The Palestinian Authority has rejected the monthly tax transfer from Israel after they withheld 42 million shekels (Dh42 million) over funding to families of those killed or in Israeli prisons after attacks against Israeli soldiers.
The taxes paid to Palestine are part of an agreement where Israel collects fees on imports into the occupied territories of the West Bank and Gaza strip and transfers them to the Palestinian Authority.
However, this month, the Israelis announced a freeze on funds that the Palestinian Authority spends on providing financial support to families of those killed, who carried out attacks or have been jailed by Israel.
“As for the families of martyrs, this is our duty and we will continue paying it on our account,” Palestinian News Agency, WAFA, quoted PA prime minister Rami Al Hamdallah as saying.
The PA says the payments are a form of welfare to families who have lost their main breadwinner.
Palestinian President Mahmoud Abbas said last week he would not accept partial payment of tax transfers owed by Israel.
"We shall not accept the [tax] money if it is not paid in full," Mr Abbas told a central committee of the Palestine Liberation Organisation in Ramallah in the occupied West Bank.
Israel alleges the payments encourage further violence.
As part of an Oslo Accords agreement, Israel collects almost $200 million (Dh 734 million) monthly in taxes on goods headed to Palestinian markets.
The tax transfers from Israel account for a large portion of Palestine’s budget, somewhere between 40 and 50 per cent.
Mr Abbas said Israel's decision is aimed at pressuring Palestinians to accept a peace deal being prepared by US President Donald Trump.
White House senior adviser Jared Kushner is on a tour in the region to discuss a long-awaited US proposal for peace in Palestine.
The US plans are to be formally presented after Israel's April 9 elections.