Hours after US Secretary of State John Kerry hinted that Israel’s announcement of 700 new Israeli housing units in Palestinian East Jerusalem has damaged the peace process, Prime Minister Benjamin Netanyahu ordered his government to cut back contacts with the Palestinian Authority (PA).

Israel and the PA rarely have ministerial level contacts, but the significance is apparent.  Palestinian officials voiced concern about the possibility of Israeli economic sanctions, and indeed Israel is considering deducting up to US$75 million in tax revenue transfers to the Palestinians.

“This decision undermines all international efforts.. to revive the negotiations, to proceed with a constructive solution to the challenges facing the peace process,” said Palestinian Authority spokesman Ehab Bseiso.

Netanyahu issued the no-contact order in response to the PA signing of 15 international agreements last week, including the Geneva Conventions covering the conduct of war and occupation.  The Palestinians did that in response to Israel's failure to carry out a promised release of several dozen Palestinian prisoners a few days earlier.

Kerry said both sides had taken positions that were “unhelpful”.