RAMALLAH, West Bank - About 20 Israeli suppliers will help build the first modern Palestinian city in the West Bank, but only after promising they will not use products or services from Israeli settlements, the developer said Tuesday.

The announcement angered Jewish settlers, who accused the suppliers of caving in to an international boycott of settlement goods and businesses.

The West Bank city of Rawabi, going up 20 miles north of Jerusalem, is a key part of Palestinian Authority Prime Minister Salam Fayyad's plans to lay the groundwork for a future Palestinian state.

The participation of Israeli companies in its construction is an ironic twist on the heavy use of Palestinian laborers in building Jewish settlements in the West Bank and a powerful reminder of how much the 43 years of Israeli occupation have made the Palestinian economy reliant on Israel.

Project developer Bashar Masri said he tried to use Palestinian suppliers whenever possible. But when necessary, he turns to Israeli firms on the condition that products and services from any territories Israel captured in the 1967 Mideast war - the West Bank, East Jerusalem, and the Golan Heights - are not used.

Settlements "steal Palestinian land and are an obstacle to an independent Palestinian state, and it's time for us to put an end to that harm," he said.

He declined to identify any of the Israeli companies but said they were suppliers of building and construction materials.

Settler leader Dani Dayan fumed that Israeli companies agreed to the Palestinian conditions. "It's a capitulation to the boycott," Dayan said.

Palestinian activists and their supporters have begun a campaign to persuade investors to divest Israeli holdings and boycott Israeli companies over the occupation. The economic impact has been negligible, but for Israel, the negative publicity has been unwelcome.

Israel accuses boycott advocates of trying to delegitimize it and argues that many foreign companies with ties to authoritarian regimes are not similarly targeted.

Fayyad has advocated a boycott of settlement goods in the West Bank, and his government this year passed a law imposing heavy penalties and jail time on Palestinians who work in settlements. But they have not been able to find alternative employment for the 21,000 Palestinians who work in settlements, and the law isn't being enforced.