Iran is promising to bail out the cash-strapped Palestinian Authority, following the victory of the Islamic militant group Hamas in parliamentary elections a month ago. Israel, meanwhile, has expressed regret over a European Union decision to send emergency aid to the Palestinians.
Hamas officials say that Iran has agreed to provide the Palestinian Authority with enough money to make up for any cuts in foreign aid. Iran has reportedly promised Hamas about $250 million to compensate for the loss of money donated by the United States and European Union, which donate nearly $1 billion a year to the Palestinian Authority.
But the United States and Europe are threatening to cut back because they consider Hamas a terrorist organization.
Israel describes the new Hamas-Iran alliance as an axis of evil that seeks jihad, or holy war, against the Jewish state.
"Hamas, allied with Iran, in many ways sponsored by Iran, it is part of the worldwide jihadist movement," said former Prime Minister Benjamin Netanyahu.
Israel is also unhappy with a European Union decision to send $143 million in emergency aid to the Palestinian Authority. Israeli officials say no money should be given to Hamas until it renounces violence and recognizes Israel's right to exist.
Netanyahu noted that Israel is withholding $50 million monthly tax payments to the Palestinians.
"Any money that we give to the Hamas will be used against us. This leopard will not change its spots," he said.
But Palestinian analyst Wadia Abu Nasser says strangling Hamas financially will backfire.
"My concern is that such kind of steps would radicalize the Palestinian society in the immediate future. So therefore I think the world should think twice before taking such a measure," said Nasser.
Israel believes that with financial injections from Iran and Europe, Hamas has little incentive to moderate its views. The group is continuing to resist international demands to recognize Israel and revoke its charter calling for the destruction of the Jewish state.