Israel is threatening to kill off a crucial West Bank economic project unless the Palestinian Authority withdraws a request to the International Criminal Court to investigate alleged Israeli crimes during last winter’s Gaza war.

Shalom Kital, an aide to defence minister Ehud Barak, said today that Israel will not release a share of the radio spectrum that has long been sought by the Palestinian Authority to enable the launch of a second mobile telecommunications company unless the PA drops its efforts to put Israeli soldiers and officers in the dock over the Israeli operation.

“It’s a condition. We are saying to the Palestinians that ‘if you want a normal life and are trying to embark on a new way, you must stop your incitement,” Mr. Kital said. “We are helping the Palestinian economy but one thing we ask them is to stop with these embarrassing charges.”

As long as the Wataniya Mobile company is unable to begin its operations, communications costs are likely to remain inordinately high for Palestinian businesses and individuals. But thwarting the company benefits four unauthorized Israeli operators who make sizeable profits in the Palestinian market using infrastructure they have set up in the illegal Israeli settlements across the West Bank.

The Qatari-owned Wataniya had begun making what was planned as the second largest private investment in West Bank history - to total seven hundred million dollars. But amid frustration at more than two years of Israeli foot-dragging over the frequencies it is now warning that if forced to miss its launch date of 15 October it may close down West Bank operations and seek the return from the Palestinian Authority of its $140m licensing fee and other damages. Mr Kital said the possibility of Wataniya closing “is something the PA will have to take into consideration.”

“This is sheer blackmail by the Israelis,” said Nabil Shaath, the former PA foreign minister. “Israel has no business stealing the frequencies, keeping them and using them as blackmail to escape an international inquiry into its violations.”

Nearly 1400 Palestinians, most of whom were not taking part in the hostilities, were killed during the Gaza war, according to the Israeli human rights group B’tselem. Fourteen Israelis died, some from Hamas rocket fire that Israel says forced it to mount its operation. A UN probe released last month found that both Israel and Hamas had committed “war crimes”.

Mr Shaath said the PA would not back down over the matter.“The Palestinians in Gaza suffered greatly and we are responsible for them. We are the aggrieved party. Israeli soldiers and those who gave orders should be questioned and be liable to prosecution.”

The Palestinian request to the ICC dates back eight months. But Israeli concern over international legal steps has intensified since the UN commission, headed by South African judge Richard Goldstone, concluded that the Israeli military judicial system did not meet international legal standards of independence and impartiality. It called for the ICC to activate an indictment process within six months unless the country mounts its own credible investigations of its troops actions.

The Israeli stance on the frequencies marks a flouting of the efforts of the international community’s Middle East envoy, Tony Blair, who last month urged that they be released and warned of harm to the local economy if Israel persisted in its refusal. Mr Kital said today that Mr Blair “is very aware” there will be no release unless the Palestinians drop their request to the ICC.