Mr Steinitz says Israel must make such products more competitive as the world economy recovers.

ECONOMIST: Israel��s economy looks quite resilient

"Israel is sovereign to make its own decision and change its tax regime, " Mr. Steinitz said in an interview.

WSJ: Big Gas Find Sparks a Frenzy in Israel

Mr. Steinitz said Israel supports the establishment of a democracy in Egypt.

WSJ: Israel Watches 'Regional Earthquake' in Egypt

"We were caught by surprise, " said Israeli Finance Minister Yuval Steinitz, in an interview with The Wall Street Journal in New York, a few hours before Mr. Mubarak's announcement.

WSJ: Israel Watches 'Regional Earthquake' in Egypt

Finance Minister Steinitz has so far ignored the pressure.

WSJ: Big Gas Find Sparks a Frenzy in Israel

However, Israeli Finance Minister Yuval Steinitz warned last month that if the Palestinians went ahead with the UN bid Israel would "not collect taxes for them and we will not transfer their revenues".

BBC: UN's Ban Ki-moon warns Israel of 'fatal blow' to peace

Steinitz highlighted the prime minister's victory in July, when the cabinet approved a package of tax hikes and spending cuts aimed at reining in the nation's budget deficit by a vote of 20-9.

MSN: Israel's budget a political hot potato

"We will finally know if the coalition is strong enough to deliver the 2013 budget, " Steinitz said on Monday on the sidelines of an Israeli investment conference co-sponsored by The Wall Street Journal and its sister publication, Barron's.

MSN: Israel's budget a political hot potato

Surprisingly, Mr Steinitz has raised VAT from 15.5% to 16.5% (but had to drop a proposal to levy it on fruit and vegetables), while embarking on a seven-year plan gradually to reduce company tax and income tax instead.

ECONOMIST: Israel��s economy looks quite resilient