U.S. Middle East envoy says the United States could withhold loan guarantees if Israel fails to advance the peace process.
The stalled Middle East peace process is continuing to raise tensions between Israel and the United States. Israel says Washington is blaming the wrong party.
Israel reacted angrily to a threat by the United States to impose sanctions on the Jewish state. In an American TV interview, Middle East envoy George Mitchell said the United States could withhold loan guarantees if Israel fails to advance the peace process.
Prime Minister Benjamin Netanyahu responded that the Palestinians have refused to resume peace talks despite Israeli concessions. The Palestinians have demanded a complete freeze on settlement expansion before returning to negotiations and reject Israel's offer of a partial freeze.
At the weekly Cabinet meeting in Jerusalem, Mr. Netanyahu also accused the western-backed Palestinian Authority of incitement.
He condemned recent statements by Palestinian leaders who praised militants involved in deadly attacks on Israelis and who described them as "martyrs."
"This is not how you make peace," Mr. Netanyahu said. He demanded the Palestinians end incitement as required under the "Roadmap" peace plan.
Mr. Netanyahu also addressed an upsurge in violence in the Gaza Strip, which is ruled by the Islamic militant group Hamas. Last week, Palestinians stepped up mortar and rocket attacks, and Israel responded with air strikes.
"The policy of the Israeli government is clear," the Prime Minister Netanyahu said: Israel will respond with "immediate force" to any Palestinian attack.