Israel has suspended diplomatic contact with the Palestinians, putting the troubled Middle East peace process on ice in response to the Palestinian President Mahmoud Abbas’s national unity deal on Wednesday with the militant Hamas movement.

“Instead of choosing peace, Abu Mazen [Mr Abbas] made an agreement with a murderous terror organisation that calls for the destruction of Israel,” the Israeli Prime Minister Benjamin Netanyahu said. “He who chooses terror does not want peace.”

A cabinet statement issued after a six-hour meeting said: “The cabinet decided unanimously that Israel will not conduct negotiations with a Palestinian government reliant on Hamas.”

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The Haaretz newspaper quoted a senior official as saying that peace talks, which have been in a profound crisis, would be suspended until the make-up of the new Palestinian cabinet is clear.

According to the agreement between Fatah and Hamas, Mr Abbas has five weeks to form a government of technocrats that will prepare for presidential and legislative elections to be held at least six months later. But analysts have cautioned that the agreement may never be implemented due to persisting differences between the two movements.

At first glance, the pact aims to end a situation of rival governments in the West Bank, where Fatah is dominant, and in Hamas-led Gaza. The schism ensued from Hamas’s armed takeover of Gaza from Mr Abbas’s Fatah movement in 2007. But on examination it does not resolve any of the differences that have bedevilled relations between the two groups, including the stance towards Israel and on power-sharing.

The Israeli official said that Israel will be gauging whether the new government accepts conditions set for dealing with Hamas by the international community, namely that it recognise Israel, renounce violence and honour previous agreements signed between the Palestinian Authority (PA) and Israel. Mr Abbas assured a senior UN Official, Robert Serry, that the agreement would be implemented under his leadership and would meet those conditions, Mr Serry's office said. The UN official then welcomed the reconciliation, including “long overdue” elections.

Israeli media reports said the government also decided to open a public relations campaign to vilify Mr Abbas, who advocates non-violent resistance and diplomacy to end occupation and establish an independent Palestinian state. Mr Netanyahu stressed that the Palestinian leader “reached an agreement with a group whose charter calls upon Muslims to fight Jews and kill them”. Hamas, he said, had fired more than 10,000 missiles from Gaza and “did not cease for a moment its terrorist actions. He who chooses the terror of Hamas does not want peace.”

Israel also decided to reaffirm and expand financial steps against the PA, including halting transfers of tax funds it collects on the Palestinians’ behalf. Naftali Bennett, the far-right economy minister, termed the cabinet decisions “balanced”. “You do not talk to murderers,” he said.

Abdullah Abdullah, chairman of the politics committee of the Palestinian Legislative Council and a supporter of Mr Abbas, termed the Israeli decision “the height of hypocrisy”.

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“Before they would say you can’t make an agreement with the Palestinian Authority because they don’t control all their territory, and now they say you can’t negotiate because there is reconciliation with Hamas. Abbas is trying to widen the base for supporting peacemaking, to bring Hamas into the fold, while the Israeli policies aim to destroy the negotiations.”

Mr Abbas also received a warning from Washington over the unity deal. A senior administration official said the US would reassess its hundreds of millions of dollars in financial assistance to the PA if Hamas and the PLO form a government together. “It’s hard to see how Israel can be expected to negotiate with a government that doesn’t recognise its right to exist,’’ said the State Department spokeswoman Jen Psaki.

Analysts in both Israel and the Palestinian self-rule areas believe Mr Abbas opted for unity with Hamas as a tactic to pressure Israel into agreeing to his conditions for extending the faltering peace negotiations, which entered a severe crisis on 29 March when Israel failed to fulfil a commitment to release a group of Palestinian prisoners. Mr Abbas responded by joining 15 international conventions and treaties, angering Israel, but the two sides had still maintained contacts to find a formula to extend the negotiations after next Tuesday, the date their span expires.

In addition to the release of the prisoners, the Palestinian leader was seeking a freeze on illegal Israeli settlement construction in the West Bank.

“I don’t think Hamas or Abbas seriously intend to implement the agreement,” said Khalil Shikaki, director of the Palestinian Centre for Policy and Survey Research. “Both need it for immediate tactical reasons.” Hamas was anxious to boost its standing following the ousting of its main ally, the Muslim Brotherhood regime in Egypt, while Mr Abbas “wanted to improve his negotiating position” with Israel, he said.

“Abbas has to state to the Americans and Israelis what the platform will be, whether it continues security co-ordination with Israel. Once he begins to clarify his position, Hamas will have to decide if this is something it can tolerate,” Mr Shikaki said.

Other analysts believe Mr Abbas may be motivated by a desire to hold elections to renew his legitimacy after nine years in office. Polling has been impossible because of the inter-Palestinian rift. “Israel is viewing things with the mentality of a military governor without realising that space is needed for Mr Abbas to maintain his leadership, credibility and legitimacy,” said Mahdi Abdul-Hadi, director of the Palestinian Academic Society for the Study of International Affairs.

Ido Zelkovitz, a scholar at Mitvim, the Israeli Institute for Regional Foreign Policies, argued that Palestinian reconciliation would be good for Israel. “The Israeli right wing has claimed there is no use is signing a peace agreement with Mahmoud Abbas because he represents only part of the Palestinian people. The reconciliation agreement can put Abbas in a different position in which he holds all the cards. Israel should treat the Palestinian reconciliation process as an opportunity, not a threat.”