The Knesset (Israel's parliament) on Tuesday passed a bill in its first reading to revoke the Israeli citizenship or permanent residency from Palestinians involved in attacks and who get financial aid from the Palestinian Authority.
The bill still requires second and third readings in order to become law.
The bill was passed by 89-8 votes in the 120-member Knesset.
"Many people who hold Israeli citizenship or residency status are currently receiving monthly salaries from the Palestinian Authority as wages and compensation for committing acts of terrorism," said the explanatory note attached to the bill proposal.
There was no comment yet from the Palestinian Authority on the Israeli bill.
Tension has mounted in the West Bank and East Jerusalem following an Israeli military operation in the Jenin refugee camp that left at least 10 Palestinians dead on Thursday.
According to Palestinian figures, at least 35 Palestinians have been killed by Israeli fire since the start of this year.