Israel celebrated last weekend its success at the United Nations in forcing the Palestinians to defer demands that the International Criminal Court investigate allegations of war crimes committed by Israel during its winter assault on the Gaza Strip.

The about-turn, following vigorous lobbying from Israel and the United States, appears to have buried the damning report of Richard Goldstone into the fighting, which killed almost 1,400 Palestinians, most of them civilians.

Israeli diplomats suggested on Sunday that Washington had promised the Palestinian Authority, in return for delaying the Goldstone-mandated probe, that the United States would apply “significant pressure” on Benjamin Netanyahu, the Israeli prime minister, to move ahead on a diplomatic process when the US envoy, George Mitchell, arrives in the region tomorrow.

But, according to Israeli and Palestinian analysts, diplomatic arm-twisting may not have been the only factor in the PA’s change of heart. Haaretz newspaper reported last week that, behind the scenes, Palestinian officials had faced threats that Israel would retaliate by inflicting enormous damage on the beleaguered Palestinian economy.

In particular, Israel warned it would renege on a commitment to allot radio frequencies to allow Wataniya, a mobile phone provider, to begin operations this month in the West Bank. The telecommunications industry is the bedrock of the Palestinian economy, with the current monopoly company, PalTel, accounting for half the worth of the Palestinian stock exchange. The collapse of the Wataniya deal would have cost the Palestinian Authority hundreds of millions of dollars in penalties, blocked massive investment in the local economy and jeopardised about 2,500 jobs.

Omar Barghouti, a Jerusalem-based founder of a Palestinian movement for an academic and cultural boycott of Israel, denounced the Palestinian Authority’s move: “Trading off Palestinian rights and the fundamental duty to protect the Palestinians under occupation for personal gains is the textbook definition of collaboration and betrayal.”

The deal to establish Wataniya, a joint venture between a Qatar Telecom-owned company of the same name based in Kuwait, and PIF, a Palestinian investment company, as the second Palestinian mobile phone operator has been at the centre of the international community’s plans to revive the West Bank’s economy and show that Palestinians are better off under Mr Abbas’s rule than Hamas.

Tony Blair, the Middle East envoy representing the so-called Quartet of the United States, Russia, the UN and the EU, brokered the agreement last summer, saying Wataniya’s investment of more than US$700 million (Dh2.6 billion) over the next 10 years would “provide a much-needed boost to the Palestinian economy”.

But while Mr Netanyahu has welcomed the deal as part of his plans for an “economic peace”, an option he prefers to Palestinian statehood, Israel has been dragging its feet in allocating the necessary frequencies. Wataniya’s planned launch this year had to be pushed back and the company has threatened to pull out of the deal if the new October 15 deadline is missed. If it does, the Palestinian Authority will have to repay $140m in licensing fees and could be liable for hundreds of millions more that Wataniya has invested in building 350 communication masts across the West Bank.

According to Who Profits?, an Israeli organisation that investigates links between Israel and international companies in exploiting the occupied territories, Israel has a vested interest in limiting the success of the Palestinian mobile phone industry and protecting its control over extensive parts of the West Bank it wants for Jewish settlement.

The only existing Palestinian operator, Jawwal, a subsidiary of PalTel, has been blocked from building communications infrastructure in the so-called Area C of the West Bank, comprising 60 per cent of the territory, which is designated under full Israeli control.

Instead, four Israeli companies – Cellcom, Orange, Pelephone and Mirs – have built an extensive network of antennas and transmission stations for Jewish settlers in Area C. Mirs, a subsidiary of Motorola Israel, also has an exclusive licence to provide cellular services to the Israeli military.

Typically, Palestinians travelling outside the major population areas of the West Bank find a limited or non-existent Jawwal service and therefore have to rely on the Israeli companies.

A World Bank report last year found that as much as 45 per cent of the Palestinian mobile phone market may be in the hands of the Israeli companies. In violation of the Oslo Accords, these firms do not pay taxes to the PA for their commercial activity, losing the Palestinian treasury revenues of up to $60m a year. Israeli companies also rake off additional surcharges on connections made by Palestinians using Jawwal, including calls between mobile phones and landlines, between the West Bank and Gaza and many within Area C, and international calls.

Dalit Baum, a founder of Who Profits?, said the importance of the telecommunications industry to the Palestinian economy made it a point of leverage over the PA at moments of diplomatic crisis, such as the Goldstone report.