It was one of the most unpleasant conversations that Christoph Heusgen had ever been required to have with Jaakov Amidror. On Wednesday evening, German Chancellor Angela Merkel's foreign policy adviser told his Israeli counterpart that Germany would abstain in the following day's vote at the United Nations General Assembly on whether to grant the Palestinians the status of a "non-member observer state." Merkel's government had just decided, he said. 
 
 Amidror made it clear what he thought about the Germans' decision. Prime Minister Benjamin Netanyahu's government had been expecting Berlin to show its customary support for Israel by voting "no." The Israelis viewed Heusgen's announcement as an affront. 
 
 Germany's stance on this issue shows just how deeply frustrated its government is with the Netanyahu government's policies. The UN vote was a defeat for Israel. In the end, 138 of the 193 UN member states supported the Palestinians' petition, including France and 13 other European Union member states. Germany's abstention weighed particularly heavy because it meant that Canada and the United States were the only major Western nations to vote on Israeli's side. 
 
 This Thursday, Netanyahu and several of his ministers will travel to Berlin to discuss a range of matters, including regional security issues and economic and trade ties, with their German counterparts. But relations between Chancellor Merkel and Prime Minister Netanyahu have rarely been as bad as they are now. Merkel is upset because she believes that Netanyahu isn't doing anything to move forward the peace process with the Palestinians. Netanyahu, in turn, thinks that Merkel doesn't sufficiently understand the complicated situation his government is in. 
 
 A Bargaining Chip 
 
 In mid-November, Merkel was still of the opinion in internal deliberations that the Palestinians should be prevented from taking unilateral steps. Indeed, this was the reason her government cited when justifying its vote against the Palestinians' bid to become a full member of UNESCO, the United Nations' cultural organization, in late October 2011. 
 
 But in the end, the Israeli government's tactical maneuvering prompted Merkel to back away from this hard line. When it became apparent that a series of EU member states would support the Palestinians' bid for observer-state status, the Israelis asked Germany to push all of its fellow EU states to abstain. Up until that point, Netanyahu had pressured Merkel's government to gather as many "no" votes as possible within the EU. 
 
 But the Israeli change of heart arrived too late. In the meantime, the governments of a majority of EU states, including France's, had decided to back the Palestinians. There was not going to be any across-the-board abstention from EU countries. 
 
 At this point, the question was how the Germans should act. From the Israeli perspective, the answer was clear: Berlin would simply vote "no." But German officials had a different take on things. Merkel was upset that the Israelis were treating Germany's vote like a bargaining chip. 
 
 The chancellor was particularly annoyed because Netanyahu had shown himself completely unwilling to make concessions. On several occasions, Merkel had urged him to at least make a gesture on the issue of settlement construction in order to send out a signal to the Palestinians. Doing so would have made it easier for Merkel to campaign for the Israeli position. But Netanyahu stubbornly ignored her wish. 
 
 Tough Talks Ahead 
 
 Daniel Barenboim, the general music director of the Berlin-based Staatsoper opera house, was in contact with the Chancellery last week. Sources close to the Merkel administration claim that the Israeli conductor advised German officials not to vote against the Palestinian petition, arguing that the wording mentions the two-state solution, which in itself entails a recognition of Israel's right to exist. 
 
 Barenboim wasn't the only prominent Israeli to think this way. Merkel attentively noted that Ehud Olmert, the former Israeli prime minister, had publically voiced sympathy for Palestinian President Mahmoud Abbas' push for statehood. Last Wednesday, Merkel decided that this time she wouldn't cater to Netanyahu's desires. 
 
 Her government must now prepare itself for some tough conversations with Netanyahu and his diplomatic entourage when they travel to Berlin this week. "It will be very animated," noted one official, adding that a cancellation hasn't been ruled out. 
 
 However, Merkel's unexpected move on the UN vote does not signal a fundamental change in course. For example, at a meeting held last Monday, the Federal Security Council, a nine-member body made up of the chancellor and several ministers that meets behind closed doors, took Israeli reservations into consideration when deciding to refrain for now from selling submarines to Egypt. Likewise, Germany continues to firmly side with Israel in the conflict over Iran's nuclear ambitions. 
 
