Following a seven hour marathon meeting of Israel's top decision making body, the Jewish state also threatened to take unspecified steps against the unilateral moves of the Palestinian leadership.
"Israel's security cabinet unanimously decided that the Israeli government will not negotiate with a Palestinian government backed by Hamas, a terror organisation that calls for the destruction of Israel," a statement from Prime Minister Benjamin Netanyahu's office said.
"Instead of choosing peace, Abu Mazen [nom de guerre for PA President Mahmoud Abbas] formed an alliance with a murderous terrorist organisation that calls for Israel's destruction," Netanyahu said.
"Abu Mazen formed an alliance with an organisation whose covenant calls for Muslims to wage Jihad against Jews," the Israeli Premier stressed.
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He pointed out that Hamas has fired more than 10,000 missiles and rockets on Israel, and has never stopped "for a minute" its terrorist actions against Israel.
The Palestine Liberation Organisation (PLO), internationally recognised as the sole representative of the Palestinian people, and Hamas signed a reconciliation agreement on Wednesday ending nearly seven years of hostility.
Hamas has ruled the Gaza Strip since June 2007 after overthrowing the West recognised PA in a bloody pitched battle despite a crippling embargo by Israel and the Western powers.
Netanyahu charged that the unity deal was signed "while Israel was making efforts to advance the negotiations with the Palestinians" and was "a direct continuation of the Palestinian recalcitrance to promote negotiations."
Abbas "rejected the principles of the framework (to extend peace talks) proposed by the US, and refused to even discuss recognising Israel as the Jewish State," he argued.
"Whoever chooses the Hamas terror does not want peace," the Israeli Premier emphasised.