Israeli Finance Minister Yuval Steinitz rejected a Palestinian Authority request that it move up payment of NIS 380 million in tax revenues so that the PA could pay salaries before the holiday of Id al-Fitr, which began Tuesday.

Steinitz nixed the request even though professionals at both his ministry and the Defense Ministry, as well as the Customs Authority, supported it and had reached an agreement in principle with the PA on the matter. Because of this decision, a senior Israeli official noted, the PA had trouble paying thousands of its employees, including members of the security forces, before the holiday.

Under the Oslo Accords, Israel collects customs duties on the PA's behalf and transfers the money to the PA every month. Though the money belongs to the Palestinians, the actual transfer requires the finance minister's signature.

"Every month, Steinitz flexes his muscles over the money issue and makes us go through seven levels of hell for the right to receive the money, which is ours," one senior PA official complained to an Israeli colleague.

Last week, officials in the PA's Finance Ministry and the Customs Authority asked their Israeli counterparts to transfer this month's payment early in light of Id al-Fitr, the holiday that marks the end of Ramadan. The PA has had trouble paying salaries for months now due to a serious cash crunch, so it desperately needed the tax transfer if it was to pay its employees before the holiday.

The relevant Israeli officials agreed to the PA's request and carried out all the necessary preparations for transferring the NIS 380 million. The Defense Ministry and the coordinator of government activities in the territories also strongly supported the early payment.

But when the payment order was sent to Steinitz last Friday, he refused to sign it, saying it was not yet time for the regular monthly transfer.

Meanwhile, the PA Finance Ministry had taken out short-term bank loans to cover the salary payments, on the assumption that since the Israeli professionals had agreed, the transfer would soon be arriving from Israel. Now, it has no way to repay these loans.

PA Prime Minister Salam Fayyad therefore asked both Washington and the Quartet's envoy to the peace process, Tony Blair, to lean on Steinitz to approve the transfer. U.S. Ambassador to Israel Dan Shapiro met with Steinitz on Monday to urge him to do so, but Steinitz responded that he would not approve the transfer before the regularly scheduled date.

Following that conversation, Steinitz also informed Prime Minister Benjamin Netanyahu of his decision.

"We made it clear to the Americans that we will do what is specified in the agreements - not a day later and not a day earlier," a source close to Steinitz said.

Steinitz's associates said his refusal stemmed from the recent rocket fire on Israel from the Gaza Strip. "At a time when the Palestinians are firing missiles at us, we don't intend to give them holiday gifts," one stated.

But the missiles are being fired by Islamic Jihad and the Popular Resistance Committees, not PA forces, and the PA has no control over Gaza.

Israeli officials involved in the issue accused Steinitz of political motives. "The Palestinians are paying the price for the tent protests and Steinitz's poor standing in Israel's public opinion," one senior Israeli official charged.

For months, Steinitz has pushed for sanctions on the PA in light of its plan to seek United Nations recognition as a state in September. Steinitz believes the tax transfers should be used as a means of pressuring the PA to back down from its plan.

About two weeks ago, he and Defense Minister Ehud Barak clashed over this very issue at a meeting of the "Octet" forum of senior ministers. Steinitz proposed halting the tax transfers immediately and completely, while Barak argued that this would cause the PA to collapse and lead to anarchy in the West Bank. Netanyahu sided with Barak, and Steinitz's proposal wasn't adopted.

"Sanctions like those Steinitz is trying to impose will only undermine the Palestinian security services, and they're the ones who will prevent escalation after the UN move and help the Israel Defense Forces contain events," a senior defense official said yesterday. "We don't need Palestinian soldiers refusing to come to work because they have no food at home. And the fact is that with every [previous] attempt by Steinitz to flex his muscles, the international community has rushed in and he has transferred the money."