 Chancellery officials hope that the shock of Germany's abstention in the UN vote will prompt Netanyahu to think things over. "Perhaps now he will find himself more willing to give a signal to the Palestinians," says one member of Merkel's administration, though he admitted that the chances weren't all that great. "There are few signs of a change of heart." ||||| JERUSALEM -- Israel said Sunday it would withhold more than $100 million in tax revenue this month from the cash-strapped Palestinian Authority , the latest reaction to last week's U.N. vote recognizing the Palestinian territories as a "nonmember observer state." 
 
 Israeli Finance Minister Yuval Steinitz said he would use the money to repay part of an outstanding Palestinian debt -- estimated to be about $180 million -- to Israel’s electricity company for power supplied to parts of the West Bank. 
 
 The action was expected since Israel previously halted the transfer of monthly tax payments in response to a similar U.N. bid by the Palestinians last year. The money is collected on behalf of the Palestinian Authority from West Bank importers using Israeli ports. 
 
 Though Israeli officials hinted the move might be temporary, it will likely intensify the financial crisis facing the authority, which is suffering from large budget deficits and has been unable to pay full salaries for months. 
 
 The announcement follows one on Friday that Israel would build an additional 3,000 units of Jewish housing in the West Bank and the Jerusalem area on land it seized during the 1967 Middle East war. Most nations consider such construction illegal under international law, and Palestinians have refused to resume peace talks until Israel stops the activity. 
 
 The Israeli move did not dampen the celebrations Sunday in Ramallah, where thousands of people gave a hero's welcome to Palestinian Authority President Mahmoud Abbas upon his return from New York. The authority's government headquarters was decked out in the flags of the 138 countries that voted in favor of Thursday's U.N. General Assembly resolution. 
 
 "One day, a young Palestinian will raise the Palestinian flag over Jerusalem, the eternal capital of the state of Palestine," Abbas told the jubilant crowds, echoing a phrase the Israeli leaders often use to describe Jerusalem. "Palestine has succeeded in something historic at the United Nations. The recognition of Palestine as a country changes everything. It highlights new realities." 
 
 The U.S. and Israel were among nine nations that voted against the measure, arguing that the only way for Palestinians to achieve statehood is through direct negotiations with Israel. Though largely symbolic, the resolution may allow Palestinians to file complaints against Israel in the International Criminal Court or other international forums. 
 
 U.S. officials voiced disappointment over the measures Israel has taken in response to the U.N. bid. The Obama administration had asked Israeli Prime Minister Benjamin Netanyahu to avoid taking punitive steps that might weaken Abbas, whom it sees as a moderate Palestinian leader. 
 
 American and Israeli anti-settlement groups are particularly alarmed by the possible resuscitation of the proposed E1 settlement project, a controversial development on the outskirts of Jerusalem that would partly divide the West Bank and complicate efforts to create a contiguous Palestinian state. 
 
 "E1 is not just a another settlement," said Daniel Seidemann, a Jerusalem attorney and anti-settlement activist. "It's the fatal heart attack of the two-state solution." 
 
 Netanyahu had previously agreed to freeze the project amid U.S. pressure, but on Friday the government said it would resume preliminary planning. 
 
 During a conference in Washington on Saturday, former Israeli Prime Minister Ehud Olmert called the government's settlement announcement "the worst slap in the face of a U.S. president." 
 
 The E1 development was first proposed during the Clinton presidency and every U.S. administration since then has pressured Israel to not build it, Seidemann said. The five-square-mile project would largely cut off the West Bank from Arab neighborhoods of East Jerusalem, which Palestinians hope to make the capital of their state. 
 
 Some downplayed the significance of the E1 announcement, saying it may be a strategy by Netanyahu to appeal to right-wing voters and settlers as he faces reelection in January. 
 
 Seidemann said there was a strong chance that Netanyahu would back down amid U.S. and international pressure. 
 
 But he noted that the number of construction tender offers in 2012 was higher than during the previous three years combined. Final approval for a 2,600-unit development called Givat Hamatos, south of Jerusalem, is expected to be announced as soon as this week. 
 
 "We have been witnessing a settlement surge," he said. "The ball is in play. This is not a drill." 
 
 During a Cabinet meeting Sunday, Netanyahu said that settlement expansion has long been the government's response to what it sees as attacks against Israel. He noted that similar steps were taken following the 1975 U.N. General Assembly resolution equating Zionism with racism, which was repealed in 1991. 
 
 "Today we are building, and we will continue to build in Jerusalem and in all areas that are on the map of the strategic interests of the state of Israel," Netanyahu said. 
 
