Israel's foreign minister warned on Thursday that Israel will not negotiate with a new Palestinian unity government that includes the Hamas militant group.
Avigdor Lieberman spoke a day after rival Palestinian factions Hamas and Fatah reached a unity deal in Cairo to end their five year long dispute.
For the Palestinians, the Egyptian-brokered deal revived hopes of ending their bitter infighting that weakened them politically and caused the deaths of hundreds in violent clashes and crackdowns.
The Palestinians say the move is a step toward independence, ahead of their intention of getting the United Nations to recognize Palestinian statehood in September.
But by including Hamas — which Israel, the U.S. and European Union consider a terror organization — the Palestinians have essentially ruled out peace negotiations with Israel and have put millions of dollars in U.S. and European aid money in jeopardy.
Israel was adamant it will not engage Hamas, which has sent dozens of suicide bombers and thousands of rockets into the Jewish state and is committed to Israel's destruction.
Lieberman also warned that the Palestinian agreement opens the door to Hamas gaining a foothold in the Fatah-controlled West Bank.
"It needs to be clear that such an agreement is crossing a red line," Lieberman told Israel's Army Radio. "The significance of the agreement is that terrorists will take hold of the West Bank. Hundreds of terrorists will flood the West Bank and therefore we need to prepare for a different situation."
Saeb Erekat, the chief Palestinian negotiator, said in response that Palestinian unity would promote peace because the new Palestinian government would represent all Palestinians.
"Those who speak about democracy in the region must understand that Palestinian reconciliation will open ballet boxes in Palestine," he said. "Those who want peace and want democracy must support Palestinian reconciliation."
Rivalries between the two Palestinian factions began in 2006 after the militant Islamic group Hamas won elections in Gaza and the West Bank. A year later, Hamas seized power in Gaza in a violent takeover.
The split left Hamas in control of the Gaza Strip, and Fatah ruling only the West Bank. The two territories are separated by Israel and Palestinians claim them both for a future independent state, along with east Jerusalem.
Israel has held peace talks with the Fatah-led government but has shunned Hamas.
The unity deal plan calls for the formation of a single caretaker Palestinian government in the coming days. The government would administer day-to-day business until new presidential and legislative elections are to be held in a year's time.
The factions are set to meet next week in Egypt and the official signing ceremony will take place before May 10, with Palestinian President Mahmoud Abbas and Hamas leader Khaled Mashaal in attendance, said Azzam al-Ahmad, head of the Fatah delegation.
Al-Ahmad said the new government will be apolitical and focus on rebuilding Gaza and prearrange for elections.
Fatah spokesman Husam Zomlot said that with the agreement Abbas is embarking on a new strategy after an unsuccessful peace process. "But of course he is not waging a war against either Israel or the west," he added.
Hamas insists that its agreement with Fatah does not indicate a recognition of Israel.
Israel currently maintains daily working ties with the Palestinian security forces in the West Bank and this coordination could be jeopardized by the unity deal.
Lieberman said that Israel "will not negotiate with a terrorist organization" and will consider various sanctions it could take against a new Palestinian government with Hamas in it — including travel restrictions and withholding tax revenues it collects on the Palestinians' behalf in the West Bank.
Lieberman said the agreement was a result of panic on both sides.
He said Fatah was reeling from the fall of its longtime patron, former Egyptian President Hosni Mubarak, and Hamas' Damascus-based leadership was nervous because of President Bashar Assad's shaky status in Syria.
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