Israeli theatre companies will play at the new concert hall in the settlement of Ariel while allowing individual actors not to perform.

This was the uneasy agreement reached between the theatre industry and the Culture Ministry following a dispute which included threats of boycotts and a curtailment of funding.

Culture Minister Limor Livnat met representatives of the theatre companies and the actors' and dramatists' unions in Tel Aviv on Tuesday. The meeting was organised by the Local Government Centre following an escalation over the weekend in the war of words between the two sides.

The dispute began last month when a group of 60 actors and playwrights published an letter stating that they would not appear on stage in the new concert hall in Ariel as it was in a settlement and, according to them, "condoning the illegal occupation". The letter drew angry responses from ministers and mayors from across Israel who declared that they would not allow the actors to appear in publicly funded shows in their towns. Despite the letter, the hall was opened last week with a play by the Be'er Sheva Theatre.

Ms Livnat announced after the performance that her ministry would withhold funds from companies whose actors refuse to perform in Ariel and, on Friday, a meeting of the Actors Guild called on the minister to resign for exercising "political censorship".

The closed meeting between the two sides on Tuesday was described as "tense, stormy but ultimately constructive", and the agreement that emerged was that all the publicly funded theatre companies would perform in Ariel but would allow individual actors to act according to their political beliefs.

Ronny Ninio, head of the Directors' Union, said that "those who signed the letter did not talk about a boycott, but their own conscience. The companies will deal with the issue within the theatre without outside intervention."