Israel to withhold $138 million in Palestinian funds The Israeli Cabinet says it will withhold over 500 million shekels ($138 million) from the Palestinian Authority for payments given to the families of Palestinians imprisoned for carrying out attacks on Israelis

JERUSALEM -- Israel said Sunday it will withhold over $138 million from the Palestinian Authority for payments given to families of Palestinians who carried out attacks against Israelis.

The government's security Cabinet said it is implementing a law passed last year allowing Israel to withhold funds used to pay stipends to Palestinian attackers and their families from taxes Israel collects on the behalf of the PA.

Nabil Abu Rdeineh, a spokesman for Palestinian President Mahmoud Abbas, said in a statement that Israel's action was "a unilateral blow" to bilateral agreements, and that any deduction of taxes by Israel was "piracy of the Palestinian people's money."

Palestinian Prime Minister Rami Hamdallah called Israel's action "open war against the Palestinian people" and an attempt to destroy the PA.

Israel says the payments encourage violence — a claim the Palestinians reject.

In the past Palestinian officials have defended the payments by saying those involved in deadly attacks are a small percentage of those aided by the fund, and that the Palestinian Authority has a responsibility to its citizens like any other government.

The freeze comes as the Palestinians face major budget cuts made last year after the United States slashed funding for the U.N.'s Palestinian refugee program UNRWA and for development programs in the Palestinian territories. The U.N.'s World Food Program also cut back services due to funding shortages.