RAMALLAH (Reuters) - Israel's tough responses to a successful Palestinian bid to join Unesco -- financial sanctions and a faster settlement drive in the occupied West Bank -- are unlikely to halt a Palestinian quest for recognition as a state at the United Nations. A senior Palestinian official said on Wednesday that Israel was trying to undermine the Palestinian Authority (PA) through a decision on Tuesday to freeze temporarily transfers of PA funds after it won membership of the UN cultural agency. The Unesco vote marked a success for the Palestinians in their broader thrust for recognition as a sovereign state in the UN system -- an initiative opposed by Israel and its main ally the United States. In what the Palestinians saw as a reprisal, Israeli Prime Minister Benjamin Netanyahu's cabinet also decided to accelerate the building of Jewish settlements on land where the PA aims to establish an independent state next to Israel. "It is very serious. Israel wants to strive to destroy the role of the Palestinian National Authority," Yasser Abed Rabbo, secretary-general of the Palestine Liberation Organization (PLO), told Voice of Palestine radio. Saeb Erekat, another senior Palestinian official, said in a statement that Israel's latest decisions would "not change our course of action," signaling the Palestinians will push ahead regardless in their UN initiative. A US official, speaking on condition of anonymity, said the United States was expected to say it is "deeply disappointed" by the settlement move. Netanyahu, in a speech on Wednesday, said construction in Jerusalem -- whose eastern sector Palestinians want for the capital of a future state -- is Israel's "right and obligation." Israel deems all of Jerusalem, including areas taken in a 1967 war, as its capital, a status not recognised internationally. The revenues Israel has decided to withhold include duties on goods being imported to the Palestinian territories and which amount to around half of the PA's domestic revenue base. Britain and Germany on Wednesday condemned Israel's decision to build 2,000 settler homes to punish the Palestinians for joining Unesco, saying it represented a "serious blow" to peace efforts in the region. British Foreign Secretary William Hague also expressed concern with the decision to withold Palestinian tax revenues, saying the move was "in no-one's interests". "We need to see steps towards peace, not actions that divide and isolate the parties further and undermine the prospects for negotiations," he said. "We call on Israel to reverse both these decisions, and on both sides to show the courage and leadership necessary to achieve a return to negotiations." Israeli Prime Minister Benjamin Netanyahu's inner cabinet decided on Tuesday to speed up construction in east Jerusalem and in nearby settlements, a day after UNESCO's general assembly voted Palestine in as a full member. It also decided to temporarily freeze the transfer of customs duties levied on goods destined for Palestinian markets that transit through Israeli ports, which constitute a large percentage of the Palestinian budget. The settlement announcement "is a serious blow to the Quartet's efforts to restart peace negotiations", Hague said in a statement, referring to the peacemaking group comprising the United States, UN, EU and Russia. "This settlement building programme is illegal under international law and is the latest in a series of provocative and unhelpful settlement announcements. I condemn the decision to accelerate such construction. "I am also very concerned about Israel's decision to withhold Palestinian tax revenues. "This is in no-one's interests, least of all Israel's, since it has direct implications for the Palestinian Authority's ability to maintain effective security in the West Bank." Similarly, Germany called on Israel to stop building 2,000 settler homes in east Jerusalem immediately and return to peace talks, warning unilateral action could result in a "dangerous spiral". Building settlements in occupied areas "hinders the goal we all must have of a two-state solution and is unjustifiable," Steffen Seibert, Chancellor Angela Merkel's spokesman, told a regular news conference. "We call on the Israeli government to stop all settlement building activity without delay," Seibert said, adding Berlin was "concerned" at the recent developments. Those that take unilateral action such as this "risk causing a further escalation of the conflict," he added. "We call on both parties, the Israelis and the Palestinians, to refrain from this dangerous spiral of unilateral measures and finally put negotiations firmly back in the middle of their relationship," he said. Israel on Tuesday said it would build 2,000 settler homes and freeze the transfer of Palestinian tax monies to punish them for successfully joining Unesco, drawing an angry response from Ramallah.