The United States has decided to cut almost $300 million from its loan guarantees to Israel.
The sum is $100 million greater than Jerusalem had expected.
The cut is effectively a punishment for Israel’s continued spending on expanding its presence in the West Bank and Gaza.
Analysts say that about a third of the amount cut is equal to Israeli expenditure on its security buffer in post-1967 territory.
Israel was looking to use the guarantees to raise $1.4 billion on international bonds markets in the next few days.
National Security Adviser Condoleezza Rice broke the news to Dov Weisglass, Prime Minister Ariel Sharon’s bureau chief.
This is the latest in a series of incidents suggesting that the Bush Administration is becoming frustrated with what it sees as Israel’s failure to help advance the peace process.
On Tuesday it was revealed that American Secretary of State Colin Powell is considering inviting Israeli and Palestinian doves to discuss their non-official peace initiatives.
The ‘Geneva Initiative’ will be signed in Switzerland next week.
Organizers say that the main speech at the ceremony will be delivered by former U.S. President Jimmy Carter.
The latest U.S. Pressure on Israel comes after President George W. Bush’s speech in London a week ago, alongside British premier Tony Blair.
Bush called on Israel to freeze construction activities in post-1967 areas, to dismantle illegal outposts and to end what he called the humiliation of Palestinian civilians.