Updated at: 06/08/2014 1:57 PM
(AP) JERUSALEM - JERUSALEM (AP) â€” Israel's finance minister on Sunday criticized settlement construction in isolated parts of the West Bank as a waste of money and vowed to bring down the country's governing coalition if it heeds hard-line calls to annex settlements.
The tough speech by Finance Minister Yair Lapid highlights divisions in the Israeli government following the collapse of U.S.-brokered peace talks with the Palestinians just over a month ago. The government has been unable to come up with a coherent response while failing to rally international opposition to a new Palestinian unity government.
Addressing a security conference in the coastal town of Herzliya, Lapid urged the government to seize the diplomatic initiative and present its own peace plan. He said Israel should withdraw from empty areas of the West Bank and afterwards dismantle settlements located in isolated areas. He said the government should present a map clearly identifying these areas.
"There is no reason to keep building settlements in places and areas that will not be part of Israel in any future agreement and to continue investing billions in infrastructure that at the end of the day, we will just give away as gifts to the Palestinians," he said.
He said he supported continued construction in settlement blocs that Israel expects to keep, but that building in isolated settlements has hurt Israel's international image.
"The settlements are too pricey and expensive," he said. "We are losing billions in economic activity that we could have used in order to reduce taxes, increase security and improve civilian services."
Lapid said his plan was only meant as an interim step, and that a final border should be reached through negotiations with the Palestinians.
The Palestinians seek all of the West Bank, along with east Jerusalem and the Gaza Strip, for an independent state. Israel captured all three areas in the 1967 Mideast war.
Israeli Prime Minister Benjamin Netanyahu rejects a return to the 1967 prewar lines. Since peace talks collapsed in late April, both sides have blamed each other.
Netanyahu has said he supports the establishment of a Palestinian state in order to preserve Israel's Jewish majority, though he has not said he intends on doing this.
While Lapid urged the government to take diplomatic action, the hard-line Jewish Home Party has called on the government to annex West Bank settlements, a move that would trigger international condemnations.
Lapid said that if there is an attempt to annex "even a single settlement unilaterally," his Yesh Atid party "will not only leave the government. It will also topple it." Yesh Atid is the second-largest faction in the coalition, and withdrawing from the government would rob Netanyahu of his parliamentary majority.
Netanyahu's office declined to comment.
With peace efforts frozen, Palestinian President Mahmoud Abbas has formed a new unity government to end a seven-year rift with the rival Islamic militant group Hamas. The rift had left the Palestinians divided by rival governments in the West Bank and Hamas-ruled Gaza.
The West, like Israel, considers Hamas a terror group. But it has accepted assurances by Abbas, the leader of Fatah, that the new Cabinet will follow his non-violent program. Israel says any government backed by Hamas, even from a distance, cannot be recognized.
Highlighting Netanyahu's isolation, Pope Francis hosted Abbas and Israeli President Shimon Peres at the Vatican for a special prayer for peace Sunday.
Addressing the Herzliya Conference, the president of the European Commission, Jose Manuel Barroso, defended the EU's decision to recognize the new Palestinian government, saying the move could serve Israeli interests and promote peace.
With top political and security officials in the audience, Barroso said the new Palestinian government must be given a chance, as long as it is committed to reaching peace with Israel.
For now, the international community is willing to give Abbas the benefit of the doubt. Both the EU and the United States have said they will continue working with Abbas, and sending him hundreds of millions of dollars in aid.
In another setback for Netanyahu, United Nations Mideast envoy Robert Serry became the first senior international official Sunday to meet with ministers of the new Palestinian unity government in the formerly Hamas-ruled Gaza Strip, assuring them of U.N. support.
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