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The Palestinian Authority has agreed to accept tax revenue gathered by Israel, according to Sky News Arabia.
The decision comes a day after Israel's cabinet approved the transfer of frozen Palestinian tax funds, which will be held by Norway in a trust fund, as fears rise that the occupied West Bank is on the brink of economic collapse.
The sum will not include a share of the funds normally sent to Gaza, according to the report.
The Palestinian Authority originally refused anything other than the full amount held by Israel that the authority was due.
Under interim peace accords, Israel's Finance Ministry collects import taxes on behalf of the Palestinians and makes monthly transfers to the authority, which has limited autonomy in the West Bank, but there have been constant wrangling over the arrangement.
These transfers account for 64 per cent of the authority's revenue.
Since the outbreak of the Gaza war in October, the Palestinian Authority, a major employer in the West Bank, has struggled to pay employee salaries in full. In November, they were not paid at all.
Palestinian Authority sources fear that without a release of the funds held by Israel, the authority will not be able to pay salaries in February, a potential tipping point for the fragile region.
The Israeli cabinet said it reserved the right to decide when the funds will be transferred from Oslo to the authority.
Far-right Israeli National Security Minister Itamar Ben-Gvir opposed the move, pitting himself against the US and a growing segment within Israeli security circles who warn that impending economic collapse in the West Bank could tip the region into anarchy, a severe danger for Israel.
Mr Ben-Gvir, in response to the decision, accused Israeli Prime Minster Benjamin Netanyahu of “constantly moving the red line”.
Mr Netanyahu said the cabinet decision was supported by the US, which will act as a guarantor.
The money will not be transferred “under any circumstances, except with the approval of the Minister of Finance of Israel, not even through a third party”, he wrote on X.
“Any violation of the agreement allows the Minister of Finance to immediately freeze all of the Palestinians' settlement funds,” he added.
Far-right Israeli Finance Minister Bezalel Smotrich is one of the most extreme figures in Mr Netanyahu's government. The pro-settlement politician has frequently pursued a hawkish line on Israeli relations with the Palestinian Authority.
Critics of Mr Smotrich, himself a high-profile settler, accuse the minister of being a “pyromaniac” in his approach to the West Bank.
Hussein Al Sheikh, secretary general of the executive committee of the Palestine Liberation Organisation, on Sunday said on X that Palestinian leaders were “examining all proposals to solve the current financial crisis as a result of Israel’s withholding of our funds”.
“The Palestinian leadership insists on its position of commitment to our people in the Gaza Strip,” he said.
“The leadership appreciates the efforts made by brotherly and friendly countries to end the financial crisis. At the same time, the leadership demands an end to this destructive war and this continuing aggression against our people throughout the country.”
