The accord struck between Fatah and Hamas has thrown Israel off balance, exposing its real agenda vis-à-vis the Palestinians, writes Khaled Amayreh in occupied Jerusalem Having been taken by surprise by the Egyptian-brokered reconciliation agreement between Fatah and Hamas, Israeli leaders nearly lost their composure, threatening the Palestinian Authority (PA) with "grave consequences" if the agreement went through and materialised on the ground. Israeli officials argued, rather rudely, that perpetuating Palestinian disunity was an uppermost Israeli national interest and that Israel wouldn't allow for the undermining of its interests. Some officials even sought to incite the US against the agreement, arguing that it would also imperil and ruin US regional interests and policies. Israeli Prime Minister Binyamin Netanyahu, who has long been defying regional and international appeals for a freeze of peace-killing settlement expansion in the West Bank, complained that the agreement between Hamas and Fatah to end their differences would impede peace efforts. Such claims, however, seem to lack in credibility and are not taken seriously by the bulk of the international community. Invoking old mantras about Hamas's refusal to recognise Israel, the Israeli premier completely ignored that Israel has never recognised a Palestinian state on the basis of the 1967 borders, which suggests that Netanyahu was seeking Palestinian subjugation and capitulation rather than mutual recognition. One Hamas spokesman in the Hebron region dismissed Netanyahu's threats and sabre rattling as "quite expected from a terrorist racist thug who would want to keep the Palestinian people under perpetual Jewish domination". Other Israeli leaders urged immediate reprisals against the Palestinians, including the annexation of the West Bank into Israel. Earlier, a confidential report prepared by the Israeli Foreign Ministry warned that Palestinian reconciliation would lead to the collapse in US Middle East policy and deal a substantial blow to Washington and Tel Aviv's interest in the region. It appears the sharp and exaggerated tone of the report reflects the extremist views of Foreign Minister Avigdor Lieberman who opposes a just peace settlement with the Palestinians, especially one based on UN resolutions, and who often propose draconian punitive measures against the PA. In the first practical "reprisal" against the Palestinians for daring to act counter to Israel's wishes by reconciling their differences, Israel decided to stop transferring to the Palestinian government in Ramallah tax funds and customs fees collected by Israel on the Palestinians' behalf, pursuant the Paris Economic Protocol signed in September 1995. The agreement set procedures and regulations governing economic relations between Palestine and Israel for an interim period during which the Oslo Accords were coming into force. Israeli Finance Minister Yuval Steinitz, a leading extremist, said he was "delaying" the transfer of nearly a $90 million in Palestinian tax funds to make sure the money wouldn't find its way to Hamas. Steinitz's remarks are believed to be an attempt to harass, intimidate and blackmail the PA as Palestinian financial operations are subject to meticulous international scrutiny. Palestinian officials castigated the Israeli measure as "financial piracy", and called on the Quartet, which includes the US, UN, EU and Russian to pressure Israel to stop "this absurdity". "Threats will not deter us from concluding our reconciliation process. It is our policy and will happen as soon as possible," said PA Prime Minister Salam Fayyad. Hamas leaders in the West Bank and abroad urged the PA leadership to reject Israeli interference in Palestinian internal affairs, with Ismail Haniyeh, prime minister of the Hamas-run government in Gaza, calling on PA President Mahmoud Abbas to sever all forms of security coordination with the Zionist entity. Osama Hamdan, who is in charge of Hamas's international relations, said Palestinians were better prepared to resist and withstand Israel now than they were in 2006. "Palestinian unity as well as the regional and international mood will make it difficult for Israel to carry out its virulent goals." Other Palestinian Islamist leaders suggested that the PA should even go as far as dismantling or threatening to dismantle the PA regime in its entirety if Israel insists on subjugating the Palestinians under Jewish occupation and domination. Israel, which is ruled by the most hawkish government in its history, is likely to take further hostile measures against the Palestinians, primarily in order to thwart further international recognition of a prospective Palestinian state the PA is contemplating declaring in September. Some observers have suggested that Palestinian national unity might actually encourage some leading EU states to support Palestinian plans to declare statehood. In its endeavours and public relations campaigns against the Fatah-Hamas reconciliation agreement, Israel is expected to emphasise two aspects, both of which seem disingenuous to a large extent. First, the Israeli charge that Hamas is a terrorist organisation has lost -- and is losing further -- a lot of credibility. Hamas has been working meticulously to maintain calm in the Gaza Strip, often in the face of murderous Israeli provocations and adamant opposition from Palestinian splinter groups in the Strip. Second, Israel will continue to accentuate the issue of Hamas's non-recognition of Israel. However, the issue is a red herring since Israel doesn't recognise a Palestinian state. Palestinian commentators have long argued that it would be irresponsible of Hamas -- or for that matter any other Palestinian faction -- to recognise Israel as long as the Jewish state refuses to reciprocate by recognising a prospective Palestinian state. The Palestine Liberation Organisation (PLO) did recognise Israel as part of the Oslo Accords, but Israel never agreed to recognise "Palestine" in return. As to the fact that Hamas doesn't accept previous agreements signed between Israel and the PLO, Palestinian Islamist officials argued repeatedly that these agreements are too vague to be accepted. "How can you accept such an agreement? Even Israel and the PA don't have a common understanding of most if not all of these agreements," said Aziz Duweik, speaker of the Palestinian Legislative Council. Duweik argued that the real reason behind Israeli recalcitrance and rejectionism is fear that the reincorporation of Hamas into mainstream Palestinian politics would put the Palestinian people in a better position to claim their rights from under the yolk of Israeli colonialism. "They know that with Hamas in government, the ceiling of Palestinian rights and aspirations would be higher and Israel's efforts to bully and blackmail the Palestinian leadership would be thwarted and rejected." Palestinian officials have long argued that national unity government would not interfere with peace talks since this file falls under exclusive PLO responsibility. And Hamas is not a member of the PLO. A final point: the convulsive Israeli reaction to the success of Palestinian reconciliation efforts seems to suggest that Israel is yet to fully absorb the deep changes that have taken place in the Arab world. Israeli leaders have been speaking despairingly and bitterly of the "anti-Israeli course" taken by the new leadership in Cairo. Israel has warned Egypt against cosying up to Hamas and opening the Rafah Crossing. However, Egyptian officials retorted coolly but firmly, telling Israel that, "This is none of your business." One Egyptian commentator remarked on Israel's continued insolence towards Egypt, saying, "They are behaving as if Mubarak is still in power in Cairo."