Earlier this week, Israeli troops also blockaded Palestinian towns and villages, paralyzing life in the West Bank and Gaza.

Israel had been transferring an average of $60 million a month in collected tax revenues, including money withheld from the salaries of Palestinian workers in Israel, to the Palestinian Authority.

In the past six weeks, Israel has passed along only about $7.5 million, said Salam Fijad, a representative of the International Monetary Fund in the Palestinian areas. Fijad said the taxes collected by Israel make up about two-thirds of the total revenues of the Palestinian Authority.

Arafat said that the withholding of the funds is "part of the Israeli war against us."

Barak acknowledged that he was trying to pressure the Palestinians. "The transfer of funds has been stopped as part of our demand that the other side, too, will abide by agreements."