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 Amid protests, Enrique Peña Nieto sworn in as Mexico's president ||||| State Department, White House repeat condemnation of plans to build 3,000 settlement homes, develop E1; former White House chief of staff Rahm Emanuel takes Netanyahu to task for his treatment of Obama. 
 
 Jahalin tribe Beduin camp in front of settlement Photo: REUTERS 
 
 WASHINGTON – US President Barack Obama’s administration on Monday said that Israel’s new settlement plans were “damaging” to efforts to forge a peace agreement with the Palestinians, as well as in conflict with US policy. 
 
 “The United States opposes all unilateral actions, including West Bank settlement activity and housing construction in east Jerusalem,” US State Department spokesman Mark Toner said in a statement released Monday afternoon. 
 
 “They complicate efforts to resume direct, bilateral negotiations, and risk prejudging the outcome of those negotiations.” 
 
 Israel on Friday announced approval of 3,000 more homes in the West Bank and east Jerusalem, in addition to zoning and planning for the E1 corridor near Ma’aleh Adumim. 
 
 Toner called building in E1 “particularly sensitive,” adding that construction there would be “especially damaging to efforts to achieve a two-state solution.” 
 
 The statement sharpens the position of the US in reaction to the announcement, which was made on Friday. 
 
 US Secretary of State Hillary Clinton had indicated her opposition to the move in softer language during an address on the Middle East on Friday night. 
 
 “These activities set back the cause of a negotiated peace,” she said then. 
 
 Toner’s statement also noted that the US had communicated its displeasure to Israel. 
 
 “We have made clear to the Israeli government that such action is contrary to US policy,” he said. “We urge the parties to cease unilateral actions and take concrete steps to return to direct negotiations.” 
 
 Toner later elaborated that he believed the US was “being evenhanded” in its criticism of both Israel and the Palestinians, which on Thursday upgraded their status at the UN to non-member observer state in a unilateral move opposed by Washington and Jerusalem. 
 
 The administration’s criticism of the settlement move was reportedly echoed in harsher language by former White House chief of staff Rahm Emanuel, who attended the Saban Forum with other leading US and Israeli political figures over the weekend. 
 
 During a closed session at the forum, Emanuel took Prime Minister Binyamin Netanyahu to task for his treatment of Obama, according to comments made at an open session by former prime minister Ehud Olmert and referred to by David Remnick in The New Yorker. 
 
 Remnick wrote that Emanuel “had spoken angrily and bluntly about the way Netanyahu has repeatedly betrayed the friendship of the United States,” pointing to his “embarrassing the Obama administration by taking punitive actions against the Palestinian Authority” on Friday – after the administration voted against the Palestinians at the UN, supported Israel during the recent Gaza fighting and funded the Iron Dome missile defense system. 
 
 Emanuel was quoted elsewhere as also rapping Netanyahu for interfering in the US election, saying, “Netanyahu bet on the wrong man – and lost.” 
 
 He also reportedly lambasted Netanyahu for “lecturing” Obama during a meeting in 2011, about the danger that returning to the pre-1967 borders would pose to Israel. Emanuel did not respond to requests for comment. 
 
 The Prime Minister’s Office had no response to the remarks attributed to Emanuel. 
 
 Herb Keinon contributed to this report. ||||| French President Francois Hollande criticized a new Israeli settlement-building drive on Monday as contrary to peacemaking with Palestinians but said Paris was not ready to impose sanctions on the Jewish state. 
 
 Speaking after Israel's envoy in Paris was summoned to the French foreign ministry, Hollande said he was "extremely concerned" by Israel's announcement that it would build 3,000 new settler homes in the West Bank and east Jerusalem, after a de facto UN recognition of Palestinian statehood. 
 
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 "The measures announced are in opposition to dialogue and (Israel) should go back on them," Hollande said at a news conference with Italian Prime Minister Mario Monti in Lyon. 
 
 A French foreign ministry official had earlier dismissed reports that Paris could recall its envoy in Jerusalem and said France was looking at other ways of putting pressure on right-wing Israeli Prime Minister Benjamin Netanyahu. 
 
 When asked if trade sanctions could be an option for Paris, Hollande said France's priority was to encourage both parties to resume talks as soon as possible. 
 
 "We don't want to shift into sanctions mode. We are more focused on persuading. It's an important moment, but I appeal for responsibility." 
 
 According to the foreign ministry, France imports about 1 billion euros ($1.3 billion) of goods from Israel each year, making it the Jewish state's ninth biggest trade partner. 
 
