The state has reportedly granted two Israeli banks immunity from lawsuits accusing them of financing terrorism, in a bid to prevent them from ending cooperation with Palestinian banks.

According to a report Sunday in the Haaretz daily, the unusual decision was taken by the cabinet last week out of concern that if Israeli banks end the crucial financial services they supply to their Palestinian counterparts, it could lead to the collapse of the Palestinian banking system and even the Palestinian Authority.

The move comes after Israel’s Bank Hapoalim reportedly informed the government last year that it intended to end its services to Palestinian banks out of fears it could face charges from overseas, particularly from the United States, for potentially violating terrorism funding and money laundering laws.

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According to the report, Hapoalim is the main bank provider to Palestinian banks of clearing, guarantees and other services that enable them to conduct international trade. Israel Discount Bank also works with the Palestinian banks.

The two banks have asked the state to provide them with legal and financial protections, to facilitate their continued work with their Palestinian counterparts.

The cabinet decided to approve the recommendations of a special team from the finance, justice, defense and foreign ministries, which had been working together with representatives of the intelligence community for 10 months to find a solution to the issue, the report said, quoting a senior official.

The immunity would be given for a period of two years, during which the state would seek an alternative way to support the Palestinian banks, the report said, most likely by transferring the responsibility from private banks to the government.

During that period, the Palestinian banks would also work to improve on meeting international standards for combating money laundering and terror financing.