The Knesset's Economic Affairs Committee on Sunday discussed possible responses to a new law passed last week in the Palestinian Authority, which bans Palestinians from selling or buying products produced by Israeli settlements in the West Bank.

Deputy Foreign Minister Danny Ayalon said that Israel would urge the Palestinians to cancel the boycott at a preliminary stage of the proximity talks. However, he stressed that continuation of the talks would not hinge on the removal of the ban, due to Israel's decision to commence talks without prior conditions.

The deputy minister stated that Israel was also acting to prevent the Palestinian Authority from joining the World Trade Organization (WTO) as an observer, and to block some of the European donations transferred to the Authority – estimated at $150,000 monthly (about NIS 558,000) – if those are used to fund the boycott.

Chairman of the Manufacturers Association of Israel Shraga Brosh proposed to respond to the new law by closing Israel's port to imports and exports of raw materials and goods from the Palestinian Authority.

"Our port is their oxygen tube and closing it will only hurt them, not us. As far as we are concerned, they can transfer their activities to Jordan and Saudi Arabia. This way, we will show them that after their slap in the face, we will not turn the other cheek," he said.

Brosh claimed this measure will harm the Palestinians themselves, especially in light of many efforts by Israeli elements to restore the Palestinian economy as a solid basis for a peace agreement.

"At the moment they are shooting themselves in the foot. They are aware of this, and have said during conversations we've held. The Israeli factories in the West Bank create workplaces for the Palestinians, which in turn support their economy. This is why it is appropriate to demand a high price, similar to what they are demanding of us," Brosh added.

At the end of deliberations, the committee members agreed to transfer the Palestinians a demand to immediately stop the ban – also to be reiterated by the Americans and the international Quartet.

In addition, the members called for the approval of the sanctions discussed in the meeting, and said the transfer of all tax refunds and social security funds to the Palestinian Authority should be stopped. Instead, they said, the funds should be invested in the Israeli industry, as a compensation for the damage caused by the Palestinian boycott.

Economics Committee Chairman MK Ofir Akonis (Likud) said that if necessary, the committee would promote expedited bills to approve the sanctions.