ISRAEL will not cancel any agreement with the Palestinians over the vote for "non-member observer state" at the UN, but rather uphold them "to the letter", an official says.
"We have no intention on cancelling any agreement, particularly in the economic field," Israel foreign ministry spokesman Yigal Palmor told AFP. "What we will do after this vote is to apply the agreements to the letter."
Palmor reiterated that in applying for the upgraded status at the UN General Assembly, scheduled for Thursday, the Palestinians were "flagrantly violating the commitments they made to resolve the conflict with Israel through negotiations and not unilateral moves".
Israel had insinuated it was considering a variety of punitive measures in retaliation to the Palestinian move, ranging from freezing the transfer of tax and customs funds it collects for the Palestinians to "toppling" the Palestinian Authority, as one Israeli foreign ministry policy paper suggested.
But such unilateral moves would be contrary to the 1993 Oslo Accords, and weaken the Israeli claim it is upholding them while the Palestinians are in violation of the agreements that were intended to pave the way for a full resolution of the conflict.
An Israeli official speaking on condition of anonymity said Israel would not freeze the transfer of funds to the Palestinians, a punitive measure used in the past, but rather could skim off those monies to pay off debts racked up by the Palestinians.
"We could extract some of these funds to pay off the debts accumulated by the Palestinian Authority we hadn't taken until now," he said. "Arrears to the Israel Electric Company amounted to over $700 million shekels ($A162.89 million)."
"Israel could also reduce the amount of water it supplies, since we supply the Palestinians far more than what the agreements necessitate," the official said.
Other proposed sanctions include a possible reduction in the number of work permits for Palestinians employed in Israel or Israeli settlements, or a reexamination of VIP travel arrangements for senior Palestinian officials in the West Bank, the official said.
Annexation of settlement blocs in the West Bank, as some rightwing Israeli members of parliament proposed, was not being considered, said the official.
Palestinian president Mahmud Abbas will bring his bid to the UN General Assembly and indicate his conditions for talks with Israel in a speech Thursday.
He is guaranteed an overwhelming victory in the 193-nation assembly even though the United States and Israel fiercely oppose the move and other major powers have their doubts.
Earlier Israel's deputy foreign minister also downplayed the Palestinians' statehood bid at the United Nations, saying it's a "virtual move without any substance" that could boomerang against them.
Danny Ayalon told Army Radio on Thursday that the measure was also "serious violation" of peace accords between the two sides.
He said Israel will consequently feel itself "less bound" by those agreements, and could respond by withholding funds or security cooperation from the West Bank-based Palestinian Authority.
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