Israel on Tuesday transferred NIS 200 million to the Palestinian Authority to enable it to pay government salaries, Army Radio reported, just two days before PA President Mahmoud Abbas was set to present his bid for non-member status to the UN General Assembly.

The transfer of funds came despite recent threats from within the Finance Ministry to withhold tax revenues collected on behalf of the Palestinians in response to the PA's bid.

The Prime Minister's Office denied knowledge of the transfer in response to a Jerusalem Post inquiry,

"If the PA thinks it can assault us at the UN in such a severe manner, all while still preserving cooperation with us on the ground, then I think there is a surprise awaiting it," Finance Minister Yuval Steinitz said earlier this month. "It cannot be that they hit us unilaterally and then expect bilateral cooperation with us on economic matters."

Interim peace deals task Israel with collecting taxes and customs duties on the Palestinian Authority's behalf amounting to around $100 million a month, on goods imported into the Palestinian territories.

Israel has previously frozen payments to the Palestinian government during times of heightened security and diplomatic tensions, provoking strong international criticism.

A senior diplomatic official said Tuesday that as a result of the Palestinian move, Israel would stick punctiliously to the letter of the agreements it has signed, including the 1994 Paris Protocol mandating economic relations between Israel and the Palestinian Authority. Under that protocol, Israel can withhold tax money it collects for the PA to pay for goods and services Israel provides it.

The PA owes more than NIS 800 million to the Israel Electric Corporation, a debt that Jerusalem could have withheld in the two monthly tax payments scheduled to the PA.

A number of right-wing politicians called for a more aggressive response to the PA's UN move. Foreign Minister Avigdor Liberman made earlier that Israel should cancel the Oslo Accords and end all contact with the PA if Abbas went through with this measure at the UN.

In July, Israel and the Palestinian Authority agreed on a revamp of revenue collection to try to help relieve the Palestinian government's deepening debt crisis.

The aid-dependent Palestinian economy in the West Bank faces financial crisis due to a drop in aid from Western backers and wealthy Gulf states, as well as restrictions on trade.

Herb Keinon and Reuters contributed to this report

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