Israel's hardline defence minister Avigdor Lieberman has a new "carrot and stick" policy for the West Bank that will penalise the hometowns of Palestinian attackers while rewarding others, his ministry said Thursday.

Under the policy, Palestinian families, villages and towns that are linked to attackers will face extra punitive measures, while those that are not will receive increased economic support.

"Anyone who is ready for coexistence will profit, and anyone who takes the route of terrorism will lose," Lieberman said, according to Israeli newspapers.

Lieberman described the policy as a "carrot and stick" approach, his ministry confirmed to AFP.

The policy is dependent on support from Prime Minister Benjamin Netanyahu, which Lieberman said he had already received.

Israel has occupied the West Bank, which is home to more than two million Palestinians, since 1967.

More than 400,000 Israelis live in West Bank settlements which the international community considers illegal and sees as one of the largest obstacles to peace.

According to Israeli media reports, Lieberman, whose ministry leads Israeli policy in the West Bank, has divided the region in two -- with Palestinian hometowns of attackers marked green and others in red or yellow.

Those marked as threats could see increased arrests or raids and tighter restrictions on access, while those seen as accepting of Israel's presence could see increased state investment.

In Beit Sahour, south of Jerusalem, the "carrot" could include a new hospital, Israeli newspapers reported.

A wave of violence since October has killed 220 Palestinians, 34 Israelis, two Americans, an Eritrean and a Sudanese, according to an AFP tally.

Most of the Palestinians killed were carrying out knife, gun or car-ramming attacks, Israeli authorities say, with the majority of them from the West Bank.

Last month the Israeli army closed off the Fawwar refugee camp close to the flashpoint city of Hebron for 26 days after a gunman fired on an Israeli car on a nearby road, causing a crash that killed the driver.

Lieberman will also seek to improve relations with prominent Palestinians outside the Ramallah-based Palestinian Authority headed by president Mahmud Abbas.