Israel on Wednesday declared the Gaza Strip an enemy entity, paving the way for the Jewish state to cut off vital electricity, water and fuel to the Hamas-run territory.
Hamas described the move as a declaration of war with an aim to starve Palestinians to force them to accept Tel Aviv's demands.
Israel's security cabinet approved imposing sanctions on the coastal territory in response to regular rocket attacks on Israel by militants, but Defence Minister Ehud Barak ruled out a large-scale military operation for the time being.
The decision, which is blamed on Hamas' hostile activity towards Israel, comes as US Secretary of State Condoleezza Rice was visiting the region to revive Israeli-Palestinian peace talks ahead of the Middle East peace conference later in 2007.
The move would lead to closure of border crossings, which will be opened only to allow in essential food and medical supplies to the Strip, home to 1.5 million Palestinians who rely almost entirely on Israel for water and power.
However, Defence Minister Ehud Barak has ruled out a major incursion into Gaza, ignoring widespread calls for military action following last week's rocket attack on an Israeli army base in which 69 soldiers were injured.
"We do not need to be goaded or persuaded to act in Gaza. We will act there after we have exhausted all other efforts. It is not yet time for a wide reaching operation in Gaza," Barak said during the security cabinet meeting.
"We must not get carried away. We must maintain our clam and plan meticulously for every possible action. We will launch an operation when the time necessitates it and not just to blow off steam," he said.
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