The Israeli Knesset has approved in a preliminary reading a draft law that would authorize the freezing of additional Palestinian clearance revenues, a move Palestinian officials and observers say will further intensify the financial crisis facing the Palestinian Authority (PA) and amount to collective economic punishment of the Palestinian people.

According to Israeli daily Haaretz, the legislation passed the Knesset General Assembly on Wednesday and will now return to the Foreign Affairs and Defense Committee for further deliberations before second and third readings.

The bill, introduced by Likud Knesset member Moshe Passal, seeks to freeze an annual sum equivalent to the amount the Palestinian Authority transferred to the Gaza Strip during the previous year.

Under the proposed legislation, the withheld Palestinian funds would be redirected to compensate Israelis affected by what the bill describes as "acts of terrorism originating from the Gaza Strip." The measure passed its first reading with the support of 12 lawmakers and no votes against.

The legislation marks another escalation in Israel's longstanding policy of withholding Palestinian clearance revenues—taxes and customs duties collected by Israel on behalf of the Palestinian Authority under the 1994 Paris Protocol, which governs economic relations between the two sides.

These clearance revenues constitute the primary source of income for the Palestinian Authority, accounting for around two-thirds of its public revenues. Palestinian officials have repeatedly stressed that Israel has no legal right to seize or redirect the funds, describing the practice as a violation of signed agreements and international law.

Israel is currently withholding an estimated 14 billion shekels (approximately $4.2 billion) in Palestinian clearance funds, claiming the money is linked to payments that "encourage and assist terrorism."

Palestinian leaders reject the accusation, saying the continued withholding of tax revenues is politically motivated and has pushed the Palestinian government into one of the worst financial crises in its history.

The prolonged seizure of Palestinian funds has left the PA struggling to pay public sector salaries, maintain healthcare and education services, and meet other essential obligations. For nearly three years, the government has relied on emergency austerity measures, borrowing, and delayed payments to keep basic institutions functioning.

Palestinian officials have repeatedly warned that Israel's withholding of tax revenues constitutes a form of collective punishment targeting millions of Palestinians, particularly at a time when the occupied Palestinian territories are facing mounting humanitarian and economic challenges.

The latest move comes as international organizations continue to warn of the deteriorating humanitarian situation in the occupied Palestinian territories and call for measures that ensure the Palestinian Authority can continue providing essential public services to its population. (ILKHA)