Israel is to build 2,000 new settler homes in annexed east Jerusalem and the West Bank in response to a UNESCO decision to admit Palestine as a full member.
The decision was taken at a meeting of Prime Minister Benjamin Netanyahu's Forum of Eight senior ministers a day after the Palestinians successfully joined the UN cultural organisation.
"These measures were agreed by the Forum of Eight ... as punishment after the vote at UNESCO," the source said.
"We will build 2,000 housing units, including 1,650 homes in east Jerusalem and the rest in the settlements of Maaleh Adumim and Efrat," he said, referring to a sprawling settlement east of Jerusalem and another between Bethlehem and the southern city of Hebron.
The AFP source also said that "It was also decided to temporarily freeze the transfer of funds to the Palestinian Authority, until a final decision is taken," he added, referring to the monthly transfer by Israel of tax monies owed to the Palestinian leadership.
Every month, Israel transfers to the Palestinian Authority tens of millions of dollars in customs duties which are levied on goods destined for Palestinian markets that transit through Israeli ports, and which constitute a large percentage of the Palestinian budget.
Israel often freezes the transfer of funds as a punitive measure in response to diplomatic or political developments, which it views as harmful.
The last time the monies were frozen was in May shortly after the Fatah movement signed an unexpected unity deal with Hamas, the Islamist movement which rules Gaza in a move which drew an angry reaction from Israel.
The decision to freeze the tax funds was taken a day after the UN cultural organisation voted to accept Palestine as a full member, despite strong opposition from the United States and Israel.
