The security cabinet on Thursday extended a waiver allowing Israeli banks to work with Palestinian ones for another year — a move pushed by the Biden administration and its Western allies, who feared that failure to do so ahead of a deadline at the end of the week would lead to the collapse of the Palestinian Authority, an Israeli official confirmed to The Times of Israel.

For the past two months, Finance Minister Bezalel Smotrich had only agreed to extend the corresponding banking agreement one month at a time, adding to uncertainty regarding whether the far-right minister would act on his repeated calls to bring down the PA ahead of US President-elect Donald Trump’s return to the White House.

While it stalled the longer extension, Israel said it wanted proof that PA-regulated banks complied with international statutes on counter-terrorism and anti-money laundering. The Treasury Department said in October that the PA had met both of the requirements laid out by Israel.

Ahead of the security cabinet vote, ministers were presented with the National Security Council’s position in favor of a one-year extension, due to concerns that failure to do so would have major security and diplomatic repercussions, the Israeli official said, confirming a report on the Axios news site.

National Security Minister Itamar Ben Gvir tweeted on Thursday evening that he had voted against extending the banking cooperation deal, blasting fellow cabinet members who have talked of collapsing the PA only to back a measure that would allow Ramallah to limp on.

The Palestinian economy relies heavily on the banks’ relationships with their Israeli counterparts to process transactions made in shekels, as the PA does not have its own currency. Some NIS 53 billion ($14 billion) were exchanged at Palestinian banks in 2023, according to official data.

US officials have warned that failure to maintain banking relations between Israel and the Palestinians would turn the West Bank into a “cash economy,” which would benefit terrorist organizations in the territory and make it harder for the already-weakened PA to fight such groups.

The West Bank economy has been in dire straits over the past year, as tens of thousands of Palestinian day laborers were denied entry into Israel during the war in Gaza.

Times of Israel staff contributed to this report.