Israeli ministers continued threatening to take unilateral measures if the Palestinian Authority (PA) declares statehood without a negotiated peace agreement.

According to Israeli sources, Benjamin Netanyahu's administration may even consider withdrawing from the Oslo Accords.

Israeli Minister of Environment Gilad Erian on Monday threatened to stop delivering taxes collected on behalf of the PA. He also threatened to erect more military checkpoints in the West Bank. "We will not allow the Palestinians to declare a state unilaterally."

Infrastructure Minister Ozi Landao's threats were more specific. "The first step: Israel will announce the annexation of all West Bank settlements and [Area C] zones to Israel, which Israel has a religious right to annex. This must be clear because Israel should respond promptly to any unilateral step by the Palestinians."

He added, "Any such declaration will not scare us, and they must realize that we could take similar steps."

Palestinians are determined to build state institutions in preparation for statehood, caretaker Prime Minister Salam Fayyad said in Ramallah on Sunday. "They're talking about unilateralism, to which we reply - yes, building state institutions state is our responsibility and we embrace it."

Meanwhile, Labor member and Israeli Trade Minister Ben Eliezer said his party would pull out of Netanyahu's right-wing coalition if the government followed through with its threats.

"The Labor party cannot continue to sit in this government if it decides to annex settlements," he told Army Radio, according to Reuters. "In my opinion this whole thing about annexation is just words. I think the Palestinian threat also is just words. A ping-pong of declarations will get us nowhere, the only way forward is to bring the sides together for negotiations."

During Israel's weekly cabinet session on Sunday, Defense Minister Ehud Barak said the current impasse would increase international support for unilaterally declaring a Palestinian state within the 1967 borders.

"I don't want to ruin your day, yet, the reality is not promising," Israeli Minister of Industry Benjamin Ben Eliezer told the cabinet, "We have to resume the peace process by force, and if Abu Mazen [President Mahmoud Abbas] doesn't want to talk to us, we must find a third party to exert pressure on him, and this third party will then have to tell him that it is the Palestinians who don't want dialogue, not us."

Minister of Social Welfare Yizhak Hetzoq said holding onto settlements was paramount. "If we wish to save parts of our homeland such as Ma'ale Adumim or Gush Etzion, we have to take difficult measures such as dividing the homeland and establishing a Palestinian state."

Netanyahu warned earlier the same day that Israel was capable of declaring unilateral steps of its own. "There is no substitute for negotiations ... and any unilateral path will only unravel the framework of agreements between us and will only bring unilateral steps from Israel's side."