Occupied Jerusalem: Israel said Friday it will release hundreds of millions of dollars in tax funds it has withheld from the Palestinian Authority as a punitive measure.

The United States swiftly welcomed the move, which could help disarm tensions with Washington and the international community after a polarising Israeli election campaign.

“We welcome the decision of the prime minister of Israel to release withheld tax revenues to the Palestinian Authority,” said US State Department spokesman Jeff Rathke.

“This is an important step that will benefit the Palestinian people and will help stabilise the situation in the West Bank.”

Prime Minister Benjamin Netanyahu’s office said revenues accumulated over three months, frozen by Israel since January in retaliation for a Palestinian move to join the International Criminal Court (ICC), would be transferred after normal deductions for services.

But it did not say whether Israel would be resuming the normal monthly payment of around $127 million (118 million euros) in customs duties levied on goods destined for Palestinian markets that transit through Israeli ports.

The Palestinian Authority (PA) reacted with caution.

“Until now we haven’t received any money, nor have we officially been informed of anything,” PA spokesman Ehab Bseiso said.

The Middle East peacemaking Quartet welcomed the Israeli move.

“It is absolutely the right decision both for the improvement of the conditions of Palestinians on the ground and for Israel,” Quartet envoy Tony Blair said in a statement.

“I hope this will be the first of many steps, on both sides, that will mean we can work with renewed vigour to create the conditions for proper negotiations as we progress towards a two-state solution,” he said.

The Israeli decision comes 10 days after Netanyahu was reelected and subsequently chosen to form the next government following a campaign in which he pledged to continue colony activity and prevent the establishment of a Palestinian state, which exacerbated tensions with Washington.

Netanyahu later back-tracked on remarks opposing a two-state solution, while plans for construction in east Jerusalem - which the Palestinians want as the capital of a future state - were put on hold.