Israel on Thursday afternoon announced the suspension of peace negotiations with the Palestinian Authority in the wake of Wednesday’s announcement of a unity agreement between rival Palestinian factions Fatah and Hamas.

The top-level inner cabinet of Prime Minister Benjamin Netanyahu’s ministers “decided unanimously that it will not negotiate with a Palestinian government that incorporates Hamas, a terrorist organization that seeks the destruction of Israel,” a statement said after an emergency meeting that lasted throughout Thursday afternoon. Israel also said it plans to introduce economic sanctions against the PA, which will reportedly include withholding tax revenues collected by Israel on behalf of the Palestinians.

Israeli officials said the government decision had been carefully worded so as not to rule out a possible resumption of peace talks if, in the next five weeks, PA President Mahmoud Abbas fails to agree with Hamas on the composition of a unity government as scheduled. At the same time, the wording was also designed to make plain that Israel will not negotiate with any Palestinian government that rests on Hamas support even if there are actually no Hamas ministers sitting around the cabinet table. Palestinian sources have said that Abbas intends to form a government of technocrats that might feature no Hamas or Fatah ministers.

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A Palestinian Authority official said the PA would consider “all options” in response to Israel’s decision.

Israel had already called off a scheduled session of negotiations on Wednesday evening, soon after the unity pact was announced in Gaza.

“Instead of choosing peace, Abu Mazen [Abbas] made a deal with a murderous terror organization that calls for the destruction of Israel,” Prime Minister Benjamin Netanyahu said after Thursday’s meeting.

Hamas appeals to Muslims to kill Jews, has fired over 10,000 rockets at Israel, and “has not ceased for a moment from its terror activities against Israel,” Netanyahu added. “Whoever chooses Hamas’s terror does not want peace.”

The prime minister also denounced the timing of the Fatah-Hamas reconciliation, which occurred “at a time when Israel was making efforts to advance the negotiations.”

The announcement of the Palestinian unity deal is a “direct continuation of the Palestinian refusal to advance the talks,” Netanyahu said, citing what he said was the Palestinian rejection last month of a US framework agreement to extend negotiations, the refusal to recognize Israel as a Jewish state, and Abbas’s appeal to UN agencies.

Netanyahu later said in US television interviews that the Israeli government “will be there, I’ll be there,” if there was a genuine partner for peace. But the unity pact showed that Israel had no such partner at present.

American Special Envoy Martin Indyk met in Ramallah on Thursday afternoon with Abbas and reportedly told him of US displeasure over the unity deal, which the State Department on Wednesday described as “disappointing.”

Israeli officials were quoted on Channel 2 later Thursday saying Jerusalem believes the US has been too soft on Abbas to date, as he has evaded substantive progress in the negotiations, and that the PA president would not have dared enter the unity pact with Hamas if the Obama administration had been firmer.

Earlier Thursday, Foreign Minister Avigdor Liberman said there was no chance for Israeli-Palestinian peace as long as Abbas’s Fatah faction stuck with the reconciliation deal it signed with Hamas. He said the deal meant Israel “has no partner” to negotiate with and signified a move toward Hamas gaining greater influence in the West Bank.

Liberman said Israel wasn’t surprised by the Fatah-Hamas pact, as Abbas had tried several times to blow up the Israeli-Palestinian talks during the last few months. He also said that he expected international pressure on Israel to continue engaging in the current US-brokered peace talks, but asserted that Washington understood Jerusalem’s position. “It is clear that as soon as Abbas chose to unite with Hamas, it is impossible to make peace with Israel,” the foreign minister told Israel Radio.

On Wednesday afternoon, Hamas and Fatah announced a reconciliation deal which would see the formation of a technocratic unity government within five weeks, and new elections six months later, after years of bitter rivalry. Similar agreements have been announced several times in recent years, but not implemented.

State Department Spokeswoman Jen Psaki described the news as “disappointing in terms of the content as well as the timing.” Speaking shortly after Israel canceled a scheduled Wednesday evening session of talks, Psaki said that the State Department understood why Israel found it difficult to continue negotiating following the announcement. “It’s hard to see how Israel can be expected to sit down and negotiate with a group that denies its right to exist,” Psaki told reporters. She said that the State Department believes that a Hamas-Fatah reconciliation would “certainly complicate the process.”

“As long as there is a deal with Hamas and Abbas goes into the direction of an agreement with Hamas, the agreement with Israel is impossible,” Liberman said. His Yisrael Beytenu party, he said, “will not accept a [Palestinian] government that openly receives its authority from Hamas, an organization that clearly speaks about violence, terror and doesn’t recognize our right to exist and doesn’t recognize our previous agreements.”

Asked whether a unified Palestinian government wouldn’t make it easier to reach an agreement, he said that “it’s not that he [Abbas] rules over Gaza. Rather, Gaza rules over Judea and Samaria,” he said, referring to the PA-controlled West Bank.

The unity deal will lead to Hamas not only maintaining its control over the coastal strip “but also over Ramallah, Nablus and Hebron,” Liberman said.

“It is clear to everyone who can analyze the reality on the ground and knows the facts that, unfortunately, the direction is not toward peace, but toward escalation and confrontation with Israel.”

If elections were held in the Palestinian territories, as agreed by the Hamas and Fatah, Hamas would clearly win, both in Gaza and the West Bank, Liberman forecast. “There is a clear trend toward confrontation,” he said. “Hamas deals with classical terrorism; Abbas does diplomatic terror.”

There was “no doubt” that the international community will criticize Jerusalem if the peace talks collapse following the Palestinian reconciliation, and will exert pressure on Israel to continue the talks, Liberman predicted. Israel’s challenge will be to withstand these pressures, he said. “Israel will not change its positions, this I can guarantee. As long as Abbas prefers an agreement with Hamas over an agreement with Israel, we have no partner.”

The Moldovan-born foreign minister said Abbas was following the “no war, no peace… strategy of [Leon] Trotsky,” which he said the PA leader “learned at the Patrice Lumumba University in Moscow” along with the heads of other “freedom-fighter” movements in the 1970s. He said Abbas would never sign a treaty with Israel, never fight, and never resign. While “Hamas engages in ‘classical terror,” said Liberman, Abbas “engages in political terror, political extortion.”