Israel has halted the peace talks in the wake of Wednesday’s decision by Palestinian factions Fatah and Hamas to sign a reconciliation agreement.

Following a cabinet meeting on Thursday, Israeli Prime Minister Benjamin Netanyahu released a statement saying: “The cabinet today unanimously decided that Israel will not negotiate with a Palestinian government backed by Hamas, a terrorist organisation that calls for Israel’s destruction.

“In addition, Israel will respond to unilateral Palestinian action with a series of measures.”

These responses could include speeding up the construction of settlements or suspending tax transfers to the Palestinian Authority.

Previous attempts at unity between Fatah and Hamas have collapsed, and a final agreement for new elections in both the West Bank and Gaza Strip is still a long way off.

Senior Israeli officials have said that the government wanted to see if the Hamas-Fatah grouping would accept the Middle East Quartet’s conditions of recognising Israel, setting aside violence, and honouring past agreements between Israel and the PA before agreeing to re-enter negoatiations.

The European Union said that it welcomed the Palestinian reconciliation deal, and told Haaretz that it was "an important step towards a two-state solution”.