As thousands of volunteers took to the streets of the West Bank to distribute lists of companies whose products the Palestinian Authority wants to ban from shelves in shops and homes, Israeli groups representing settlers and manufacturers mulled their own response to what is quickly becoming a new front in the Palestinian-Israeli conflict.

The Yesha Council of Settlements, the body that represents Jewish settlers in occupied Palestinian territory, on Wednesday joined forces with the Israel Manufacturers’ Association, which has called on the Israeli government to close Israeli ports to Palestinian goods should the boycott - of products that originate in settlements - continue.

The Yesha Council denounced the Palestinian boycott as a “hostile act”, in a statement released on Wednesday, and urged the Israeli government to respond “immediately and sharply”.

In language that Palestinians are holding up as proof that the boycott is working, the Yesha Council also called on the Israeli government to announce that it would not participate in US-mediated indirect negotiations if they include Salam Fayyad, the Palestinian prime minister, because he is engaging in “economic terrorism” against Israel, according to the settlers.

The Israeli government has been sharply critical of the boycott, which it holds up as a violation of the Paris Protocol, the economic accords that accompanied the Oslo accords and were agreed in 1994. So far, however, Israel has not taken any steps against the PA in response, wary of upsetting the US, which only recently succeeded in persuading the two sides to return to the negotiating table, if only by proxy.

Palestinian officials, meanwhile, reject the accusation that the boycott violates the Paris Protocol.

“The Paris Protocol talks about Israeli goods,” said Ghassan Khatib, head of the Palestinian government’s Media Centre. “Since settlements are illegal under international law and their status has not been decided in negotiations, you cannot define goods made in settlements as Israeli goods. There is nothing illegal about the boycott.”

Rather, the Israeli reaction shows, said Mr Khatib, that the boycott is working. Indeed, according to The Washington Post on Sunday, 17 businesses in the Maaleh Adumim settlement, the largest in occupied territory, have closed since the boycott began. Some sources suggest that as many as 23 businesses may have had to shut their doors in the past few months.

Palestinian consumers are a prime market for Israeli settlement products, and the Palestinian ministry of national economy estimates that the annual trade is worth US$200 million (Dh808m). Moreover, less stringent manufacturing regulations and access to cheap Palestinian labour have seen many Israeli companies relocate to settlements in recent years.

“The entire Israeli industrial sector is now mobilising to ensure that the boycott does not extend to other Israeli goods,” said Sam Bahour, a Palestinian economist, who said the boycott was proving to be a “significant non-violent tool to pressure Israel to end its occupation”.

“The campaign is working and has the potential to cause huge damage to the Israeli settlement enterprise, something we haven’t been able to do for the last 40 years.”

The boycott was first announced in September of last year and has slowly gained traction. Indeed, the Palestinian private sector, keen to promote its own products, has worked with the government on the boycott, putting up $1.5m, a number the government matched, to promote the campaign.

Yesterday, university student councils from across the West Bank offered their full support for the boycott and vowed to work to ensure that it was upheld in universities and colleges. On Tuesday, the PA launched a door-to-door campaign that saw some 3,000 volunteers – wearing T-shirts that read: “Don’t let settlements into your home” – begin distributing pamphlets to Palestinians explaining the boycott and listing companies and services that originate in settlements.

The pamphlets also urge Palestinians to opt for locally made products instead.

“A five per cent swing toward Palestinian products could create tens of thousands of jobs. This could be a significant move,” said Nahed Freij, project manager with Intajuna, an organisation that seeks to promote local products in the Palestinian market.

But a backlash is brewing in Israel. Activists recently launched a counter-campaign to boycott Palestinian goods.

One activist told the Yedioth Ahronot daily newspaper that, “when their products are boycotted they will feel the financial damage 10 times worse and come back with their tails between their legs to ask for things to return to the way they were. Then the world will see who the enlightened ones are and who the warmongers are.”

Such a reaction, suggested Mr Khatib, would be disingenuous.

“It would be difficult for the Israeli government to ban Palestinian goods, because such a move would be clearly in breach of the Paris Protocol.”

Moreover, he said, with a balance of trade four-to-one in Israel’s favour, the economic damage would mostly be sustained on the Israeli side.