UN alarmed by Israeli, Palestinian 'downward spiral'

By Michelle Nichols and Louis Charbonneau UNITED NATIONS (Reuters) - U.N. Secretary-General Ban Ki-moon is alarmed that Israelis and Palestinians are engaged in a downward spiral of actions and counter actions and calls on both sides not to exacerbate existing divisions, a senior U.N. official said on Thursday. Israel is withholding critical tax revenue and seeking ways to prosecute Palestinian leaders for war crimes in retaliation for Palestinian moves to join the International Criminal Court (ICC). "We call on Israel to immediately resume the transfer of tax revenues," U.N. deputy political affairs chief Jens Anders Toyberg-Frandzen told the Security Council. "The Israeli-Palestinian conflict is now entering unchartered territory, which, lamentably, seems to have dashed any immediate hope for a return to peace talks." The council's monthly meeting on the Middle East was the first on the Israeli-Palestinian conflict since the failure last month of a Palestinian statehood bid at the United Nations Security Council. Chief Palestinian delegate Riyad Mansour said his government was undeterred. "In spite of this setback, we will continue to approach the Security Council," he said without elaborating. The Palestinians will become full ICC members on April 1. Mansour called the withholding of Palestinian tax revenues a "blatant act of reprisal and theft of Palestinian funds" and condemned Israel's "rabid settlement colonization." Israel has condemned Palestinian moves, with Ambassador Ron Prosor accusing Palestinians of "running away from negotiations" and obstructing the peace process. The ICC move paves the way for the court to take jurisdiction over alleged crimes committed in Palestinian lands and investigate the conduct of Israeli and Palestinian leaders. Neither Israel nor the United States is an ICC member. The United States has suggested some $400 million in aid could now be in jeopardy. U.S. Ambassador to the United Nations, Samantha Power, said the United States, an Israel ally, had been reaching out to both parties to try to reduce tensions and find a path forward. "We continue to oppose unilateral actions by both sides that we view as detrimental to the cause of peace," Power told the Security Council, describing Palestinian moves to join the ICC and other treaties as "counter-productive." Palestinians seek a state in Gaza, the West Bank and East Jerusalem - lands Israel captured in the 1967 War. Momentum has built since President Mahmoud Abbas succeeded in a bid for de facto recognition of Palestinian statehood at the U.N. General Assembly in 2012, making Palestinians eligible for the ICC. (Reporting by Michelle Nichols and Louis Charbonneau; editing by Gunna Dickson)