Israeli punitive measures against the Palestinian Authority will lead to its collapse, a senior Fatah official said on Wednesday.

Azzam Al-Ahmad said Israel and the US together would be responsible if the PA is toppled, and for the ramifications of such an eventuality, Israel Radio reported.

With peace talks all but dead, Jerusalem geared up Wednesday to penalize the Palestinians for applying to join 15 international treaties and conventions last week. A senior Israeli official said that Israel was seriously considering a drastic cut to the amount of tax money it collects and transfers to the PA.

“We’re thinking of deducting from the PA’s budget the money they spend on terrorists and their families,” the senior official told The Times of Israel. “This step would be less dramatic than cutting entirely our monthly tax payments to the PA,” he said.

Azzam Al-Ahmad (photo credit: AP/Amr Nabil/File)

Azzam Al-Ahmad (photo credit: AP/Amr Nabil/File)

Israel considers PA payments to Palestinian inmates in Israeli prisons and their families to be “funding terrorism,” the senior official said. In 2012, the PA Ministry of Prisoner Affairs transferred $75.5 million to terrorists serving in Israeli prisoners and their families, out of a total budget of $3.1 billion, according to Israeli government figures.

Prime Minister Benjamin Netanyahu has not yet decided to go ahead with the move, the official said, but as he considers various options to respond to the Palestinians’ unilateral steps, a partial freeze of the transfer of funds “could well be implemented.”

The PA’s deputy prime minister, Mohammad Mustafa, warned that punitive Israeli measures would only lead to a deterioration of the current situation. He said the Palestinians were working to prevent Israel from freezing the PA’s tax money, according to Israel Radio.

Earlier on Wednesday, Israeli sources said that government officials had been ordered not to meet with their Palestinian counterparts. The order did not include contact between the Defense Ministry and the PA — which would have hindered security cooperation in the West Bank — or communications related to peace talks.

Israeli and Palestinian negotiators were due to meet once again on Thursday, along with their American intermediaries, in an effort to prevent a total breakdown.

Jewish Home party leader Naftali Bennett, however, urged Prime Minister Benjamin Netanyahu Wednesday to turn his back on the failed negotiations and annex portions of the West Bank.

In a letter to Netanyahu, Bennett requested “to have a session as soon as possible on an alternative plan (Plan B) to begin the process of applying Israeli sovereignty on areas in Judea and Samaria that are under Israeli control.”

The economy minister listed some of the blocs he wants to annex, including Gush Etzion, Maale Adumim, the settlements of Ofra and Beit El and more. These areas are home to 440,000 Israeli settlers, Bennett argued, and only tens of thousands of Palestinians, and would therefore not cause a demographic crisis and undermine the Jewish majority.

Economy Minister Naftali Bennett, November 6, 2013 (photo credit: Yonatan Sindel/Flash90)

Economy Minister Naftali Bennett, November 6, 2013 (photo credit: Yonatan Sindel/Flash90)

“These areas enjoy a broad national consensus and have security, historical, and moral significance for the State of Israel,” he wrote.

Bennett compared the process of absorbing these areas into Israel to the incorporation of Jerusalem during the Six-Day War, and the Golan Heights during then-prime minister Menachem Begin’s reign.

The economy minister also declared the death of the peace negotiations, due to “a new record of [Palestinian] extortion and obstinacy.” Despite Israeli overtures, such as the release of prisoners, the Palestinians continue to deny recognition of Israel as a Jewish state; have violated the Oslo Accords by turning to the UN; and continue the incitement to violence against Israel, Bennett wrote.

“In light of all this, it is clear the current process has run its course and that we are entering a new era,” he said.

Responding to Kerry’s statements that construction in East Jerusalem led to the current impasse Tuesday, Bennett said “Israel will never apologize for building in Jerusalem.”

“For many years people have tried to prevent us from living in the eternal capital of the Jewish people. This won’t happen. Building in Jerusalem is not a ‘puff’ [sic], building in Jerusalem is Zionism,” he said in a statement posted to Facebook.

Raphael Ahren and Marissa Newman contributed to this report.