Israel's cabinet approved a package of restrictions on the Palestinians today, a day after a Hamas-dominated parliament was sworn in.
The cabinet decided to halt further monthly transfers of tax revenue that Israel hands over to the cash-strapped Palestinian Authority and tighten restrictions on Palestinian travel and the movement of goods at crossing points.
Earlier Israel's interim Prime Minister Ehud Olmert said the Palestinian Authority was becoming a "terrorist authority".
"It is clear that given the Hamas majority in the Palestinian parliament and the fact that the role of forming a government has been given to Hamas, the Palestinian Authority is effectively becoming a terrorist authority," Mr Olmert told fellow ministers.
"Israel will not hold contacts with a government that Hamas is part of," Mr Olmert said.
"As we announced immediately after the Palestinian elections ... Israel is stopping forthwith the transfer of funds to the Palestinian Authority."
Hamas, which is dedicated to Israel's destruction, won a crushing victory over the long-dominant Fatah faction of President Mahmoud Abbas in the January 25th Palestinian parliamentary election.
The new 132-member Palestinian parliament, in which Hamas has 74 seats, was sworn in yesterday amid disagreement between Mr Abbas and the militant group on pursuing peace with Israel.
Echoing Israeli demands, Mr Abbas has called on Hamas to end violence and honour past interim peace deals the Palestinians signed with Israel.