The English-language Jerusalem Post said recent Israeli intelligence assessments had concluded Iran had cut annual funding to Hezbollah by more than 40 percent, causing a crisis within the militant militia.

Iran had been providing Hezbollah with a billion dollars a year in direct military aid, with the funds being used to buy weapons and invest in training, the paper said.

Iran is the ideological and financial backer of the Shiite movement, which fought a devastating war against Israel in 2006 that killed 1,200 people in Lebanon, most of them civilians, and 160 Israelis, mostly soldiers.

The Islamic republic is currently under US and UN sanctions over its refusal to suspend uranium enrichment, rejecting claims that its atomic programme masks a bid to acquire nuclear weapons.

Hezbollah is also under huge pressure, with a UN-backed tribunal expected to indict a number of high-ranking Hezbollah operatives in the murder of former Lebanese premier Rafiq Hariri in 2005.

earlier related report
Hezbollah urges Arabs to 'resist' as talks falter
Beirut (AFP) Dec 16, 2010 - Lebanon's Hezbollah called on Arab states on Thursday to abandon peace talks and join the militant group in its fight against Israel, after negotiations foundered over Israeli settlement building.

"Come to the path of resistance and the choice of resistance," the leader of the powerful Shiite movement, Hassan Nasrallah, said in a televised address to mark the climax of 10 days of rituals for Ashura, one of the high points of the faith's religious calendar.

"Be honest with your people and confess to them the truth -- the possibility of a settlement is over," said Nasrallah, whose movement fought a devastating 2006 war with Israel.

"We have no choice to restore our land and dignity... but through resistance," he added, drawing chants of "death to Israel" from the tens of thousands of faithful who had gathered in the Hezbollah-controlled southern suburbs of the capital Beirut.

Nasrallah's speech came a day after Arab foreign ministers ruled out a resumption of Israeli-Palestinian talks without a "serious offer" which would ensure their success.

Nasrallah said the Arab League was "late in discovering what they announced yesterday" but nonetheless called on governments to "return to the path of honour, dignity, pride and the refusal of humiliation".

"If our government, Arab and Islamic governments... announced the end of negotiations and listened to the choice of the people, you would find the world was bowing before you and asking you for a chance to find a solution," Nasrallah said.

Arab ministers said on Wednesday that they intend to seek a UN Security Council resolution against further Israeli settlement building in the occupied West Bank even though it is likely to face a veto from Washington.

The peace process was thrown into disarray last week after Washington acknowledged that it had failed in its high-profile efforts to persuade Israel to renew restrictions on settlement construction -- the Palestinians' condition for continuing to negotiate.

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