U.N. urges Israel not to withhold Palestinian funds

UNITED NATIONS (Reuters) - U.N. Secretary-General Ban Ki-moon told Israeli Prime Minister Benjamin Netanyahu on Friday that Israel should not withhold tax revenues from the Palestinian Authority following its unity deal with Hamas.

"The Secretary-General ... noted that Palestinian unity is a process which is just beginning now, and thus, it would be best to assess it as it moves forward," the U.N. press office said in a statement summarizing Ban's telephone call with Netanyahu.

"He also urged Israel not to stop transferring tax revenues to the Palestinian Authority," it said.

Israel on Sunday blocked the transfer of $105 million in customs duties and other levies it collects on behalf of the Palestinian Authority, following a deal to reunite the two rival wings of the Palestinian independence movement.

Palestinians see reconciliation between the secular Fatah and Islamist Hamas as crucial for their drive for an independent state in territories Israel captured in the 1967 Arab-Israeli War. Israel has condemned the unity pact as a "tremendous blow to peace.

Ban said it was "urgent to overcome the impasse in the negotiations between Israel and the Palestinians. Continued drifting will not serve the interests of both parties."

"(Ban) said he was convinced that realizing a negotiated two-state solution as soon as possible is in the best interest of both the Israeli and Palestinian people," the statement added. "He said he hoped Israel will make decisive moves towards a historic agreement with the Palestinians."

He reiterated that the United Nations has consistently supported the idea of Palestinian unity under the leadership of Palestinian President Mahmoud Abbas.

(Reporting by Louis Charbonneau; Editing by Eric Walsh)