When Palestinian Authority President Mahmoud Abbas announced that he would seek recognition from the United Nations for a Palestinian state, Israel complained that Abbas should have pursued that objective in face-to-face peace negotiations and warned of grave consequences, threatening to expand settlements or even to "cancel" the peace process altogether. Now that the General Assembly has upgraded the Palestinians' status — from "observer entity" to "nonmember state" — the Israelis are proceeding in a dangerous and self-defeating way.

Part of the price the Palestinians will pay can be measured in dollars and cents. Israel has decided to withhold from the Palestinian Authority more than $100 million in tax revenue collected from West Bank importers using Israeli ports. (The funds instead will be used to repay the Palestinians' debt to Israel's electricity company.)

Israel also announced that it would construct an additional 3,000 units of Jewish housing in the West Bank and the Jerusalem area.

Most ominously, the Israeli government ordered "preliminary zoning and planning work" for thousands of housing units in areas including the "E-1" zone east of Jerusalem. Construction in that area would connect the West Bank settlement of Maale Adumim with East Jerusalem, cutting off access between the Palestinian cities of Ramallah and Bethlehem. As U.N. Secretary-General Ban Ki-moon said, it would deal "an almost fatal blow" to a two-state solution to the Israeli-Palestinian conflict because it would make it extremely difficult to configure a reasonably contiguous Palestinian state. (The Obama administration described the Israeli announcement as "counterproductive," and a State Department spokesman said that construction in E-1 "would be damaging to efforts to achieve a two-state solution.")

Perhaps the announcement about E-1 is a feint, designed to pressure Abbas to return to negotiations. But that threat, together with the shorter-term expansion of existing settlements, runs the risk of further undermining Abbas' standing with his own people and enhancing support for Hamas, the rejectionist group that controls the Gaza Strip. The decision also will complicate Israel's relationship with the new Islamist government of Egypt, which has reaffirmed a peace treaty with Israel while championing the cause of the Palestinians.

Jewish settlements in the West Bank are not now, and never have been, the only obstacle to peace between Israelis and Palestinians. But the continued creation and "thickening" of settlements are provocative and, in the eyes of most of the world, illegal under international law.

The E-1 plan could make an independent, economically viable Palestinian state impossible. Yet such a state, alongside a secure Israel, is exactly what both sides say they want. Israel's retaliatory moves seem counterproductive and likely to hurt just those moderate Palestinians who deserve to be supported. That, in turn, will hurt Israel itself.