The cabinet decided Monday to uphold the suspension on the transfer of funds to the Palestinian Authority as decided less than two weeks ago.
Israel transfers some $100 million in tax payments to the PA every month. Last month, the eight-minister forum decided to withhold funds from Ramallah following the PA's admission to UNESCO.
Defense Minister Ehud Barak opposed the move and has stressed in private talks that withholding funds will compromise the PA's ability to pay security forces working to thwart terror attacks in the West Bank.
Barak and officials in the defense establishment pressured the government to release the funds.
Finance Minister Yuval Steinitz on the other hand has pushed for funding cuts in order to punish the Palestinians for their unilateral steps.
Last week, sources in Jerusalem told Ynet is likely to renew its funds transfer to the Palestinian Authority following the US Congress' decision to unfreeze some $200 million in Palestinian security assistance.
A Jerusalem official told Ynet that "Israel does not wish to see the Palestinian Authority crumble… we want to see the issue resolved soon."
- Receive Ynetnews updates
directly to your desktop