Economy Minister Naftali Bennett threatened to pull his party out of the coalition on Thursday, should the cabinet approve a deal to extend peace negotiations with the Palestinians that includes the release of Arab-Israeli prisoners.

It was the most explicit threat to dismantle the coalition made by Bennett, leader of the Bayit Hayehudi party, since the government was formed last year.

Bennett's threat followed news of progress in the discussions with the Palestinians and the United States about renewing the crisis-locked peace negotiations.

Prime Minister Benjamin Netanyahu is demanding that any deal to extend the peace talks with the Palestinians include American guarantees that the Palestinians will not leave the talks or stop them before the end of the allotted time.

A senior Israeli official said on Thursday that Netanyahu wants the Palestinians to give a clear commitment on the matter to the Americans. “We don’t want the Palestinians to blow up the talks in a few more months and have everyone blame us again,” he said.

Despite the reported progress towards resumption of the talks, Israel continues to impose economic sanctions on the Palestinian Authority. Prime Minister Benjamin Netanyahu on Wednesday instructed the Finance Ministry to stop the transfer of tax revenue that Israel collects on behalf of the Palestinians, as agreed in the 1994 Oslo Accords.

According to a senior official, Israel will use the funds, about 100 million shekels ($28.8 million) a month, toward debt repayment. The Palestinian Authority owes more than 1.4 billion shekels to Israel Electric Corporation. "The decision is a reaction to the unilateral move by the Palestinians," the official said.

Chief Palestinian negotiator Dr. Saeb Erekat was enraged by Israel's decision to withhold the Palestinian Authority's tax revenues, calling it an act of robbery akin to piracy, contrary to international law and treaties.

Special American envoy Martin Indyk met Thursday for nearly three hours with the Israeli and Palestinian negotiating teams. It was the third meeting between the parties in the last five days. Indyk will fly back to Washington for consultations on Friday and will return to the region next week after Passover eve.

In the meetings over the past few days, the two sides discussed an outline of the deal that fell through last week, though with changes that take into account the Palestinians' applications to join 15 international treaties. U.S. Secretary of State John Kerry's team proposed that the peace negotiations be extended for another nine to 12 months, during which the Palestinians would promise not to turn to international institutions such as the United Nations.

Under that deal, Israel will release a fourth batch of Palestinian prisoners convicted of violent terrorist acts, as well as 400 other prisoners. During that period, Israel will also stop most settlement construction in the West Bank. In return the United States will free Jewish-American spy Jonathan Pollard.

A senior Israeli official in Jerusalem said that Israel wants the deal to contain certain changes that reflect the events of the past week, such has the Palestinian application to join the international conventions. According to the official, the outlines of the new deal will not be significantly different from the previous one, but might include a smaller number of released prisoners – as well as the Palestinian commitment to stay in the talks for the entire duration.

A senior official in Jerusalem told Haaretz after Thursday’s meeting of the negotiating teams that there had been progress over the past 24 hours in the U.S. efforts to extend the talks. "There isn't an outline for a possible deal yet, and it's unclear if it's possible to reach a deal that would be acceptable on both sides,” he said.

Another senior official was more cautious, saying that the meeting had “ended the way it started” and that progress had not been dramatic. “We are still in the crisis,” he said.

In a press briefing on Thursday, U.S. State Department Spokeswoman Jen Psaki confirmed progress in the talks, but stressed that a deal had yet to be reached. "Our teams remain in intense talks. The gaps are narrowing, but any speculation on agreement to extend peace talks is premature."



Psaki added that Indyk will head to Washington for consultations and return to the region next week after Passover. Psaki also noted that reports about a deal having been reached were inaccurate.

Arab League Secretary-General Nabil Elaraby sounded most optimistic of all in interviews to Arab media outlets in Cairo. He said he was sure that Israel and the Palestinian Authority would be able to solve the crisis in the talks and that a solution would soon be found to the conflict over the prisoner release.

Bennett's threat to leave the coalition appeared to be coordinated with a similar one made by Deputy Foreign Minister Ze'ev Elkin. A source in Habayit Hayehudi noted that the threat was made after Bennett discussed the emerging deal with Netanyahu's senior aides earlier on Thursday.

The source said that it was Bennett's understanding that the outline of the deal would be similar to the one that fell through last week, and that it would not include a demand that the Palestinians withdraw the applications to UN bodies.

Elkin also threatened a coalition breakup over the possibility of a deal to extend the negotiations. “I call on the prime minister to refrain from going back to a deal that will include the release of masses of prisoners and a building freeze in the settlements, certainly as long as the Palestinians have not withdrawn their application to the United Nations,” Elkin said.

He added that going back to the outlines of such a deal would convey weakness and constitute “a prize to the Palestinians for their rejectionism, and only encourage their desire to goad Israel in the international arena.



"We must not turn the other cheek when they spit in our face. Giving in to Palestinian aggressiveness has always brought disaster on us. Signing a deal under the current conditions could lead to a political shock and lead Israel downhill to new elections,” Elkin said.

"If the deal under discussion includes the release of murderers with Israeli citizenship, it will be a blow to Israel's sovereignty," Bennett said in a statement. "Not only that, but the Palestinians wouldn't even have withdrawn their applications to join international treaties."

"Should such a proposal come before the cabinet, Habayit Hayehudi will oppose it. And should it be passed by the cabinet, Habayit Hayehudi will withdraw from the government. Enough is enough. It will be a case of blackmail and capitulation to terror that we cannot accept. That is the minimal possible degree of national pride and we cannot agree with it being trampled on."

Senior Likud sourcesdismissed Bennett's threat saying that "no-one is forced to stay in the government."

"Bennett's practice of issuing threats but not following through with them is well known," the sources added. "It's worth remembering that the government agreed to release prisoners because of Bennett's opposition to a construction freeze."

The sources added that Bennett's ultimatum was opposed by his party colleagues Housing Minister Uri Ariel and Pensioner Affairs Minister Uri Orbach.





