Palestinians swore in their first national unity government in seven years on Monday, a move condemned by Israel but not other major players in the Middle East peace process, including the EU and U.S.

The move follows an agreement in April between the two main Palestinian factions, Fatah and Hamas, whose previous attempt to forge coalition collapsed in 2007 amid power-sharing disputes that turned violent. Memories of that conflict will loom large as the new technocratic government leads Palestinians into highly-anticipated elections in six months' time.

Israel has condemned the idea of a Palestinian unity government, citing a refusal of Hamas, which controls the Gaza strip, to denounce violence or recognize the state of Israel.

Following the swearing-in, Israel's government promptly authorized Prime Minister Benjamin Netanyahu to impose financial sanctions on the Palestinians. In the past, Israel has withheld millions of dollars in taxes that it collects on behalf of the Palestinians.

In a statement issued shortly after meeting with Israeli security officials, Netanyahu reiterated his line that Abbas had said "yes to terror, and no to peace."

But both the U.S. and the EU — the two largest donors to Palestinian agencies — have indicated they are willing to give the new unity government a chance. In a phone call with Palestinian President Mahmoud Abbas on Sunday, Secretary of State John Kerry said the U.S. will not make any decision on support until it has seen who is in the government, even though the U.S still considers Hamas a "terrorist group."

The State Department followed that up Monday by saying that “based on what he know now” the U.S. intends to work with the unity government.

Palestinian President Mahmoud Abbas has stressed that the new cabinet will accept international calls to renounce violence and acknowledge Israel's right to exist, even if Hamas independently refuses to do so.

As the new Palestinian cabinet took its oath in a ceremony in the occupied West Bank city of Ramallah on Monday, Abbas lauded the new government: "Today, with the formation of a national consensus government, we announce the end of a Palestinian division that has greatly damaged our national case."

Likewise, Hamas spokesman Sami Abu Zuhri said: "We hail the national consensus government, which represents all the Palestinian people."

The swearing-in occurred despite a reported last-minute internal dispute over Abbas's plans to dissolve the Prisoner Affairs Ministry and transfer responsibility for prisoner issues to a committee outside the control of the cabinet. The Palestinian leader has been under U.S. and EU pressure to end his government's policy of paying Palestinian prisoners while in jail, and wants to establish an independent committee to replace the ministry.

Earlier on Sunday, Netanyahu gave warning that the Hamas-Fatah deal to mend ties would strengthen "terrorism" in the Middle East.

"I call on all responsible elements in the international community not to rush to recognize a Palestinian government which has Hamas as part of it and which is dependent on Hamas," he said.

But Abbas’s spokesman Nabil Abu-Rudeineh said the international community had already encouraged and welcomed the move "aimed at the unification of the country and the Palestinian people," according to the local news agency WAFA.

Abu-Rudeineh added that the new government would abide by Abbas’ political program "which aims at achieving an independent state of Palestine with Jerusalem as its capital."

The political development took place on a backdrop of the latest tit-for-tat exchange between Israeli and Palestinian forces. Israel’s strike on Gaza on Monday occurred after two rockets were fired from central and southern Gaza, an Israeli air force spokesman told The Guardian. Israel responded by attacking two “terrorist sites,” he said.

A similar incident played out along Israel’s ceasefire line with Syria, in the disputed Golan Heights region on Monday. An Israeli military spokesman told AFP that Israeli forces fired back after three mortar shells were launched from Syria, with one landing in Israeli territory.

Hamas has controlled the occupied Gaza Strip since 2007, when it removed Fatah after winning an election. Fatah controls areas of the West Bank and dominates the Palestinian Liberation Organization, which negotiates with Israel on behalf of the Palestinian cause. Their efforts to broker a unity agreement was a major reason given by Israel to bail on U.S.-led peace talks in April, though those talks were already making little progress.

"Israel wants to punish us for agreeing with Hamas on this government,” Abbas said Saturday, adding that the Netanyahu administration would "boycott the government the moment it is announced.”

Another Palestinian official said on Saturday that Israel had denied requests by three Gaza-based Palestinians, who are expected to be named as ministers, to attend Monday's ceremony.

Israel pulled its troops and settlements out of Gaza in 2005 in a "disengagement," but still controls the borders, sea and airspace.

Al Jazeera and wire services