Israel was weighing its options Sunday for further punishing the Palestinians after freezing millions in tax revenues as a first response to their bid to join the International Criminal Court.
The Palestinian move to join the Hague-based court sets the scene for potential legal action against Israel for war crimes, in a bid to put pressure on it to pull out of the territories.
But the request to join the court, formally presented on Friday, infuriated Israel which quickly moved to freeze the transfer of half a billion shekels ($127 million/106 million euros) in tax revenues to the Palestinian Authority.
"The Palestinian Authority has chosen to take a path of confrontation with Israel, and we will not sit idly by," Prime Minister Benjamin Netanyahu told cabinet ministers on Sunday, vowing to put up a vigorous defence of Israel's soldiers.
Palestinian chief negotiator Saeb Erakat denounced the freezing of the transfer as "piracy", and Hamas said it amounted to "the theft of Palestinian money", urging the leadership to cut all security cooperation with Israel.
But Israeli officials warned it was only the first in a series of punitive measures.
"If the Palestinian Authority doesn't take a step back, I think we have to take much more severe steps," said Strategic Affairs Minister Yuval Steinitz, a close associate of Netanyahu, referring to a "gradual dissolution" of the PA.
"We should not aid the existence of this authority."
Israel may also file countersuits against top Palestinian officials, a source close to the government said on Friday.
- Israel in 'attack mode' -
But, in an unusual development, Israel was not planning to announce any new settlement construction, a senior foreign ministry official said on Sunday.
Speaking to Israeli diplomats serving in Europe, foreign ministry director general Nissim Ben Sheetrit said Israel's response would be "harsher and more comprehensive" than just freezing the taxes, but would not include settlement announcements, ministry spokesman Emmanuel Nahshon told AFP.
"Israel is about to switch from defence to attack mode," Nahshon quoted him as saying, confirming comments first published by the Haaretz website.
After the Palestinians won the upgraded UN rank of observer state in November 2012, Israel froze the tax monies and also announced plans for 3,000 homes in a highly sensitive area of the West Bank, as well as in annexed east Jerusalem, triggering a furious response from the international community.
A senior official quoted by Haaretz said the government had learned a lesson from that incident and would not be taking any steps making Israel the focus of criticism rather than the Palestinians.
"We will not let Israel Defence Forces soldiers and officers be dragged to the International Criminal Court in The Hague," Netanyahu told ministers, vowing to defend them with "determination".
The ICC can prosecute individuals accused of genocide, crimes against humanity and war crimes committed since July 1, 2002, when the court's founding treaty, the Rome Statute, came into force.
- 'Israeli crimes in Gaza' -
Speaking to AFP, a Palestinian legal expert said the first case that would be referred to the ICC would be the "crimes" committed by Israel during summer 2014, including the Gaza war.
Shawan Jabarin, director of the Ramallah-based rights group Al-Haq, said the Palestinians had decided to file suit over Israel's actions in the West Bank and Gaza Strip starting from June 13, 2013.
That was the date when Israel began a massive West Bank crackdown after the kidnapping and subsequent murder of three Israeli teenagers, triggering a series of events which led to the seven-week Gaza war.
A high-ranking legal official quoted by the top-selling Yediot Aharonot said Israel was ready to counter with its own lawsuits against senior Palestinian officials.
"These lawsuits, which are backed up with evidence, documents and affidavits, can be filed as early as tomorrow morning," he told the paper.
The basis of the complaints would be that Palestinian president Mahmud Abbas's partnership in a consensus government with Hamas makes him complicit in the militant group's rocket attacks from Gaza on civilians in Israel.
Under an economic agreement between the sides signed in 1994, Israel transfers to the PA tens of millions of dollars each month in customs duties levied on goods destined for Palestinian markets that transit through Israeli ports.
The tax revenues make up around two-thirds of the PA's annual budget, excluding foreign aid.