By Alexander Cornwell and Rami Ayyub
JERUSALEM, May 15 (Reuters) - The U.S. is considering asking Israel to give some tax money it is withholding from the Palestinian Authority to Donald Trump's Board of Peace to fund the U.S. president's post-war plan for Gaza, five sources familiar with the matter said.
The Trump administration has not yet decided whether to make a formal request to Israel, said three of the sources, officials with knowledge of U.S. deliberations with Israel.
The two other sources,
Palestinians with knowledge of the deliberations, said that under the proposal a portion of the tax money would go to a U.S.-backed transitional government for Gaza and other funds to the PA if it makes reforms.
The PA puts the amount of tax being withheld at $5 billion.
The prospect of the Palestinians' own tax money being repurposed toward Trump's Gaza rebuilding plan, over which their government has had no input, could further sideline the Western-backed PA even as Israel's withholding of the funds begets a financial crisis in the occupied West Bank.
The PA exercises limited self-rule in the West Bank but has not had any sway over Gaza since it was exiled from the territory after a brief civil war with militant group Hamas in 2007.
Trump's plan for Gaza, shattered after more than two years of war, has been held up by a refusal by Hamas to lay down their weapons and by continued Israeli attacks in Gaza that have undermined an October ceasefire.
'MONEY HELD IN A BANK DOES NOTHING'
The Board of Peace declined to comment on whether a proposal to use Palestinian tax money was under consideration.
A Board official said it had asked all parties to leverage resources to support Trump's rebuild plan, estimated to cost $70 billion.
"That includes the Palestinian Authority and Israel. There is no doubt that money held in a bank does nothing to further the President's 20-Point Plan," the official said.
That appeared to refer to the PA tax revenue that Israel has withheld from the body in a long-running dispute over payments it makes to Palestinians held in Israeli jails.
Israel collects taxes on imported goods on behalf of the PA and is meant to transfer the revenue under a longstanding arrangement. The PA uses the funds to pay civil servants and fund public services.
The sources did not say how much of the tax money Washington was considering asking Israel to transfer to the Board.
The U.S. State Department, Israeli government and PA did not immediately respond to requests for comment.
The U.S. and Israel have long pressured the PA to abolish payments to Palestinian prisoners and families of those killed by Israeli forces, arguing it encourages violence.
Palestinians consider them a form of welfare for inmates they regard as national heroes.
In response to U.S. pressure, the PA in February 2025 said it was reforming the payment system, but the U.S. said those changes did not go far enough. As punishment, Israel has withheld taxes it collects on the PA's behalf, an amount that Palestinian officials say has reached $5 billion - well over half of the PA's annual budget.
That has set off a financial crisis in the West Bank, with the PA slashing salaries of thousands of civil servants.
Israel accepted a U.S. invitation to join the Board of Peace. The PA was not invited.
Under Trump's plan, a group of Palestinian technocrats dubbed the National Committee for the Administration of Gaza would take control of Gaza from Hamas as the militants lay down their weapons.
Nickolay Mladenov, Trump's Board of Peace envoy for Gaza, said during a press conference in Jerusalem on Wednesday that reconstruction planning was in advanced stages.
"We're doing it sector by sector. We're costing things. We're coordinating with donors and we're ready to begin in earnest once the conditions allow it," Mladenov said, without mentioning the tax issue.
(Reporting by Alexander Cornwell and Rami Ayyub in Jerusalem with additional reporting by Steve Holland in Washington and Ali Sawafta in Ramallah; Editing by Andrew Cawthorne)
