Israel has imposed sanctions on the Palestinian Authority, which Israel's acting Prime Minister Ehud Olmert says is turning into a terrorist body now that the militant group Hamas has dominated elections and assumed control.
Olmert says Israel will have no contact with the Palestinian government and urged the international community to isolate the Hamas-led government. Israel's Cabinet also decided to stop $50 million per month of customs payments to the Palestinians.
But the Cabinet rejected some more drastic proposals, including a ban on the travel of Palestinians through Israeli territory.
Hamas' designated prime minister, Ismail Haniyeh, says Israel's sanctions are designed to break the will of the Palestinian people following his group's overwhelming election victory.
Hamas refuses to recognize Israel's right to exist and has claimed responsibility in the past for dozens of suicide bombing attacks against Israeli targets.
Meanwhile, Palestinian officials say two members of the militant Popular Resistance Committees have been killed in an Israeli airstrike on the southern Gaza Strip.
Israeli army officials say the two men were trying to plant a bomb close to a security fence that separates Gaza from Israel.
Some information for this report was provided by AFP, AP and Reuters.