By Kanishka Singh
WASHINGTON (Reuters) - Israel's decision for a month's waiver extension on co-operation between Israeli and Palestinian banks covered a "very short term" and would create "another looming crisis" by Nov. 30, the United States warned on Thursday.
The remarks came after a spokesman for Israeli Finance Minister Bezalel Smotrich said he would sign the waiver to extend banks' co-operation for another month after the cabinet agreed.
"The very short-term duration of this extension creates another looming crisis by Nov. 30, exacerbating uncertainty for international banks, Israeli companies operating in the West Bank, and, most importantly, for ordinary Palestinians," U.S. Secretary of State Antony Blinken and Treasury Secretary Janet Yellen said in a joint statement.
They urged Israel to extend the banking relationships for at least a year to avert an economic crisis in the Israeli-occupied West Bank, warning that its own security was at stake.
The waiver lets Israeli banks process shekel payments for services and salaries tied to the Palestinian Authority, without the risk of being charged with money laundering and funding extremism.
Without it, Palestinian banks would be cut off from the Israeli financial system.
Palestinian territories are already "nearing economic freefall," the World Bank says, with Gaza's GDP declining 86% in the first quarter of 2024 on the year amid Israel's war there.
The latest bloodshed in the decades-old Israeli-Palestinian conflict was triggered on Oct. 7, 2023, when Palestinian Hamas militants attacked Israel, killing 1,200 and taking about 250 hostages, according to Israeli tallies.
Israel's subsequent assault on Hamas-governed Gaza has killed more than 43,000, Gaza's health ministry says, while displacing nearly the entire population and leading to a hunger crisis and genocide allegations that Israel denies.