weekly cabinet meeting.
Source: Al Jazeera and agencies