Israel Releasing Some Funds to Palestinians

JERUSALEM — Israel agreed Monday to release about a third of the millions of dollars in tax revenues it owes the Palestinian Authority in exchange for Palestinian help in investigating last month’s market bombings in Jerusalem and the slaying last week of an Israeli taxi driver.

But Israeli officials, commenting on Prime Minister Benjamin Netanyahu’s decision to approve the transfer of $12 million to the Palestinians today, said additional funds will not be released until the Palestinian Authority acts more forcefully against Islamic militants. The Israeli government cut off about $40 million in payments to the Palestinians after the Jerusalem attack, which killed 16 people, including the two suicide bombers.

“They have still not done the thing that is absolutely essential, and that is to take action against the infrastructure” of the militant groups, said David Bar-Illan, a Netanyahu spokesman.

Palestinian officials welcomed the decision to transfer the badly needed funds but said, in turn, that Israel’s action was not enough.

“So our situation is better now than it was yesterday and worse than a month ago,” said Marwan Kanafani, a close advisor to Palestinian Authority President Yasser Arafat. “But Israel is still using these funds as a kind of blackmail against us. This is money owed to us. It doesn’t belong to Israel.”

In Washington, a senior U.S. official welcomed the release of the funds and urged the Israeli government to free the rest of the money promptly. “It is important for [the Palestinians] to see that when they work together [with the Israelis], something positive happens,” the official said.

Since the July 30 bombings, the United States and other nations have expressed growing concern about the Palestinians’ economic plight and have repeatedly urged Israel to ease the sanctions. Under the peace agreements, Israel is obligated each month to collect taxes and fees on Palestinian goods and labor and transfer them into a fund controlled by the Palestinian Authority. The money amounts to nearly two-thirds of the Palestinian budget.

By borrowing heavily, the Palestinians have managed to pay about 60% of their 80,000 employees the salaries they were owed Aug. 1, U.S. and Palestinian officials said Monday. The rest have yet to be paid.

“The authority is in an extremely difficult situation,” said Salam Fayyad, the International Monetary Fund’s representative in the West Bank and Gaza Strip. “Nothing less than the full amount will bring them even close to meeting their financial obligations.”

Israel has gradually eased several of the measures imposed on the Palestinian government and population in the wake of the twin explosions in the outdoor Jerusalem market. Most of the internal blockades that prevented Palestinians from traveling within the West Bank have now been lifted, but virtually all Palestinians are still forbidden to enter Israel.

Nonetheless, the decision to release the money was viewed as an indication that security cooperation between the two sides has improved, at least slightly, since a visit to the region last week by U.S. envoy Dennis B. Ross.

During a four-day mission, the peace mediator worked out a framework designed to encourage Israelis and Palestinians to share information and gradually rebuild the confidence destroyed by the bombings and months of deadlock in peace negotiations.

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The new arrangement evidently bore its first fruit Sunday. During a meeting between Israeli and Palestinian officials, with CIA representatives serving as arbiters, the Palestinians provided their Israeli counterparts with samples of explosives discovered shortly before the Jerusalem attack in a bomb laboratory near the West Bank city of Bethlehem. The Israelis have wanted to examine the explosives, in hopes of learning whether those used in Jerusalem might have originated in the factory in the village of Beit Sahur.

American officials have said they do not want to comment on the value of the information being traded in the meetings; a senior U.S. diplomat has described the fragile, just renewed security cooperation as a “mushroom” that grows best when left in the dark, undisturbed. But U.S. officials described the meeting and Israel’s decision to ease its sanctions as small but significant steps toward easing tensions and restoring trust.

Another apparent factor in Israel’s decision to release the funds was the help provided by Palestinian security forces in finding the killers of Israeli taxi driver Shmuel Ben-Baruch, whose body was discovered late Friday in the West Bank. By late Saturday, three young Palestinians, who said they had intended only to steal the man’s car, had been tried and convicted of his murder. On Saturday night, Netanyahu sent an envoy to thank Arafat for Palestinian assistance in solving the slaying.

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Times staff writer Norman Kempster in Washington contributed to this report.