Israel: We won't deal with unified Palestine

Avigdor Lieberman spoke a day after the two main Palestinian factions, Islamist Hamas and secular Fatah, reached a unity deal in Cairo to end their five-year dispute.

The Egypt-brokered deal revived hopes of ending the bitter infighting that has undermined the Palestinian struggle for national self-determination and caused the deaths of hundreds of Palestinians in internecine clashes.

Emerging from the reconciliation talks on Wednesday, a jubilant Azzam al-Ahmed, the chief Fatah negotiator, said: "We have a comprehensive agreement now - we have agreed on all the issues."

Mr Ahmed said the deal, which Hamas and Fatah officals are scheduled to officially sign at the end of next week, covered the formation of an interim government that would administer day-to-day business until new presidential and legislative elections are held in a year's time.

"Our best weapon is national unity. This is a start," he said.

But Tel Aviv poured cold water on the breakthrough on Thursday by indicating that it is unlikely to return to long-stalled peace negotiations.

And it flatly rejected the prospect of a Palestinian government that includes Hamas.

Mr Lieberman told Israel's Army Radio that the Netanyahu administration "will not negotiate with a terrorist organisation," adding that it would now consider various sanctions it could take against a new Palestinian government with Hamas in it - including travel restrictions and withholding Palestinian tax revenues it collects in the West Bank.

MP Nachman Shai of the opposition Kadima party called the Hamas-Fatah agreement Prime Minister Netanyahu's "great failure."

"Netanyahu failed to understand the strategic changes in the Arab world and their implications for the Palestinians.

"The result is that the road to international recognition of a unilaterally declared Palestinian state is open," Mr Shai declared.

Israel has held talks with the Fatah-led government in the West Bank but has shunned Hamas, which has governed Gaza since winning elections in 2006.

The group, which remains popular in the blockaded territory, is considered a terrorist organisation by Israel, the US and the European Union.