UPDATE 1-Israeli banks heed US anti-settler sanctions, far-right ministers object

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US sanctions settlers accused of attacking Palestinians

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Israeli PM says 'no need', far-right allies condemn move

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'We are not a banana republic' -ultranationalist minister

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Bank of Israel: Israeli lenders must comply with decision

(Adds finance minister's comment, paragraphs 6-7)

By Steven Scheer and Dan Williams

JERUSALEM, Feb 5 (Reuters) - Israeli banks said on Monday they were heeding U.S. sanctions against four West Bank settlers accused of violence against Palestinians, despite calls by the finance minister and another far-right cabinet member not to comply.

In a signal of Washington's growing displeasure with Israeli conduct in the occupied territory even as the allies cooperate in the Gaza war, President Joe Biden issued an executive order on Thursday barring financial transactions by the four men.

Prime Minister Benjamin Netanyahu's office said there was "no need" for such measures while his ultranationalist coalition allies, Finance Minister Bezalel Smotrich and National Security Minister Itamar Ben-Gvir, issued stronger condemnations.

"We are not a banana republic of the United States in this regard and we won't allow for the harming of our citizens," Smotrich told reporters on Sunday, describing the allegations against the settlers as "utterly specious".

He added that he would use "all available tools" to stop Israeli banks enforcing the sanctions. Both Smotrich and Ben-Gvir have significant support among Jewish settlers in the West Bank, which is among territories where Palestinians seek to establish an independent state.

Referring to West Bank settlers on Monday, Smotrich said the sanctions targeted a half million Israelis who were fighting "terrorism" and were now considered enemies rather than allies.

"It is not possible for an Israeli citizen with Israeli money in an Israeli bank to be deprived of rights and assets due to an American order," he said, adding he was in discussions with the banking regulator on legal options.

However, the Bank of Israel said Israeli banks must comply with the decision by the Biden administration.

"Evading such sanctions regimes can expose banks to significant risks, including compliance risks, money laundering and combating the financing of terrorism risks, legal risks, and reputation risks," the central bank said in a statement.

"Ensuring proper conduct and orderly activity of banks in Israel is essential for maintaining the orderly activity of the economy."

COMPLIANCE

Hapoalim, one of Israel's two largest banks, said it respects international sanctions and will comply with any legal order - though it declined to discuss any specific cases.

Its main rival, Leumi, declined comment. But Yinon Levi, one of the settlers under U.S. sanctions, told Israel's Kan radio that Leumi had frozen his private and business accounts, and overturned his attempt to transfer out money.

Levy, according to the U.S. State Department, led a group of far-right settlers that assaulted Palestinian civilians, burned their fields and destroyed property - allegations he denied.

"I am not involved in any violent actions," he said, adding that he had never been investigated by Israeli authorities nor had any legal interaction with U.S. authorities.

David Chai Chasdai, another of the settlers under sanctions, told an Israeli newspaper that his account at the Postal Bank had been frozen.

The Postal Bank declined to discuss any specific case, but said it is "obliged to respect and comply with international legal sanctions and orders as required in the international financial system".

According to the State Department, Chasdai led a riot in which vehicles and buildings were torched and property damaged in the West Bank village of Huwara, resulting in the death of a Palestinian civilian. Reuters could not immediately reach Chasdai or his lawyers for a response to the allegation.

In a statement aired by Israel's Army Radio, Chasdai deplored the sanctions as "a national disgrace of the highest order ..., taking place under a rightist government, just after the biggest massacre in the country's history" - a reference to the Oct. 7 rampage by Hamas militants that sparked the Gaza war.

The sanctions follow the U.S. imposition of travel visa bans in December on people involved in violence in the West Bank.

Most world powers deem Israeli settlements there illegal.

Ben-Gvir described the freezing of the settlers' bank accounts as a "red line", adding in a social media post: "We greatly respect and appreciate our allies in the world, but we must not let anyone manage the State of Israel." (Reporting by Steven Scheer and Dan Williams; editing by Mark Heinrich)