Prime Minister Benjamin Netanyahu's decision to move ahead on construction in the E-1 corridor linking Ma'aleh Adumim and Jerusalem could turn into another Western Wall tunnel affair.

When Netanyahu opened the tunnel in 1996, he sparked bloody riots in the territories. When he declared on Friday that the establishment of the new neighborhood of Mevasseret Adumim was moving ahead, he brought the wrath of the United States, and Israel's close friends in Europe, down on him.

Israel's punitive steps against the Palestinians continued Sunday with the confiscation of NIS 460 million in Palestinian tax money. The next step will apparently be to restrict the movements of senior Palestinian officials, including PA President Mahmoud Abbas.

In Washington, Paris, London and Berlin there was a feeling before the UN General Assembly resolution Thursday that Netanyahu had gotten the message and would take no hasty steps the day after the United Nations voted to upgrade the Palestinians to nonmember observer state. When it turned out that this was not the case, the frustration and anger directed at the Israeli government increased.

Israel's greatest friends in the world see Netanyahu as an ungrateful politician who does not appreciate the extensive international support he has received concerning the Gaza operation, sanctions on Iran, and security and intelligence cooperation.

The punitive measures Israel has taken against the Palestinians do at least as damage to Israel as to the Palestinians. The announcement of the spate of construction in the settlements and the advancement of the E-1 project has led to an unprecedented diplomatic crisis between Israel and the United States and European Union. Confiscating the PA's tax money means salaries will not be paid to the PA security forces, and that will certainly not increase their motivation to cooperate with the IDF and the Shin Bet security service to stop terror attacks.

For Netanyahu, the upcoming election seems to have tipped the balance in favor of harsh measures against the Palestinians, as ultra-right-wing politician Naftali Bennett (Habayit Hayehudi) breathes down the prime minister's neck and Foreign Minister Avigdor Lieberman, is attempting to use his increased influence to push for the toppling of the PA.

The populism flowed like wine at Sunday's cabinet meeting. Netanyahu said the Palestinians want to destroy Israel through the peace process, no less. An Iranian bomb? Chemical weapons in the hands of Hezbollah? Forget them - the new threat to Israel's survival is Mahmoud Abbas.

Netanyahu even compared Thursday's resolution with the 1975 UN resolution equating Zionism with racism. That comparison is baseless. The statehood decision speaks of a renewal of the peace process, Palestinian recognition of Israel and a resolution of the core issues through negotiations. The 1975 resolution, by contrast, said Zionism was a threat to world peace and a racist imperialist ideology.

But one aspect of the comparison Netanyahu made did have some foundation. Both the 1975 resolution and the statehood vote were the result of a serious diplomatic failure by Israel. In 1977, it was Menachem Begin who began to extricate Israel from its isolation. It is unclear if there is anyone willing and able to do so in 2013.