Israel and Germany are considering withholding economic aid from the Palestinians, following the Islamic militant group Hamas' stunning victory in Palestinian parliamentary elections last week. The two countries say Hamas should be shunned as a terrorist organization.
At a meeting in Jerusalem, the leaders of Israel and Germany agreed that there should be no contacts with a Palestinian government headed by Hamas. German Chancellor Angela Merkel is the first world leader to visit the region since the Hamas victory. She said there will be an economic price to pay by Hamas unless the group recognizes Israel and renounces violence.
Ms. Merkel said it is "unthinkable" for Germany and the European Union to give financial support to a Hamas-led Palestinian Authority.
That would be a major blow because Europe is the biggest donor to the Palestinians, giving $615 million in aid last year. The U.S. has said that it, too, would cut off aid to a Hamas government.
Acting Prime Minister Ehud Olmert said Israel would stop the monthly transfer of $10 million in tax rebates and other funds to the Palestinian Authority if a Hamas government is installed.
"Germany and Israel will not negotiate with terrorist groups," Mr. Olmert said.
Hamas has rejected international demands to disarm and revoke its charter calling for the destruction of Israel. Hamas leaders describe international threats to cut off aid as "blackmail."