Saeb Erekat, a member of PLO's Executive Committee, said in a statement that the Israeli daily Haaretz's report is "baseless." "It is completely false. Such a proposal was never discussed," said Erekat.

Haaretz quoted a European diplomat as saying that Israeli Prime Minister Benjamin Netanyahu's special envoy Isaac Molcho met secretly in London on Tuesday with US administration representatives David Hale and Dennis Ross to discuss the suggestion.

The US administration gives the Palestinians $200 million for security assistance while Israel transfers $100 million in tax it collects on behalf of the PA. The two sides suspended the transfer of funds to the PA after its moves at the UN and its agencies.

The European diplomat said that the Palestinians are prepared to suspend their efforts to get full UN membership for Palestine and to achieve full membership in such agencies as the World Health Organization and the World Trade Organization in exchange for the funds withheld.

According o the diplomat, while the Americans view the PA proposal positively, it is not clear whether Israel will agree to it. Netanyahu had planned to pass a decision to release the funds on Monday, but he backed down in the face of opposition from several ministers.

Erekat said that the "Palestinian leadership will not retract its bid for full membership of the United Nations."