The Israeli government is facing international pressure as it suspends the transfer of some 89 million U.S. dollars of taxes that it has collected on behalf of the Palestinian National Authority (PNA), in the wake of Hamas and Fatah signing the Egypt-sponsored reconciliation deal.

Local analysts speaking to Xinhua on Thursday estimate that the money will be transferred soon, and that the EU is likely to continue providing aid to the Palestinians at least for now, though there is a strong possibility that the U.S. will end its aid.

ECONOMIC CONSEQUENCES

The current delay of the transfer has lasted a couple of days, a relatively short time compared to the two previous occasions when Israel withheld the funds: one during the second intifada, or Palestinian uprising; the second from February 2006 until July 2007 when Hamas had won the Palestinian parliamentary elections.

Avi Nudelman, CEO of the Israeli-Palestinian Chamber of Commerce and Industry, told Xinhua that at the moment it's too soon to tell what effects Israel's withholding will have, and that he isn't sure whether Israel will boycott the possible Palestinian unity government as no official decision has been taken yet.

"It's not small money. It's very important for the PNA, but now I cannot say what kind of harm it will make," Nudelman said.

Analysts told Xinhua earlier that two-thirds of the Palestinian budget comes from these revenues. Any further delay of the transfer "will certainly hurt the economy and immediately it means that there are no salaries for 170,000 Palestinian civil servants, " said Hanna Siniora, Co-CEO of the Israel Palestine Center for Research and Information.

TRANSFER TO BE CONTINUED

Prof. Munther Dajani of the Arab Al-Quds University in Jerusalem believes that Israel will soon have to release the funds as they are part of an international agreement.

Although "usually this kind of move is being coordinated with the EU and the U.S," Dajani said, however this doesn't seem to be the case this time.

Dajani's speculation was supported by some local reports, as the Israeli daily Haaretz reported that the decision to withhold the funds was taken by Israeli Finance Minister Yuval Steinitz alone and not in coordination with staff from the finance and defense ministries.

According to the report, although Steinitz has Prime Minister Benjamin Netanyahu's backing, Defense Minister Ehud Barak opposes it.

Dajani said that the international community has been imposing pressure on the Israeli government to continue transferring the funds. "Netanyahu will not be forced, however, he will be pressured and it's already on the way," Dajani told Xinhua.

Tony Blair, the Quartet's envoy visiting Jerusalem recently, told Israeli media that the funds must be transferred immediately. In addition, U.S. Secretary of State Hillary Clinton has also reportedly been in contact with Netanyahu and demanded that the money transferred.

Dajani said that "the EU and the U.S. want the reconciliation" between Fatah and Hamas, and that they recognize "Hamas is a political and not an ideological movement."

EU AID NOT IN DANGER

In the wake of the Palestinian reconciliation, Israeli Deputy Foreign Minister Danny Ayalon is calling for European sanctions against the expected Palestinian unity government, according to Israeli political sources.

Ayalon, during a visit to the Baltic states in recent days, told Estonian Foreign Minister Urmas Paet that "you have a heavy responsibility to make it clear to the Palestinians that failure to comply with the Quartet's conditions will be met with sanctions. "

The Quartet, the EU, the U.S., the United Nations and Russia, had demanded that all entities involved in the peace process recognize Israel, commit to agreements previously signed and renounce terrorism.

Prof. Alfred Tovias, of the Hebrew University of Jerusalem, told Xinhua that as long as Fatah keeps control of the foreign policy, there is little risk that the Palestinians would lose its funding from EU.

"The EU will not touch the aid at the moment. They will find enough room in the declaration made by the two (Palestinian) parties, not to suspend the aid," Tovias said.

As Hamas has noted that they want to establish the Palestinian state based on the 1967 borders instead of 1948 borders, it will be considered enough by some EU states not to proceed with tougher sanctions, according to Tovias.

The professor is of the opinion that although some EU countries, especially some eastern European states, may ask for the end of the aid, they won't have enough votes to suspend it. He added that it also usually takes long time for all of EU members to reach a consensus before any policy is changed.

Despite the relatively optimistic view on the EU aid, some local analysts have warned recently that the possible Palestinian unity government may lose its aid from Washington, as the U.S. considers Hamas as an illegal organization.