Israel to cut Palestinian funds for 'arson damages'

Israel says it plans to deduct from tax funds it collects for Palestinians the amount needed to compensate Israelis living near the Gaza Strip following a wave of protests.

Fires caused by kites rigged with incendiary devices, flown by Gazans staging weekly protests along the border, have reportedly damaged forests and agricultural land.

Israel collects some taxes and customs on behalf of the Palestinians, which it transfers monthly. It has previously threatened to withhold the tax money over Palestinian actions it opposes.

The statement from Prime Minister Binyamin Netanyahu's office on Sunday did not disclose how much would be deducted. Amir Dan, an official from Israel's tax authority, told Israeli Army Radio that agricultural damage alone stood at 5 million shekels ($1.4 million) and that damage caused to nature reserves and other land could drive up the figure.

The Palestinian Authority slammed the move saying it would violate past agreements signed with Israel and called it "robbery and cowardly aggression" against the Palestinians.

The move comes after Israel's housing minister announced plans to build a new settlement close to the besieged enclave to avenge Palestinians protesting.

Yoav Galant, who is also a Security Cabinet member, will submit plans on Sunday to build the settlement to house at least 500 families just seven kilometres from the Palestinian enclave, Israel Hayom reported.

Galant hopes the settlement will be set up near the religious Kibbutz Saad, which been targeted by rockets launched from Gaza.

More than 123 Palestinians have been killed by Israeli fire during protests along the border with Gaza since 30 March, with over 10,000 injured.

No Israelis have been killed and only a few soldiers have suffered minor injuries.

The protests - dubbed "Great Return March" - have centred on the right of Palestinian refugees to return to their homes, after they were expelled following the 1948 creation of Israel.

Protesters have also demonstrated against the crippling decade-long Israeli blockade of the Gaza Strip.

Last week, Israel's justice minister threatened the occupation of Gaza following recent missile and mortar attacks into southern Israel.

Agencies contributed to this report.