President Biden held a difficult conversation last weekend with Israeli Prime Minister Benjamin Netanyahu over Israel's decision to withhold part of the tax revenue it collects for the Palestinian Authority, according to two U.S. and Israeli officials and a source with knowledge of the issue.

The big picture: A U.S. official said this part of last Saturday's call between the two leaders was one of the most difficult and "frustrating" conversations Biden has had with Netanyahu since the beginning of the war in Gaza. It's a sign of the growing tensions between Biden and Netanyahu.

Catch up quick: The tax revenues Israel collects for the Palestinian Authority under an agreement between the parties are a major source of income for the PA, which is already in a financial crisis.

• Israel's far-right ultranationalist Finance Minister Bezalel Smotrich in October decided to suspend the transfer of all of the tax revenue funds after the Hamas terrorist attack.
• But the Israeli government said that it would transfer all the funds except for those it says go to Hamas-run Gaza.
• The PA, however, has refused to accept a partial transfer of the funds, raising concerns in the Biden administration about a potential economic collapse of the Palestinian Authority.
• The issue has become a thorn for Netanyahu, who is facing pressure from the Biden administration to release the funds, and Smotrich, who has expressed opposition to the release of any of the funds, even indirectly, and has threatened to resign over the issue, which could put the prime minister's coalition government at risk.

Driving the news: In recent weeks the Biden administration has been pressing the Israeli government to release the Palestinian tax revenues it is withholding.

• The Biden administration has expressed concerns that an economic collapse of the PA could lead to a violent escalation in the occupied West Bank as a result of it not being able to pay its security forces their salaries.

Behind the scenes: Saturday's 45-minute call between Biden and Netanyahu focused on the next phase of Israel's ground operation, Israeli and U.S. officials said.

• But towards the end of the call, Biden raised his concerns about the withheld Palestinian tax revenues.
• According to the officials, Biden asked Netanyahu to accept a proposal that the Israeli prime minister raised himself several weeks ago: to transfer the withheld tax revenues to Norway for safekeeping until an arrangement can be found that will assuage Israel's concerns that the funds could reach Hamas.
• The Palestinian Authority has already accepted this proposal and told the U.S. that under such an agreement it will resume taking part of the tax revenues that weren't withheld, according to a U.S. official.

A U.S. official and a source with knowledge of the call said Netanyahu backtracked and said he doesn't think this is a good idea anymore. He told Biden he doesn't trust the Norwegians and said the Palestinian Authority should just accept the partial transfer of the funds.

• Biden pushed back and said the U.S. trusts Norway's proposal and this should be enough for Israel to trust it too, the U.S. official and the source with knowledge of the call said.
• According to the U.S. and Israeli officials, Biden told Netanyahu that he should face the hardliners in his coalition on this issue like he is dealing with political pressure from Congress about the war in Gaza.

After a few minutes of discussion, Biden told Netanyahu he expects him to solve this issue, added that "this conversation is over" and ended the call, the U.S. official and source with knowledge of the call said.

• "The feeling was that the president is going out on a limb for Bibi every day and when Bibi needs to give something back and take some political risk he is unwilling to do it," one U.S. official said.
• A second U.S. official who was asked to comment on this account tried to play down the argument and said Netanyahu didn't reject the Norway idea, but "just said they're still working through things on their end."
• A White House spokesperson said the conversation between Biden and Netanyahu was "good and productive."
• The Israeli Prime Minister's Office did not immediately respond to a request for comment.

State of play: A few days after the Biden-Netanyahu call, the issue came up again during the meeting Israeli Minister Ron Dermer had in the White House with national security adviser Jake Sullivan, the second U.S. official said.

• "We have made good progress and think this issue of tax revenue transfers is on its way to being resolved," the official said.

Go deeper: Blinken expected to visit Middle East next week for talks on Gaza war