Israel's largest bank announced yesterday that it is cutting business ties with Palestinian banking institutions in the Gaza Strip, thereby essentially severing the Hamas-ruled territory from a steady money supply.

Bank Hapoalim's decision is expected to be echoed by Israel Discount Bank, the other Israeli bank with the necessary clearing mechanisms in place for working with Palestinian banks. Assuming the Bank of Israel approves IDB's decision, Gaza would then be completely cut off from many banking services.

Both banks are being motivated in part by the government's recent decision to declare Gaza "hostile territory." However, Israeli banks have been concerned for some time about the possibility of legal liability for transactions with Gaza, in view of the stringent laws against money laundering and financing terrorist organizations.