Why "Hysteria" in Israel about possible September state [Palestine]? Is it b/c of 1967 borders?

Haaretz has reported that Israeli Defense Minister Ehud Barak warned that the Palestinian Authority might “collapse” if Israel applies sanctions in a pre-emptive effort to avoid a Palestinian move at the UN in September. The meeting was held on Wednesday, and lasted four hours, Haaretz said. Israel’s Foreign Minister Avigdor Lieberman did not attend, but some 30 political and military officials did: “in addition to Netanyahu, Steinitz and Barak, also present were Interior Minister Eli Yishai, Strategic Affairs Minister Moshe Ya’alon, Minister without Portfolio Benny Begin and Israel Defense Forces Chief of Staff Lt. Gen. Benny Gantz … Several of the ministers urged preemptive sanctions against the Palestinian Authority in an effort to pressure PA President Mahmoud Abbas to back down, but Defense Minister Ehud Barak objected, warning that it could lead to the collapse of the PA. Haaretz learned that the discussion also dealt with possible Israeli responses following the vote in the UN General Assembly, which is expected to recognize a Palestinian state along the 1967 borders by a large majority. Among the preemptive sanctions discussed was a proposal by Finance Minister Yuval Steinitz to stop transferring the customs duties that Israel collects at its ports on the PA’s behalf. The PA is suffering a severe cash shortage and is having a hard time paying its employees; the taxes Israel passes over are used to pay the lion’s share of those salaries. F or this reason, Barak vehemently objected to the measure, saying it could lead to the PA’s collapse, which would leave the territories in a state of anarchy. Representatives of the Justice Ministry and the military prosecution also warned against taking such unilateral steps”. This report is posted here.

An editorial published in Haaretz on Friday said that “As the UN vote on Palestinian statehood within the June 4, 1967 borders approaches, Israel’s government is showing increasing symptoms of hysteria … [Recently] Foreign Minister Avigdor Lieberman threatened that Israel would revoke the Oslo Accords. This week Lieberman proposed severing all ties with the Palestinian Authority to preempt the wave of violence he says will erupt the day after the UN declaration”.

The Haaretz editorial, which can be read in full here, also notes that “It’s hard to think of a more dangerous and foolish move than destroying the PA and cutting off the livelihood of tens of thousands of security personnel and officials who depend on it for their wages. As Defense Minister Ehud Barak said at the debate, this move would lead to anarchy in the West Bank, making Israel responsible for the welfare of 2.5 million people”.

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U.S. Diplomat gives background briefing in Jerusalem – clarifying differences with Israel over settlements

The United States clarified to Israel during U.S. President George Bush’s visit this week that it disapproves of all building in East Jerusalem and the West Bank – including in the large settlement blocs, a senior Western diplomat said [in a briefing to journalists in Jerusalem] Tuesday. The diplomat added that Israel and the U.S. differ on their interpretation of the letter President Bush sent to former prime minister Ariel Sharon in April, 2004. ‘The letter refers to major population centers and not the settlement blocs, while stressing that everything must also be decided in the negotiations between the Israelis and the Palestinians’, the diplomat said. According to the diplomat, Bush is steadfast in his objection of building in West Bank settlements and East Jerusalem” … This was reported in Haaretz here.

Israel’s YNet news reported that “Several days after Prime Minister Ehud Olmert informed US President George W. Bush that construction in east Jerusalem will continue, a senior US diplomat stated Tuesday that Israel must halt construction in east Jerusalem as well as in West Bank settlements. The diplomat noted that the Road Map provisions explicitly demand that Israel freeze construction in these aforementioned areas. According to the diplomat, the Road Map strictly prohibits construction in these areas, and some Palestinians see east Jerusalem as being part of the West Bank, whereas Israel designated them as part of Jerusalem. There may be differences of opinion between Israelis and Palestinians, but the Road Map is crystal clear on this matter, said the diplomat”. The YNet report on the same background briefing in Jerusalem is published here.