RAMALLAH, West Bank - The Palestinian government in the West Bank plans a $50 million fund to help workers quit jobs in Israeli settlements by the end of the year, the labor minister said Thursday - a significant step in a widening campaign to cut ties with the Israeli enclaves built on land the Palestinians want for their state.

Israel has denounced the campaign as harmful to renewed U.S.-led peace efforts, and settler leaders called on their government to retaliate with economic sanctions.

Even among many Palestinians, the ban on working in settlements will be a hard sell, since unemployment is high and workers said they feared ending up broke or on welfare.

Palestinians also are being urged to stop buying goods made in settlements. Palestinian Authority Prime Minister Salam Fayyad threw his weight behind the initiative Thursday, joining thousands of volunteers in a door-to-door campaign to encourage people to participate in the boycott.

Leaders say Palestinians must set an example if they expect the world to take a stand on the settlements, one of the most intractable issues in the Mideast conflict. The enclaves have been built on territory Israel captured in the 1967 Mideast War and are home to nearly half a million Israelis.

Israel withdrew from the Gaza Strip in 2005, pulling out soldiers and destroying the nearly two dozen settlements it had built there.

More than 20,000 Palestinians work in settlement factories and construction sites, generally earning up to twice as much as those employed in Palestinian businesses.

Labor Minister Ahmed Majdalani said the government planned to raise $50 million in local and international contributions in a "dignity fund" to ease workers' transition. He said the Palestinian cabinet would formally announce the fund Monday at its weekly session.

He did not say how much money, if any, had been raised or which donors would be approached. He said the fund would be used as an incentive to Palestinian employers to hire former settlement workers, by paying half their salaries for the first year.

The Palestinian Authority gets hundreds of millions of dollars in aid from donor countries each year, and it was not clear if donors would be willing to pay more, especially for an effort seen by some Israeli officials as a provocation.