State with little room to move ... the Palestinian president, Mahmoud Abbas, arrives to address crowds celebrating the successful UN bid.

State with little room to move ... the Palestinian president, Mahmoud Abbas, arrives to address crowds celebrating the successful UN bid. Photo: AFP

JERUSALEM: Israel exacted a price for the United Nation's de facto recognition of Palestine on Sunday by confiscating $115 million in revenue even as the Palestinian president triumphantly told thousands of followers: "Now we have a state."

As Mahmoud Abbas arrived to a hero's welcome in the West Bank, the Israeli prime minister, Benjamin Netanyahu, baldly rejected Thursday's resounding vote granting the Palestinians full UN observer status.

We said from the beginning that the raising of the status of Palestine at the UN would not produce no reaction from Israel. 

Yuval Steinitz, Israeli Finance Minister

Israel's move leaves the Palestinian Authority facing a financial black hole that could prevent it paying the salaries of thousands of workers, just as Mr Abbas in Ramallah exhorted his countrymen to celebrate "a decisive landmark on the path of our national struggle".

The decision was the latest sign of Israel's mounting fury over last week's vote. Two days earlier Mr Netanyahu's government announced it would build 3000 settlers' home in east Jerusalem and the West Bank, effectively annexing land the Palestinians have earmarked as part of a future state.

Israel's finance minister, Yuval Steinitz, said this month's PA tax revenue would be withheld to pay its debts to the Israel Electric Corporation, which supplies the Palestinians with power.

Israel transfers money to the authority as part of the 1993 Oslo Peace Accords, which was designed to pave the way towards a two-state solution. "We said from the beginning that the raising of the status of Palestine at the UN would not produce no reaction from Israel," Mr Steinitz said.

The decision was condemned by a senior Palestinian official, Yasser Abed Rabbo, as "piracy and theft".

Speaking before yesterday's weekly cabinet meeting, Mr Netanyahu called the Palestinians' bid for enhanced UN recognition a "gross violation" of their agreements with Israel and insisted he would push ahead with further settlement building.

"Today we are building and we will continue to build in Jerusalem and in all areas that are on the map of the strategic interests of the state of Israel," he said.

In further comments reported by the Channel 10 television station, he appeared to justify settlement expansion as necessary to stop the West Bank becoming a launch pad for the kind of rocket attacks that Israel has encountered from Palestinian militants in Gaza, where Jewish settlements were dismantled in 2005.

"Israel will not allow Judea and Samaria [the West Bank] to become a terror base from which rockets will be launched into Israeli towns," he said.

An Israeli cabinet communique said the UN decision would "not constitute a basis for future negotiations" and dismissed it as containing "nothing that advances a solution by peaceful means".

Last Friday's announcement of new settlers' homes, including some in a highly contentious area known as E1, was denounced by the US secretary of state, Hillary Clinton, and Britain's foreign secretary, William Hague, who said it would damage the chances of achieving a two-state solution.

Mr Abbas has refused to return to peace talks without a freeze on settlement building. Speaking in Ramallah following his triumphant return from New York, he said Israel's moves were a reaction to the world saying "yes to a Palestinian state [and] no to aggression, to these settlements and this occupation".

"We have been threatened with sanctions from so many quarters. [But] we ignored the threats and went and achieved what we wanted to achieve," he told a flag-waving crowd of about 5000. He said Palestinians now had to bring about reconciliation between his Fatah movement and Islamist organisations such as Hamas. "In the next few days, we will start the first steps towards achieving reconciliation," he said.

Telegraph, London