 
 
 
 
 'In opposition to dialogue.' Hollande (L) with Netanyahu (Archive photo: EPA) 
 
 France and Britain, both UN Security Council members, have condemned Israel's plans to expand Jewish settlement, saying it would jeopardize international confidence in Israel's desire to make peace with Palestinians. 
 
 The foreign ministry said earlier on Monday it had told the Israeli ambassador that "settlements are illegal under international law, destroy confidence in reviving dialogue and constitute an obstacle to a fair peace based on a two-state solution." 
 
 Israel says it has a historical claim to land in the West Bank and to all of Jerusalem, while Palestinians want east Jerusalem as the capital of a future state. Israel captured the West Bank and east Jerusalem in a 1967 war. 
 
 Netanyahu has dismissed world condemnation of his latest settlement plans, which were announced on Friday just hours after the United Nations voted overwhelming to upgrade the Palestinians' diplomatic status. France broke from its main Western allies by voting in favor of the upgrade. 
 
 Israel said it would build thousands of new settler homes, including in a wedge zone between Jerusalem and the West Bank, known as E1, which Washington considers especially sensitive as it would fragment territory Palestinians want for a state. 
 
 A source in Prime Minister Benjamin Netanyahu's office said Monday "Israel will continue to secure its vital interests even in the face of international pressure. The decision will stand. 
 
 "The Palestinians' unilateral initiative at the UN was a blatant violation of agreements which were guaranteed by the international community. If the Palestinians continue with their unilateral measures, Israel will act accordingly," the source said. 
 
 Diplomatic sources said both London and Paris were considering the unprecedented step of recalling their ambassadors to Tel Aviv, but both countries signaled there was still room for maneuver to avoid a deep crisis with Israel. 
 
 "There are other ways in which we can express our disapproval," a French foreign ministry official told Reuters, declining to say what other measures were being considered. 
 
 Foreign ministry spokesman Philippe Lalliot said the Middle East peace process would be discussed at a European Union foreign minister's meeting on Dec. 10. 
 
 Germany, which abstained in the UN vote, also expressed concern Monday over the Israeli move but wouldn't say whether it had taken any direct measures in response. Netanyahu is due in Berlin on Wednesday for a previously scheduled meeting with Chancellor Angela Merkel. 
 
 Steffen Seibert, Merkel's spokesman, said Germany took a "very negative view" of the settlement announcement, which he said undermined peace efforts. 
 
 Russia also urged Israel to rethink its plans, saying the settlement project "will negatively affect efforts to restart direct talks". 
 
 Reuters, AP and AFP contributed to the report ||||| Israel has said it will not backtrack on a settlement expansion plan after Britain, France and three other European governments summoned the Israeli ambassadors to London and Paris in protest at the authorisation of 3,000 new homes in the West Bank and in East Jerusalem. 
 
 An official in the office of the Israeli prime minister, Binyamin Netanyahu, said: "Israel will continue to stand by its vital interests, even in the face of international pressure, and there will be no change in the decision that was made." 
 
 Israel announced the construction of the homes after the United Nations general assembly voted to recognise the Palestinian state. 
 
 The British prime minister's spokesman said Alistair Burt, the Foreign Office minister, had met the Israeli ambassador in London on Monday morning to complain about the new building programme, and that the Foreign Office had put out its own statement about the row. Sweden, Denmark and Spain also summoned Israeli ambassadors in protest at the plan. 
 
 Downing Street played down reports that Britain might withdraw its ambassador from Israel, but refused to completely rule it out as an option. 
 
 "We are not proposing to do that," the spokesman said when asked about the suggestion that Britain was planning to take the extraordinary step of withdrawing its ambassador. He said: "We are not proposing to do anything further at this stage" – suggesting that a withdrawal had not been completely ruled out. Asked to clarify, the spokesman said: "We are consulting with our international partners and discussing the situation with the Israeli government." 
 
 The recall of the British ambassador would be a dramatic and unprecedented rebuke to the Israeli government, whose isolation was sharply illustrated by the overwhelming backing for the state of Palestine in New York last week. Only eight countries out of 193 rallied to Israel's side in opposing the move. 
 
 Britain is furious at Israel's decision to take punitive measures in response, including the authorisation of the 3,000 new settler homes and the development of land east of Jerusalem known as E1 for construction. 
 
