The UN cultural organisation declared an ancient shrine in Hebron a heritage site, prompting Israel to further cut its funding to the United Nations.
UNESCO designated Hebron and the two adjoined shrines at its heart - the Jewish Tomb of the Patriarchs and the Muslim Ibrahimi Mosque - a "Palestinian World Heritage Site in Danger".
Israeli Prime Minister Benjamin Netanyahu called that "another delusional UNESCO decision" and ordered that $1 million be diverted from Israel's U.N. funding to establish a museum and other projects covering Jewish heritage in Hebron.
The funding cut is Israel's fourth in the past year, taking its UN contribution from $11 million to just $1.7 million, an Israeli official said. Each cut has come after various UN bodies voted to adopt decisions which Israel said discriminated against it.
Palestinian Foreign Minister, Reyad Al-Maliki, said the UNESCO vote, at a meeting in Krakow, Poland, was proof of the "successful diplomatic battle Palestine has launched on all fronts in the face of Israeli and American pressure on (UNESCO) member countries."
Hebron is the largest Palestinian city in the West Bank with a population of some 200,000. About 1,000 Israeli settlers live in the heart of the city and for years it has been a place of religious friction between Muslims and Jews.
Jews believe that the Cave of the Patriarchs is where Abraham, Isaac and Jacob and their wives, are buried. Muslims, who, like Christians, also revere Abraham, built the Ibrahimi mosque, also known as the Sanctuary of Abraham, in the 14th century.
The religious significance of the city has made it a focal point for settlers, who are determined to expand the Jewish presence there. Living in the heart of the city, they require intense security, with some 800 Israeli troops protecting them.
Even before Netanyahu's budget announcement, Internal Security Minister Gilad Erdan signalled Israel would seek to further make its mark at the Hebron shrine, tweeting: "UNESCO will continue to adopt delusional decisions but history cannot be erased ... we must continue to manifest our right by building immediately in the Cave of the Patriarchs."