Israeli and Palestinian Authority (PA) negotiators met on Sunday in a fresh bid to save their teetering US-brokered peace talks, a PA official said.
Chief PA negotiator Saeb Erakat was meeting in Jerusalem with his Israeli opposite number, Justice Minister Tzipi Livni, and Prime Minister Benjamin Netanyahu's special envoy Yitzhak Molcho, he told AFP.
There was no immediate word from the Israeli side.
The teams last met last Thursday in a session presided over by US envoy Martin Indyk, who has since returned to Washington for consultations.
Following that meeting, Israel said it would freeze the transfer of duties it collects on the Palestinians' behalf, in retaliation for their diplomatic offensive against Israel at the United Nations.
The monthly 80 million euros ($111 million) in taxes collected by Israel represents about two-thirds of the income received by the Palestinian Authority.
Israel was also suspending its participation with the Palestinians in developing a gas field off Gaza and putting a cap on Palestinian deposits in its banks, the Israeli official said.
A senior Palestinian official, Nabil Shaath, said the Palestinians still had "several options" and would not be deterred.
"Israel's sanctions will not deter Palestinian steps to join international treaties and organzations," he said, quoted by the Palestinian news agency WAFA.
The Israeli reprisals have sparked concern in Washington. "We've seen these press reports, but we have not seen an official public announcement by the Government of Israel," State Department spokeswoman Jen Psaki briefed reporters on Friday.
"That said, we would regard such a development as unfortunate.
"We believe that the regular transfer of the Palestinian Authority's tax revenues and economic cooperation between Israel and the Palestinian Authority has been beneficial and is important to the well-being of the Palestinian economy."
The talks hit an impasse two weeks ago when Israel refused to release a group of PA terrorists after the PA made clear it was only taking part in the talks in order to secure the terror prisoners' release. The PA retaliated for Israel's step by seeking accession to several international treaties.