Israeli Prime Minister Benjamin Netanyahu on Thursday ordered a halt to Israel's financial contributions to UNESCO after the UN cultural organisation granted the Palestinians full membership.
Netanyahu "ordered that Israel's $2 million-per-annum participation in the budget of UNESCO be frozen, following the organisation's decision to accept the Palestinian Authority into its ranks," the premier's office said.
"The prime minister ordered that the budget be directed to cooperative initiatives towards the same goals in the region."
The decision came three days after UNESCO voted to admit the Palestinians as a full member, over opposition from the United States and Israel.
"Such steps will not advance peace; they will only push it further away," Netanyahu said on Thursday. "The only way to reach peace is through direct negotiations without preconditions."
Washington has already suspended its contributions to UNESCO in compliance with existing US legislation banning it from financing any UN organisation that accepts Palestine as a full member. The United States provides about 22 percent of the UNESCO annual budget.
The Palestinians defended the move to seek full membership, which will give them the right to apply to classify their natural and cultural sites as World Heritage Sites.
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The bid comes as they seek to join the United Nations as full members, a move also opposed by Washington and Israel, which accuses the Palestinians of trying to circumvent peace talks.
After the UNESCO membership bid was approved, by a vote of 107-14, with 52 abstentions, Israel announced measures against the Palestinians, including the acceleration of settlement construction and a freeze on the transfer of tax money to the Palestinian Authority.
The Israeli inner cabinet decided to speed up work on the construction of 2,000 new homes in settlements in east Jerusalem and the West Bank, a move defended on Wednesday by Netanyahu, who denied it was punitive.
"We build in Jerusalem because it is our right and our obligation; not as punishment but as a basic right of our people to build its eternal capital," Netanyahu told members of parliament.
Israel claims the whole of Jerusalem as its "eternal, indivisible capital", including the city's eastern sector, which it annexed shortly after capturing it in the Six Day War of 1967 in a move never recognised internationally.
The settlement plan has been condemned by the global community, much of which regards Jewish settlement in east Jerusalem and the West Bank as in violation of international law.
There has also been criticism of Israel's decision to suspend the transfer of tens of millions of dollars in customs duties levied on goods destined for Palestinian markets that transit through Israeli ports.
The money constitutes a large percentage of the Palestinian budget, and the suspension will leave the Palestinians government struggling to pay thousands of employees just before the Muslim Eid al-Adha festival.