Israel is imposing economic sanctions on the Palestinian Authority, a day after the parliament led by the Islamic militant group Hamas was sworn in.
Israel's Cabinet decided to halt $50-million monthly tax payments to the Palestinian Authority. Acting Prime Minister Ehud Olmert said Israel will not deal with an organization seeking the destruction of the Jewish state.
"With Hamas in power, the Palestinian Authority has become a regime of terror," Mr. Olmert said, and "Israel will not agree to that."
The Cabinet urged the United States and Europe to follow suit and cut off nearly $1 billion in annual aid to the Palestinian Authority.
At the same time, Israel responded to U.S. appeals and stopped short of more drastic measures, such as an economic blockade of the Gaza Strip. The Cabinet did not accept recommendations by the Defense Ministry to bar thousands of Palestinian workers and restrict the flow of goods from Gaza into Israel.
"Israel will do nothing to impede humanitarian support for the Palestinian people," said Israeli spokesman Mark Regev.
Hamas described the Israeli sanctions as blackmail and remained defiant to international demands that it renounce violence and recognize Israel.
"We will continue to resist occupation, and sometimes we do not have to care much about what the world is going to say," commented Hamas member Abdel Aziz Duweik, the new speaker of the Palestinian parliament.
Hamas has nominated 43-year-old Ismail Haniyeh to be the next Palestinian prime minister. He is seen as a leader of the group's pragmatic wing and has good relations with the defeated and more moderate Fatah party. Mr. Haniyeh says Hamas will begin talks on forming a new government on Monday.