Officials of Discount Bank were cited by Ha'aretz as saying that the decision was made due to concerns that the bank's connections with Palestinian banks could contradict Israel's anti-terrorism laws.

The bank's decision came after Israel's largest Bank, Bank Hapoalim, cut off last month all connections with the Palestinian National Authority and Palestinian banks in the wake of the swearing-in of the Hamas-led Palestinian government.

Both Discount Bank and Bank Hapoalim are authorized to deal with the Palestinians according to interim peace accords reached between Israel and the Palestinians in the mid-1990s.

The Israeli government, which considers Hamas a terrorist group, has stopped transferring tax payment collected on behalf of the Palestinians following Hamas' victory in the January Palestinian legislative elections.

Hamas, or the Islamic Resistance Movement, formally commits itself to Israel's destruction and refuses to renounce violence and honor previous Palestinian-Israeli agreements.

The Hamas-led Palestinian government has been facing a deepening financial crisis due to the West's cutoffs of crucial aid and Israel's withholding of tax money.

Meanwhile, local and regional banks have shunned helping transfer aid donated by Arab and Muslim countries for fear of possible sanctions and lawsuits by the United States, which also labels Hamas a terrorist group and leads efforts to isolate the Hamas-led Palestinian government.