Israel said on Thursday it would proceed with a tax revenue transfer to the Palestinian Authority (PA) in the occupied West Bank but would withhold funds bound for Hamas-ruled Gaza, where the PA helps cover public sector wages and pay for electricity.

Following a debate over whether to make the transfer as Israel battles Hamas militants in Gaza, the Israeli cabinet said it would also withhold money to offset stipends the PA pays to Palestinian militants and their families.

There was no immediate comment from the PA, which in the past has refused to accept trimmed tax transfers. The PA is estimated to spend some 30% of its budget in Gaza, where it also pays for medicine and social assistance programs.

The Western-backed PA exercises limited self-rule in the West Bank but does not administer Gaza, where Islamist rival Hamas seized control in a brief civil war in 2007. The PA still has thousands of Gaza civil servants on its payroll.

Under interim peace accords, Israel collects taxes on the Palestinians' behalf and typically transfers them to the PA monthly on the approval of the finance minister. The latest transfer was due to be released by the end of October.

Finance Minister Bezalel Smotrich had refused to release the funds, accusing the PA of supporting the "horrific massacres of the Nazi terror organization Hamas" after the group's deadly Oct. 7 attack in Israel.

He had rejected an appeal by Defence Minister Yoav Gallant, who called for the funds to be disbursed to help restore stability to the volatile West Bank where there has been a surge in violence since the Hamas attack.

The cabinet's announcement that funding for Gaza and militants' families would be excluded appeared to strike a compromise between the two ministers' demands.

PA President Mahmoud Abbas said earlier on Thursday that Gaza is facing "a war of genocide and massacres" and demanded an immediate halt to Israeli attacks and a release of prisoners. He has also condemned killing of civilians on both sides.

Together with aid from foreign donors, the tax funds make up the bulk of the cash-strapped PA's public revenues and also help pay for civil servant salaries and other services in the West Bank.

In 2019, the Palestinians rejected the tax money several times after Israel cut the sum over the PA's support to the families of jailed or slain Palestinian militants.