Israel has issued a tough condemnation of the new Palestinian unity government, ruling out negotiations and authorising Prime Minister Benjamin Netanyahu to impose new sanctions on the Palestinians.
Israel announced its decision after Mr Netanyahu gathered his security cabinet to discuss a response.
Israel is furious that Palestinian president Mahmoud Abbas, also known as Abu Mazen, formed a joint government backed by the Islamic militant group Hamas.
The government is meant to end a seven-year rift between the Palestinian rivals. Israel considers Hamas a terrorist group.
Mr Netanyahu said: "Abu Mazen said today yes to terror, and no to peace."