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The State Department threatened Friday to close the Palestinians' Washington office unless they enter into direct, meaningful negotiations with Israel.
The move could potentially give President Donald Trump more leverage as he seeks an elusive Mideast peace deal.
Secretary of State Rex Tillerson has determined that the Palestinians have run afoul of a U.S. law that allows their mission to the U.S. to function, a State Department official confirmed to NBC News.
A condition in the law which allows support funds to be granted to the Palestinian Liberation Organization, or PLO, and for their Washington office to operate is that they do not request the International Criminal Court, or ICC, prosecute Israelis for crimes against Palestinians.
Tillerson has judged that the Palestinians violated this provision due to "certain statements made by Palestinian leaders about the ICC," the official said.
A State Department official told The Associated Press that Palestinian President Mahmoud Abbas crossed the line in September by calling on the ICC to investigate and prosecute Israelis.
Speaking at the United Nations General Assembly, Abbas called for the ICC to "open an investigation and to prosecute Israeli officials for their involvement in settlement activities and aggressions against our people."
However, the same law leaves space for the U.S. president to maneuver — meaning the office wouldn't have to close.
If after 90 days, Trump determines that the Palestinians have entered into "direct, meaningful negotiations with Israel," then they can keep their office and all restrictions placed on the PLO in the U.S. will be waived, the State Department official told NBC News.
"We are hopeful that this closure will be short-lived," the official said.
Nabil Abu Rudeina, spokesman for the Palestinian presidency, said Saturday that the move represented an unprecedented step in the history of U.S.-Palestinian relations, with serious consequences for the peace process and for U.S.-Arab relations, the Palestine News Agency reported.
The Palestinian foreign minister warned earlier Saturday that the Palestinians would not give in to "extortion."
The PLO is the group that formally represents all Palestinians. Although the U.S. does not recognize Palestinian statehood, the organization maintains a "general delegation" office in Washington that facilitates Palestinian officials' interactions with the U.S. government.
The Israelis and Palestinians are not currently engaged in active, direct negotiations but Trump's administration has been working to restart Mideast peace talks. Led by Jared Kushner, Trump's son-in-law and senior adviser, White House officials have been preparing a peace proposal they intend to put forward at an unspecified time, according to the AP.
The State Department official said the U.S. was not cutting off relations with the Palestinians and remained focused on a "comprehensive peace agreement between the Israelis and the Palestinians."
"This measure should in no way be seen as a signal that the U.S. is backing off those efforts," the official added.
The Trump administration has not revealed any details about its effort to bring about a peace deal that would ostensibly grant the Palestinians an independent state in exchange for an end to its conflict with the Israelis.
But Kushner and other top Trump aides have been traveling to the region to meet with Palestinians, Israelis and officials from neighboring Arab nations as it prepares to put forward a plan.
On the campaign trail, Trump took a staunchly pro-Israel line. He promised to relocate the American Embassy from Tel Aviv to Jerusalem — a move welcomed by Israel and opposed by the Palestinians — and refused to endorse the Palestinian goal of independence.
But once in office, Trump decided not to move the embassy and has urged Israel to restrain settlement construction as he set his sights on an unlikely peace deal.
The Palestinians, though publicly supportive of the U.S. effort to rekindle talks, have been skeptical because Trump's close ties to Israel suggest whatever deal he proposes might be unfavorable to them.
Now the threat of losing their office in the U.S. capital could potentially be another pressure point to persuade the Palestinians to come to the negotiating table.
But in an interview on Palestine Radio on Saturday, Palestinian Foreign Minister Riad Malki said the ball was in the American court.
"The Palestinian leadership will not accept any extortion or pressure," he said, adding that they are waiting for further communication from the U.S. government.
The United States allowed the PLO to open a mission in Washington in 1994, a move that required then-President Bill Clinton to waive a law that said the Palestinians couldn’t have an office.
In 2011, under the Obama administration, the United States started letting the Palestinians fly their flag over the office, an upgrade to the status of their mission that the Palestinians hailed as historic.
Israel opposes any Palestinian membership in United Nations-related organizations until a peace deal has been reached.