Israeli Cabinet Votes to Prevent Palestinian Authority Economic Collapse

The Israeli Security Cabinet has voted to extend a crucial waiver allowing Israeli banks to continue doing business with their Palestinian Authority (P.A.) counterparts until November 2025, Hebrew media reported Thursday night. The decision, influenced by concerns over security and foreign relations, comes amidst international pressure and ongoing tensions in Judea and Samaria.

Ahead of the vote, Israel’s National Security Council warned ministers of the “significant negative consequences” of not renewing the waiver. The United Kingdom, Germany, and France also urged Finance Minister Bezalel Smotrich to approve the extension, citing “significant steps” taken by the P.A. to combat terror financing. The European nations expressed concern that failure to renew the waiver by its November 30 deadline could cause economic upheaval in the West Bank and jeopardize regional stability.

The indemnity waiver shields Israeli banks from anti-terror laws when dealing with P.A. banks. It was initially extended by Smotrich for only one month in October but will now remain in place for two years.

The E3 nations (UK, Germany, and France) praised the P.A.’s financial institutions for steps they’ve taken to curb terrorist financing and called for future extensions to be “transparent, predictable, and de-politicized.” Cutting off banking ties, they argued, could destabilize the West Bank’s economy and pose security risks for Israel and the broader region.

Smotrich has previously threatened to let the P.A.’s economy collapse in response to its unilateral statehood initiatives and support for International Criminal Court (ICC) proceedings against Israelis. “If this causes the P.A. to collapse, let it collapse,” he declared earlier this year.

In response, U.S. Treasury Secretary Janet Yellen pledged to use “all diplomatic efforts” to prevent such a scenario, calling the waiver essential to maintaining stability. U.S. Deputy Treasury Secretary Wally Adeyemo similarly pressed for its extension during a meeting with Bank of Israel head Amir Yaron in September.

The shekel remains the dominant currency in P.A.-controlled territories, per agreements signed in the 1990s. Israel collects approximately 1 billion shekels ($275 million) annually in tax revenues for the P.A., a portion of which funds its controversial “pay-for-slay” program, providing stipends to terrorists and their families. This policy has long drawn criticism from Israel and its allies.

While the extension of the banking waiver averts an immediate economic crisis, it underscores the complex balancing act Israel faces in managing its security concerns and international relations. The decision highlights the interplay of diplomacy, economic necessity, and political tensions in a volatile region.

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