RAMALLAH, West Bank, May 4 (Mohammed Assadi - Reuters) - Palestinians must stop working in Jewish settlements by next year, a Palestinian cabinet minister said on Tuesday, as part of a campaign to halt their expansion on occupied land Palestinians want for a state.

Economic Minister Hassan Abu Libdeh, disclosing further details of a new Palestinian law aimed at severing commercial ties with the settlements, said Palestinians violating the ban could face up to five years in jail and fines of up to $14,000.

Those who are working in settlements are beefing up settlements, contributing heavily to the lifeline of settlements and therefore they deserve more punishment, said Palestinian Economic Minister Hassan Abu Libdeh.

The penalties were not made public when President Mahmoud Abbas signed a law last month banning trade in goods made by Israelis living in some 100 settlements in the occupied West Bank and prohibiting Palestinian labour in them.

Since the Palestinians began the boycott campaign in January, the number of Palestinian workers in the enclave has dropped from 33,000 to 25,000, Abu Libdeh said.

Palestinians employed by settlements work in construction, agriculture and industry. Abu Libdeh said all must leave their jobs by 2010.

He said the Palestinian Authority would provide incentives to Palestinian firms to hire former settlement workers and that encouraging responses have already been received from various companies.

GOODS CONFISCATED
The Palestinian Authority hopes the campaign, which does not apply to goods made in Israel-proper -- products vital to Palestinian consumers -- will undermine settlement viability.

Since the start of the campaign, which Palestinians are encouraging European Union member states to join, some $200 million in settlement-produced goods have been confiscated in the West Bank, Abu Libdeh said.
The World Court has deemed illegal settlements Israel has built on land, including the West Bank, that it captured in a 1967 war.

Palestinian say the enclaves threaten creation of a viable state. Under U.S. pressure last November, Israeli Prime Minister Benjamin Netanyahu imposed a 10-month freeze in housing starts in West Bank settlements, a move Abbas called insufficient.

About half a million settlers live in settlements in the West Bank and Israeli-annexed East Jerusalem alongside 2.5 million Palestinians. Another 1.5 million Palestinians live in the Hamas-run Gaza Strip.

Abu Libdeh said Israel's criticism of the boycott drive was not justified as the Palestinian Authority was not violating existing interim peace agreements.

We are not conducting any act of incitement against anybody. We are trying to make sure that we, the Palestinians, are not at all part of the lifeline of settlements, he said.

Settlers, Abu Libdeh said, had to be made to understand it was no longer economically viable or profitable for them to continue to live in the West Bank.

Some settlers claim a Biblical right to the West Bank, while others have been attracted by economic and tax incentives offered by the Israeli government.