In his zeal to punish Palestinian Authority President Mahmoud Abbas for assorted affronts real and imagined, Prime Minister Binyamin Netanyahu may be Hamas’s most important benefactor.

The Islamic terror organization has many friends – Iran, Syria, Hezbollah – but none is doing as much to expand its power and popularity from the Gaza Strip to all of the West Bank as the Netanyahu government.

It finally dawned on Netanyahu that he might be making a mistake – to say nothing of violating signed agreements – by withholding upwards of $100 million in funds that actually belong to the Palestinian Authority and are needed to pay salaries for government officials and security forces. It was yet another move that seemed almost designed to weaken Abbas and strengthen his Hamas opponents.

Finding himself under pressure from all sides, the prime minister has hinted he might release the funds. Immediately his ultranationalist foreign minister, Avigdor Lieberman, denounced the move as “irresponsible” and declared his “adamant” opposition. But he backed away from an earlier threat to bring down the government.

Secretary of State Hillary Clinton and UN Secretary-General Ban Ki-moon have been pressing Netanyahu to adhere to Israel’s commitments and release the funds.

The most persuasive opposition to the freeze comes from Israel’s security establishment.

It maintains that a fully functioning PA is in Israel’s interest. It doesn’t want to see the PA collapse or give Abbas an excuse to carry out his on-and-off threats to shut it down.

Look for Netanyahu to try to save face by declaring victory, claiming that Abbas has “calmed down” in the wake of failed “unilateral moves” at the UN, pulled back applications to join other UN agencies and failed in his latest effort to reconcile with Hamas.

The mercurial Abbas doesn’t help matters himself with his repeated threats of resignation, dismantlement and reconciliation plus his refusal to talk peace with Israel until his conditions are met.

THE BIGGEST danger facing both Netanyahu and Abbas is that they may get carried away with their own politically motivated rhetoric and step off the proverbial cliff. When Abbas raised the specter of dismantling the PA at a Fatah Revolutionary Council meeting last month, Council members responded by forming a study committee. They knew he was bluffing and they understood the risks of going through with it, according to diplomatic and media sources.

A decision to shut down the PA could prove disastrous for Palestinian aspirations for statehood because it could easily be interpreted by many as an admission they are not ready to govern themselves.

“It’s not a realistic threat,” said Robert Danin, the former head of Tony Blair’s Jerusalem Quartet mission. “The PA won’t dissolve itself because Palestinian leaders don’t want to deprive themselves of the tax revenues that the PA generates and they have too strong a vested interest in preserving power.”

For Israel, the PA eases the burden of occupation. Without it Israel would have to assume all the aspects of occupation as it did prior to the 1993 Oslo Accords, including a return of the civil administration that was responsible for everything from garbage collection to administering municipal governments.

The IDF doesn’t want to send its solders back to patrolling the mean streets of the West Bank like cops on the beat. But most important, it is pleased with the job PA security forces are doing in enforcing public safety and especially in preventing terror attacks from the West Bank.

If the PA cannot pay salaries of its employees and security forces, it will lose its standing in the eyes of the people. The would only benefit Hamas.

“It is inexplicable why Israel is hurting [Palestinian Prime Minister] Salaam Fayyad more than anyone,” Danin said. “He’s the one person who has brought fiscal responsibility and transformed the security forces from two dozen undisciplined rival groups to a unified professional force answerable to civilian rule.

“Why endanger this guy by withholding Palestinians’ own funds that Israel is not entitled to? It doesn’t serve Israel’s or the PA’s interest; the only beneficiaries are those who want the PA to fail,” he said.

Abbas and Netanyahu don’t trust each other, and the Palestinian leader has lost the confidence of US President Barack Obama as a result of his refusal to engage in unconditional direct talks. Israel is unhappy with Abbas’ demands for a total settlement freeze and acceptance of the 1967 lines as a starting point for negotiations.

Relations are further strained by the PA’s efforts to challenge Israel in international forums, by seeking unilateral recognition by the UN and by getting membership in UNESCO.

“Clearly Israel has a desire to exert leverage over the PA,” said Danin, a former senior State Department and National Security Council Middle East specialist. “But freezing funds only creates an unnecessary linkage.”

Netanyahu’s anger and frustration with Abbas not only led to the freeze but also contributed to the decision to boost Hamas’ popularity by releasing 1,027 of its followers in exchange for a single Israeli soldier. One unintended consequence of the prime minister’s action could well be a Hamas victory in next year’s elections.

It’s not out of the question that would not disappoint Netanyahu because it would give him the excuse he thinks he needs to avoid negotiations.

The Netanyahu government’s reactive approach has failed to meet the challenges posed by the PA’s diplomatic offensive by producing creative and daring initiatives of its own.

“The whole history of Israel has been one of taking the initiative, not playing defense, and that is what makes the current situation so hard to understand,” Danin said.