JERUSALEM: Israel said on Thursday it was halting peace talks with the Palestinians following their unity deal with the Hamas rulers of Gaza, as the faltering US-backed process approached its deadline.

Prime Minister Benjamin Netanyahu slammed the agreement between the rival factions as a move that “kills peace”, but senior Palestinian official Saeb Erakat blamed Israeli settlement activity for killing off the process.

On Wednesday, the Palestine Liberation Organisation (PLO), internationally recognised as the sole representative of the Palestinian people, and the Gaza Strip's Hamas rulers signed a reconciliation agreement.

They agreed to form a “national consensus” government under Abbas within weeks.

Israel's security cabinet announced in response on Thursday it would “not negotiate with a Palestinian government backed by Hamas” and vowed “measures”in response, but did not elaborate.

Any new measures would follow a raft of financial sanctions unveiled this month when the Palestinians applied to join 15 international treaties.

“The pact with Hamas kills peace,” Netanyahu told NBC television shortly after the Israeli cabinet decision.

The Palestinian unity deal came as Washington made last-ditch efforts to extend the talks beyond their April 29 deadline.

'Israel chose settlements'

Netanyahu said it 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”.

Israel's chief negotiator, Justice Minister Tzipi Livni, said they had proposed a “creative solution” on Tuesday that would enable extending talks.

She said Israel was only “suspending” talks and “the door has not been shut today”, stressing the punitive sanctions planned were “measured” and “would not collapse the PA”, the Palestinian Authority.

But Erakat blamed Israel for the talks' collapse, telling AFP: “Netanyahu's government has been asked for years to choose between peace and settlements and it chose settlements.”

He said the Palestinian leadership would “look into all options to respond to Israeli government decisions against the PA”.

Arab League chief Nabil al-Arabi said in a statement the league “fully supports Palestinian president Abbas in facing all the pressures applied on him by Israel”.

US envoy Martin Indyk has repeatedly met both sides to try to salvage the negotiations, and was to meet Abbas in Ramallah later Thursday.

US Secretary of State John Kerry was also set to talk to Abbas by phone after Washington said it was “disappointed” by the Palestinian deal.

Abbas says he will not extend the negotiations unless Israel agrees to freeze all settlement construction in the occupied West Bank, including annexed east Jerusalem, and frees Arab prisoners earmarked for release this month.

He has also demanded an immediate start to negotiations on the future borders of the Palestinians' promised state.

'Palestinian conditions unacceptable'

Israel has dismissed all three conditions as unacceptable.

Jibril Rajub, a Fatah leader, told AFP that “the next national consensus government will proclaim loud and clear that it accepts the Quartet's conditions”.

The Middle East Quartet demands that Hamas recognise Israel and existing agreements between it and the PLO, and renounce armed struggle.

Washington warned Wednesday that the Palestinian deal threatened to scupper any chance of rescuing the talks.

“It's hard to see how Israel can be expected to negotiate with a government that does not believe in its right to exist,” State Department spokeswoman Jen Psaki said.

Abbas's writ has effectively been confined to autonomous areas of the Israeli-occupied West Bank since Hamas evicted his loyalists from Gaza in 2007.

Hamas agreed to the formation of a joint administration under his leadership within five weeks.

Similar past agreements have been reached but not implemented.

When Hamas won Palestinian parliamentary elections in 2006, the European Union and the United States said they would deal with a government in which it participated only if it renounced violence and recognised Israel and past peace deals.

The EU on Thursday welcomed the unity accord, but said its “top priority is that the current talks continue beyond April 29”.

Meanwhile in Gaza, Palestinian militants detonated an explosive device along the border fence, Israel's military said, adding: “Forces at the scene responded towards suspicious targets.”