PMO: Israel Will Transfer Only Part of Withheld Tax Revenues to PA

Cabinet meets to discuss proposed gestures to new PA gov't; PM: We intend to help Fayad gov't, demand it fight terror.

Sources at the Prime Minister's Office said Sunday that the transfer of withheld tax revenues to the Palestinian Authority, approved earlier Sunday, would for the time being include only part of the sum Israel has collected on behalf of the Palestinians.

The cabinet approved on Sunday the partial transfer of the tax revenues, withheld from the Palestinian government since Hamas took power 15 months ago, as part of a series of moves to bolster Palestinian Authority Chairman Mahmoud Abbas in the wake of the Hamas takeover of the Gaza Strip.

The partial transfer of the revenues is part of a proposal by Prime Minister Ehud Olmert for restoring normal relations with the emergency Palestinian government headed by independent lawmaker Salam Fayad, including a series of confidence-building measures.

According to sources at the Prime Minister's Office, a timetable for the transfer has not yet been decided, nor has a method for the transfer been devised. They said that "throwing the money all at once would be a wrong move on Israel's part," and that Israel wants to transfer the funds in an orderly and controlled manner.

The sources said they believe the first installment will be transferred within several days, in light of the new Palestinian government's declaration it would honor the demands imposed on it by the Quartet of Middle East peace negotiators. The demands include recognition of Israel, renunciation of terror and abiding by previous Israeli-Palestinian agreements.

Olmert's spokeswoman, Miri Eisin, said Sunday's vote was a decision in principle to release the funds, and that the exact amount would be discussed at a summit with Abbas in Sharm el-Sheikh on Monday, and then again by the Israeli government.

All but two ministers voted in favor of the proposal. Ministers from the right-wing Yisrael Beiteinu party, Avigdor Lieberman and Yitzhak Aharonovitch, voted against.

"The new Fatah-led government has no intention... of arresting a single terror operative," Lieberman told Army Radio ahead of the vote.

In response to Lieberman's criticism, Olmert said at the weekly cabinet meeting that the transfer of funds to the Palestinian government is inevitable. He said that Israel would ensure that the money would not be utilized to fund terrorist activities. Olmert added that Abbas is the only figure representing a movement with which Israel can negotiate, and that could potentially bring about progress.

"On the other hand, we aren't deluding ourselves, and there are concerns that Abu Mazen [Abbas] will be tempted to do what he did with the Mecca agreement, and enter into a new unity government alongside Hamas," Olmert added. "I suggest we don't develop too many expectations, but that we also don't spare any effort to create a platform that may enable progress."

Israel began withholding the tax revenues, which it collects on behalf of the Palestinian Authority, after the militant Hamas defeated Abbas' secular Fatah in the January 2006 parliamentary elections.

Palestinian sources estimate that Israel currently holds $700 million in frozen revenues. Israeli sources estimate the sum at $562 million, after the deduction of Palestinian debts owed to Israel.

Under Olmert's proposal, Israel will resume the transfer of customs fees and VAT taxes collected by Israel on behalf of the Palestinian Authority but frozen due to the failure of the Hamas-led Palestinian government to accept the international Quartet's criteria.

"In view of the situation in the Palestinian Authority, it is necessary to implement the appropriate policies vis-a-vis the emergency government and adjust earlier decisions made by the Israeli government," the proposal reads.

The proposal also notes that Israel will continue its policy of refraining from any contacts with Hamas.

Regarding humanitarian concerns in the Gaza Strip, the proposal calls for a continuation of Israeli transfers of electricity, water, food and medical supplies.

The proposal was formulated following deliberations between Olmert, Livni, Barak and officials in the Finance Ministry. The treasury will be responsible for a timetable for the transfer of the frozen Palestinian assets.

Olmert told the cabinet at the outset of their meeting Sunday that Israel intends to aid the new Fayad government, while continuing to demand that it confront militant groups.

"Our policy will be to make an effort to help, in a careful and supervised manner, through taking advantage of the best opportunities," said Olmert at the beginning of the weekly cabinet meeting.

The prime minister added that at Monday's summit he will present "our expectations as well as our demand for a fight against terror."

He addded that, "At the same time, we will declare our intention to assist the new government."

Foreign Minister Tzipi Livni told the cabinet that any diplomatic progress would be dependent on the actions of the Palestinian emergency government.

Livni slammed Russia as well as some Arab states for refusing to give their full support to Fayad's cabinet, accusing them of trying to revive the unity government between Fatah and Hamas and thus thwart any chance of diplomatic progress.

"Those elements must pick a side and act accordingly," she said.

Absorption Minister Ze'ev Boim called on Abbas to fight a determined war on terror in the territory under his control, saying the PA chairman has yet to do so.

Industry, Trade and Labor Minister Eli Yishai said during the cabinet debate that the funds should be transferred to the PA in stages, in order to determine whether it has any practical effect in terms of strengthening Abbas.

"If Abu Mazen [Abbas] doesn't act, Israel should limit the next monetary installments," said Yishai, adding that Israel must ensure that the money does not end up in Hamas hands.

Housing Minister Meir Sheetrit of Kadima said that the new Palestinian government could be a partner for peace, given Abbas' steps against militant groups, including the arrest of Hamas members in the West Bank.

Minister Yaakov Edri told the cabinet that Israel must turn over a new leaf in its relations with the PA by taking measured steps.

Prior to the cabinet meeting, the prime minister met with Defense Minister Ehud Barak and Livni in order to discuss the gestures that Israel will offer Abbas on Monday. Among other things, the three discussed the removal of West Bank checkpoints.