JERUSALEM, Nov 1 (Ari Rabinovitch/Reuters) - Israel decided on Tuesday to accelerate Jewish settlement building and withhold Palestinian Authority funds, moves likely to further hold up international efforts to revive peace talks.

Israel's move came a day after UNESCO awarded the Palestinians full membership of the U.N. cultural agency, a diplomatic victory for the Palestinian Authority in its push for recognition as a state at the United Nations.

Israel called the UNESCO decision a tragedy and the United States said it would stop its funding of the organization.

Israeli Prime Minister Benjamin Netanyahu called for the accelerated construction of some 2,000 housing units, said an official statement released after he convened his cabinet.

The Palestinian presidency said the decision to speed up settlement construction on land where the Palestinians aim to found a state amounted to a decision to speed up the destruction of the peace process.

Nabil Abu Rdainah, the spokesman for Palestinian President Mahmoud Abbas, also described as inhumane the Israeli decision to temporarily withhold funds collected by Israel on behalf of the Palestinian Authority.

A senior Israeli government official said after the cabinet meeting that the decision to halt money transfers to the Palestinians Authority was a temporary measure until a final decision was made.

You can't demand from the Israeli public to continue to show restraint when the Palestinian leadership continues to slam the door in their face, said the official, speaking on condition of anonymity.

The statement said the new building will be in areas that in any future arrangement will remain in Israel's hands.

The official said 1,650 of the new tenders are for units in eastern parts of Jerusalem, and the rest are for Efrat and Maale Adumim, Jewish settlements in the occupied West Bank.


WITHOLDING FUNDS

In the absence of peace talks, which collapsed about a year ago in a dispute over settlement building, Abbas has been seeking statehood recognition from the United Nations.

Netanyahu has called to restart peace talks without preconditions, but Abbas says he will return to negotiations only after Israel totally freezes its settlement activity.

The Quartet of Middle East peace mediators -- which includes the United States, Russia, European Union and the United Nations -- has been trying to jumpstart the process and said last week both sides had agreed to offer proposals to solve two key sticking points, territory and security.

The Palestinians are looking to establish a state in the West Bank, Gaza Strip and East Jerusalem, land Israel seized in the 1967 Middle East War.

Israel later annexed East Jerusalem, a move that has not won international recognition. It withdrew from Gaza in 2005, and in 2007 the territory was taken over by Hamas Islamists, who are rivals to Western-backed Abbas and refuse to recognize Israel.

It will be the second time this year that Israel has withheld the revenues it collects on behalf of the Palestinian Authority. The revenues, which include duties on goods being imported to the Palestinian territories, amount to around $100 million each month -- half of the PA's domestic revenue base.

Israel decided earlier this year to withhold the revenues when Abbas concluded a reconciliation agreement with Hamas.

The freeze imposed temporarily earlier this year resulted in the PA not being able to pay salaries to its 150,000 employees on time for the first time since 2007.

The move comes with less than a week to go before Palestinian Muslims mark Eid al-Adha, when families spend more than usual on festivities. (Additional reporting by Tom Perry; Editing by Jon Hemming)