 A Foreign Office spokesperson said on Monday: "We deplore the recent Israeli government decision to build 3,000 new housing units and unfreeze development in the E1 block. This threatens the viability of the two-state solution. 
 
 "We have called on the Israeli government to reverse this decision. The Israeli ambassador to London, Daniel Taub, has been formally summoned to the Foreign Office this morning by the minister for the Middle East, Alistair Burt. The minister set out the depth of the UK's concerns. 
 
 "Any decision about any other measures the UK might take will depend on the outcome of our discussions with the Israeli government and with international partners, including the US and EU." 
 
 The development of E1 has been frozen for years under pressure from the US and EU. Western diplomats regard it as a "game-changer" as its development would close off East Jerusalem – the future capital of Palestine – from the West Bank. 
 
 Britain has demanded that Israel rescind the decision. The UN secretary general, Ban Ki-moon, said the settlement expansion plans "would represent an almost fatal blow to the remaining chances of securing a two-state solution". 
 
 The EU foreign affairs chief, Catherine Ashton, said such expansion "may represent a strategic step undermining the prospects of a contiguous and viable Palestine with Jerusalem as the shared capital of both it and Israel". 
 
 In France, the foreign minister, Laurent Fabius, said Israel's plans were a "new area of colonisation" and, if confirmed, would "sap the necessary confidence in a resumption of talks". 
 
 He said: "I call on the Israeli authorities to abstain from all decision regarding this and to show clearly their willingness to restart negotiations." 
 
 He summoned the Israeli ambassador to France, Yossi Gal, to express his unhappiness over the project. 
 
 French media reported that London and Paris were considering joint action that would send a "strong diplomatic signal". However, Paris also refused to confirm rumours that it was planning to pull out its ambassador. 
 
 "There are other ways of marking our disapproval," a ministry spokesperson said. 
 
 France, Britain and the EU have all protested directly to the director general of the Israeli foreign affairs ministry, Rafi Barak. 
 
 Other steps under consideration are sanctions against settlements in the West Bank and East Jerusalem, including tougher measures on the labelling of settlement produce exported to Europe, and the suspension of strategic dialogue meetings. 
 
 The UK and other EU countries had warned Israel against taking punitive action in response to the UN vote. A statement issued by the British embassy in Tel Aviv said: "The foreign secretary has consistently made it very clear that the UK would not support a strong reaction to Thursday's UNGA resolution that undermined the prospects for negotiations and efforts to build a strong foundation for the peace process. The recent Israeli government decision to build 3,000 new housing units threatens the two-state solution and makes progress through negotiations harder to achieve. We have called on the Israeli government to reconsider." 
 
 The Israeli cabinet unanimously rejected the UN vote at its weekly meeting on Sunday. It described the West Bank as "disputed territory" over which the Jewish people had "a natural right". 
 
 Israel's Channel 2 reported that Rahm Emanuel, Barack Obama's former chief of staff, had described the behaviour of the prime minister, Binyamin Netanyahu, as "unfathomable".
– Israel resisted international pressure today and vowed to plow ahead with its plan to expand settlements in east Jerusalem and the West Bank, the Guardian reports. France, Britain, Sweden, Spain, and Denmark summoned Israeli ambassadors to protest the plan, but Israeli Prime Minister Benjamin Netanyahu didn't budge: "Israel will continue to stand by its vital interests, even in the face of international pressure, and there will be no change in the decision that was made," he said. In related news: French President Francois Hollande criticized the plan to add 3,000 new homes to Israeli settlements, but said he didn't "want to shift into sanctions mode," Ynet News reports. "We are more focused on persuading." Washington reiterated its opposition to Israel expanding settlements in the so-called E1 corridor, a roughly 5-square-mile area that borders Jerusalem, reports the Jerusalem Post. A US State Department spokesman said building in E1 is "particularly sensitive" and "especially damaging to efforts to achieve a two-state solution." In reaction to Palestine's new UN status as a "non-member observer state," Israel said yesterday it would hold back about $100 million in tax revenues from the cash-poor Palestinian Authority, the Los Angeles Times reports. Israel said it plans to use the money to repay part of Palestine's debt to an Israeli electricity company. Der Spiegel reports that Israel's national security adviser was offended when German said it would abstain rather than voting its customary "no" on the UN vote over Palestine. Germany said it blamed Netanyahu's unbending approach to the peace process. Relations between the two countries "have rarely been as bad as they are now," reports Der Spiegel.