Israel celebrated last weekend its success at the United Nations in forcing the Palestinians to defer demands that the International Criminal Court investigate allegations of war crimes committed by Israel during its winter assault on the Gaza Strip.

The about-turn, following vigorous lobbying from Israel and the United States, appears to have buried the damning report of Judge Richard Goldstone regarding the fighting, which killed some 1,400 Palestinians, most of them civilians.

Israeli diplomats suggested on Sunday that Washington had promised the Palestinian Authority, in return for delaying an inquiry, that the U.S. would apply “significant pressure” on Benjamin Netanyahu, the Israeli prime minister, to move ahead on a diplomatic process when the U.S. envoy, George Mitchell, arrives in the region tomorrow.

But, according to Israeli and Palestinian analysts, diplomatic arm-twisting was not the only factor in the PA’s change of heart. Haaretz reported last week that, behind the scenes, Palestinian officials had faced threats that Israel would retaliate by inflicting enormous damage on the beleaguered Palestinian economy.

In particular, Israel warned it would renege on a commitment to allot radio frequencies to allow Wataniya, a mobile phone provider, to begin operations this month in the West Bank. The telecommunications industry is the bedrock of the Palestinian economy, with the current monopoly company, PalTel, accounting for half the worth of the Palestinian stock exchange.

The collapse of the Wataniya deal would have cost the Palestinian Authority hundreds of millions of dollars in penalties, blocked massive investment in the local economy and jeopardized about 2,500 jobs.

Omar Barghouti, a Jerusalem-based founder of a Palestinian movement for an academic and cultural boycott of Israel, denounced the Palestinian Authority’s move: “Trading off Palestinian rights and the fundamental duty to protect the Palestinians under occupation for personal gains is the textbook definition of collaboration and betrayal.”

The deal to establish Wataniya as the second Palestinian mobile phone operator has been at the center of the international community’s plans to revive the West Bank’s economy and show that Palestinians are better off under the rule of Mahmoud Abbas, the Palestinian president, than Hamas.

Tony Blair, the Middle East envoy representing the so-called Quartet of the U.S., Russia, the UN and the EU, brokered the agreement last summer, saying Wataniya’s investment of more than $700 million over the next 10 years would “provide a much-needed boost to the Palestinian economy.”

Wataniya is a joint venture between Palestinian investors, including close allies of Abbas, and Qatari and Kuwaiti businessmen.

But while Netanyahu has welcomed the deal as part of his plans for an “economic peace,” an option he prefers to Palestinian statehood, Israel has been dragging its feet in allocating the necessary frequencies.

Wataniya’s planned launch earlier this year had to be pushed back and the company has threatened to pull out of the deal if the new October 15 deadline is missed. If it does, the Palestinian Authority will have to repay $140m in licensing fees and could be liable for hundreds of millions more that Wataniya has invested in building 350 communication masts across the West Bank.

According to Who Profits?, an Israeli organization that investigates links between Israel and international companies in exploiting the occupied territories, Israel has a vested interest in limiting the success of the Palestinian mobile phone industry and protecting its control over extensive parts of the West Bank it wants for Jewish settlement.

The only existing Palestinian operator, Jawwal, a subsidiary of PalTel, has been blocked from building communications infrastructure in the so-called Area C of the West Bank, comprising 60 percent of the territory, which is designated under full Israeli control.

Instead, four Israeli companies — Cellcom, Orange, Pelephone and Mirs — have built an extensive network of antennas and transmission stations for Jewish settlers in Area C. Mirs, a subsidiary of Motorola Israel, also has an exclusive license to provide cellular services to the Israeli military.

Typically, Palestinians traveling outside the major population areas of the West Bank find a limited or non-existent Jawwal service and therefore have to rely on the Israeli companies.

A World Bank report last year found that as much as 45 percent of the Palestinian mobile phone market may be in the hands of the Israeli companies. In violation of the Oslo accords, these firms do not pay taxes to the PA for their commercial activity, losing the Palestinian treasury revenues of up to $60m a year.

Israeli companies also rake off additional surcharges on connections made by Palestinians using Jawwal, including calls between mobile phones and landlines, between the West Bank and Gaza and many within Area C, and international calls.

Dalit Baum, a founder of Who Profits?, said the importance of the telecommunications industry to the Palestinian economy made it a point of leverage over the PA at moments of diplomatic crisis, such as the Goldstone Report.

She said: “This case highlights not only how Israel restricts Palestinian economic development through the occupation but also how it uses that control for its own economic and diplomatic advantage.”

Israel’s chief of staff, Gabi Ashkenazi, was reported last week to have conditioned his approval for Wataniya’s launch on the Palestinian leadership withdrawing demands for a referral to the war crimes tribunal.

Defense officials were reported to be angry that the PA had supported the attack on Gaza when it was launched last winter but were now pressing for Israeli soldiers to be put in the dock. One senior figure was quoted by the Haaretz newspaper saying: “The PA has reached the point where it has to decide whether it is working with us or against us.”

Under the Oslo accords, Israel retained ultimate control over the “electro-magnetic spectrum,” including the allocation of radio frequencies, in both Israel and the occupied territories.

Allan Richardson, Wataniya’s chief executive, who has previously launched mobile services in post-war Iraq and Afghanistan, blamed Israel for the company’s problems during an interview in July: “The obstacles we’re suffering from are obstacles you’ll never get anywhere else in the world.”

Last year Israel committed to providing Wataniya with a bandwidth of 4.8MHz, the absolute minimum required to provide coverage over the West Bank, but so far has offered only 3.8MHz.

Jawwal finally received 4.8MHz from Israel in 1999, two years after it launched. Despite the number of its subscribers growing tenfold to 1.1 million today, its bandwidth has remained the same. In comparison, Israel’s Cellcom company, with three times as many subscribers, has 37MHz.

Abdel Malik Jaber, PalTel’s chief executive, complained last year that millions of dollars of imported telecom equipment was stuck at Israeli customs, some of it since 2004. Wataniya has made similar accusations against Israel.

Jonathan Cook is a writer and journalist based in Nazareth, Israel. His latest books are “Israel and the Clash of Civilisations: Iraq, Iran and the Plan to Remake the Middle East,” (Pluto Press) and “Disappearing Palestine: Israel’s Experiments in Human Despair, (Zed Books). His website is www.jkcook.net.