AL QUDS, Feb 19: Israel’s cabinet on Sunday approved an immediate freeze on the transfer of about $50 million in tax money to the Palestinians in its first response to the takeover of the Palestinian parliament by the militant group Hamas.

The cabinet held off on taking even more drastic action recommended by security officials, mindful of possible international reaction.

The decision means that Israel will halt the transfer taxes it collects monthly on behalf of the Palestinians under a 1994 economic accord. That money accounts for nearly half of the Palestinian Authority’s payroll and could compromise the ability of the Palestinian government— the largest employers in the territories— to pay salaries.

Should the government find itself unable to meet its payroll, it could be forced to fire tens of thousands of people, creating even greater volatility and desperation in areas already flush with guns and mired in poverty.

The decision came a day after a new Hamas-dominated Palestinian legislature was sworn into office and tapped to form the next government. Israel had promised that relations with the Palestinians would suffer the moment that happened.

The Palestinian Authority has become “a terrorist authority,” and all funds to it must be halted, acting Israeli Prime Minister Ehud Olmert told the cabinet.

Israel, he added, “won’t have contacts with a government in which Hamas takes part”.

Hamas’ new parliament speaker, Abdel Aziz Duaik, denounced the move as a ploy motivated by political concerns ahead of Israel’s March 28, elections. “This is a wrong decision, and the Israelis must reconsider it,” Mr Duaik said.

Hamas is sworn to Israel’s destruction and has killed hundreds of Israelis in suicide bombings. Since sweeping Jan 25, Palestinian elections, it has refused to cave in to international pressure to disarm and recognise Israel’s right to exist.

On Sunday, Hamas nominated the pragmatic Ismail Haniyeh to be its prime minister, a move that could be intended to put a more moderate face on the group as it takes power.

Palestinian leader Mahmoud Abbas was expected to travel to the Gaza Strip later on Sunday to formally charge Mr Haniyeh with the task of putting together a new cabinet.

Ismail Haniyeh said a Hamas delegation would begin consultations with possible coalition partners on Monday.—AP