Israeli Cabinet ministers decided Monday to hold on to some $100 million in taxes owed to the Palestinians, an official said, despite warnings from Israel's Defense Ministry that the measure could threaten the stability of the Palestinian government in the West Bank.

Israel stopped transfer of tax funds as punishment for the Palestinian's successful bid for admission to the United Nations' cultural agency UNESCO, which was part of a larger effort to gain admission as a state in the world body.

Israel believes creation of a Palestinian state must be achieved through negotiations and charges that the U.N. bid is one of a series of steps to bring unwarranted pressure on the Jewish state.

An Israeli official said the government did not change its policy, despite media predictions that Israel would give in to criticism of the move from the U.N. and others.

The official did not explain the rationale. He spoke on condition of anonymity because he was not authorized to disclose the contents of the closed meeting of ministers, including Prime Minister Benjamin Netanyahu, with security responsibilities.

Israeli defense officials have said funding cutoffs threaten Abbas' moderate Palestinian Authority, which employs tens of thousands of people, including security forces whose work at preventing attacks on Israelis has won praise from Israel and the United States in the past.

In accordance with interim peace deals, Israel collects customs, border and some income taxes on behalf of the Palestinians and relays them monthly to their West Bank government. The transfers were suspended on Nov. 3 in reaction to the UNESCO admission.

The statehood bid has stalled, as the Palestinians have been unable to muster the required support of nine of the Security Council's 15 members. That leaves the Palestinians with an option of seeking a lesser upgrade to nonmember observer state.

Israel, backed by the U.S., opposed the statehood bid and suspended funding for UNESCO after it admitted the Palestinians.

The decision on the funding came shortly after another failed effort by international peace mediators to get both sides back to the negotiating table.

Abbas aide Saeb Erekat reiterated the Palestinian demand that first, Israel stop building in the West Bank and east Jerusalem, occupied areas the Palestinians want for a future state. Israel rejects any preconditions for talks, and the government official renewed Israel's call for direct talks between the two sides.

The Palestinian Authority has control of the West Bank, while rival Hamas militants rule the Gaza Strip, which they overran in 2007.

In northern Gaza overnight, an Israeli airstrike killed one Hamas naval police officer and wounded seven others in an attack that destroyed a naval police facility, Palestinian officials said.

The Israeli military said its aircraft struck an unspecified "terror activity site" after Palestinian militants in Gaza fired a rocket at southern Israel. No one was hurt in that rocket attack Sunday evening.