Washington pushed back on Thursday against sharp Israeli censure of its decision to work with the new Palestinian Authority government, hinting Jerusalem should curb its criticism since Israel, too, is dealing with the PA on practical, day-to-day matters.

“Israel came to the same decision as we did – that there is an interest in continuing to deal and work with this interim government on a practical level,” US Ambassador Dan Shapiro said.

Shapiro, in an Israel Radio interview, stressed that Jerusalem transferred NIS 500,000 in collected tax revenue to the PA on the very day that the Fatah-Hamas government was sworn in on Monday. Furthermore, he said, Israel said it would continue security and civilian cooperation with the PA.

“Those are practical decisions, because Israel understands – as we do – that if the Palestinian government collapses, it will have to assume responsibility for the Palestinians in the West Bank, and lose security cooperation that recently helped preserve stability,” the ambassador said.

Jonathan Schachter, a senior policy adviser to Prime Minister Binyamin Netanyahu, said Israel was “obviously in contact with the Palestinian Authority, as we have been previously, working on day-to-day issues.”

The issue with the US was not day-to-day contact, he said, “the issue was the speed in which the US government, and other governments, endorsed this government, which is backed by Hamas and born of an agreement with Hamas.”

Whether Israel transferred the money on Monday, the day the government was sworn in, or on Sunday, and only notified the US of it on Monday, was a source of debate on Thursday, a further indication of how this issue is causing strain between the two allies.

The strain was made even greater by Thursday’s announcement that Israel would build some 1,500 housing units beyond the Green Line, and begin preliminary zoning and planning work on another 1,800 homes.

Shapiro said the US was opposed to building in the settlements “regardless of the disagreement on the interim Palestinian government.”

State Department spokeswoman Marie Harf took an even tougher line at the daily press briefing in Washington, calling the housing announcement “unhelpful and counterproductive,” and the construction “illegitimate.”

“We are deeply disappointed,” Harf said.

She stopped short, however, of calling for the government to reverse the decision, something the EU did in a statement it released from Brussels.

“We call on the Israeli authorities to reverse this decision and to direct all their efforts towards an early resumption of the peace talks,” the statement read. “We are deeply disappointed that the Israeli Land Administration has published new tenders for 1,466 housing units in settlements in east Jerusalem and the rest of the West Bank.”

The EU, which has applauded Palestinian unity efforts, called the settlement construction announcement a move that “is unhelpful to peace efforts.”

Schachter stressed, however, that the building would be taking place “within the settlement blocs, which everyone – including the Palestinians – recognize will become part of Israel in any peace agreement.” He said this would have no effect on what happens moving forward with the Palestinians.

“Now there are no talks going on because of the Palestinian actions, so life goes on, and we will continue to do what we need to do to build our communities,” he said.

His words did not reflect the sentiments all those inside the government, with Justice Minister Tzipi Livni, the chief negotiator with the Palestinians, calling the move a mistake that harms Israel, not Hamas.

“This is a diplomatic mistake that will only make it more difficult for us to mobilize world opinion against Hamas,” she said.

Meanwhile, Intelligence Minister Yuval Steinitz said that Israel was “unpleasantly surprised” by the American position toward the new Palestinian government.

“We did not expect that there would be American recognition of a government that includes a Hamas organization that calls for the destruction of Israel,” he said.

Shapiro denied, however, that the US had recognized the government.

“We did not recognize the government, we recognize states and this is not a state,” he said. He added that it was not a unity government, since no Hamas members were in the cabinet, and – as far as the US could discern – there was no direct Hamas influence behind the scenes.

He said this was a government of PA President Mahmoud Abbas that accepts the Quartet principles: recognizing Israel, forswearing terrorism, and accepting previous agreements. Shapiro said the US would check daily that the government was abiding by those commitments, and that if Washington saw Hamas influence, “then our position can also change. We will check every day their policies and their actions.”

The Prime Minister’s Office, meanwhile, began a campaign pointing out that the new PA government was already in violation of previous agreements, since the Oslo Accords stipulate that the Palestinian police are to be the only Palestinian armed force in the territories, but that Abbas is doing nothing to dismantle Hamas’s military infrastructure in the Gaza Strip.

Michael Wilner in Washington contributed to this report.

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